Offshore Voluntary Disclosure and Tax Compliance

Our team of experienced tax attorneys can help you become compliant with the Internal Revenue Service and minimize or eliminate your exposure to any offshore penalties and other problems.

Offshore Voluntary Disclosure Representation

One option individuals who have unreported foreign bank accounts and have underreported or failed to disclose foreign source income may be eligible to participate in is the Internal Revenue Service Offshore Voluntary Disclosure Program (OVDP).  In order to participate in the OVDP, participants must pay all delinquent federal taxes and interest for the past eight years.  The participant must also disclose any previously undisclosed interests in foreign bank accounts on a FBAR informational return and Form 8938 (Statement of Specified Foreign Financial Assets(FATCA)).  When  participating in the OVDP, a 27.5 percent penalty is calculated against the participant’s offshore accounts and unreported foreign income producing assets.  In certain situations, some individuals are eligible for 5 or 12.5 percent penalties.  If accepted into the OVDP, participants can generally avoid criminal prosecution, in exchange for participating in the OVDP, and are subject to significantly reduced penalties.  Our international tax attorneys routinely represent individuals through the Internal Revenue Service Offshore Voluntary Disclosure Program.  After submitting tax returns through the OVDP, we advise our clients whether to accept the OVDP penalty or to opt out of the OVDP penalty framework.

However, the Offshore Voluntary Disclosure Program may not be appropriate for every individual with previously undisclosed foreign financial assets, income, or foreign financial accounts.  Whether or not an individual should participate in the OVDP depends on the individual facts and circumstances.  In certain cases, individuals who did not intend to defraud the IRS but instead failed to disclose their foreign accounts or assets as a result of a mistake, may make a disclosure to the IRS outside the OVDP framework and be eligible for a significant reduction or elimination of offshore penalties.  In other cases, individuals considering participation in the OVDP must consider the program’s risks.  Two recent cases demonstrate the risks associated with the OVDP.

First, the IRS recently disqualified U.S. taxpayers with accounts at Bank Leumi from participating in the OVDP without explanation.  Although the IRS ultimately reversed its position and readmitted the individuals that were previously disqualified from the OVDP, the IRS’ ability to simply disqualify any participant from the OVDP demonstrates one ofthe dangers of participating in the OVDP.

The risks of participating in the OVDP were also recently more clearly exemplified in the Ty Warner case.  In the case of Ty Warner, the founder of Beanie Bag and a member of the Forbes 400 richest Americans, he entered into the OVDP only to be rejected for unknown reasons.  The IRS then used the information provided by Ty Warner to ultimately prosecute him.  Ty Warner now faces millions of dollars in penalties and a is a convicted felon for life.

What individuals with interests in previously undisclosed foreign financial accounts, previously undisclosed foreign income, and previously undisclosed foreign financial assets need to be aware of is that; all individuals are afforded certain constitutional rights.  These include protections against self-incrimination (5th Amendment), unreasonable search and seizure (4th Amendment), and against excessive fines (8th Amendment).  In many cases, these constitutional protections disappear once an individual enters the OVDP.  Anyone considering entering into the OVDP must understand that it can be a risky strategy to voluntarily contact the IRS without the benefit of transactional or use immunity.  Individual seeking to enter into the OVDP must carefully consider and plan their disclosure.

It’s also important to note that in the current environment, some individuals do not have the luxury of “planning” how to best make a disclosure to the IRS because their names have already been disclosed to the IRS or are about to be disclosed to the IRS.  Some of these individuals may not be eligible to participate in the OVDP, either because their name was already disclosed to the IRS, or because of some previous conduct that disqualifies them from participating in the OVDP.  Even though participation in the OVDP may not be possible in these situations, it still may be beneficial to contact the IRS or the Department of Justice.

A significant percentage of our practice is dedicated to offshore compliance issues.  Our international tax attorneys handle a wide variety of cases ranging from complex cases to relatively simple cases.  We have successfully represented hundreds of clients in the last four offshore voluntary disclosures offered by the Internal Revenue Service.

Whatever the case, our team of international tax attorneys carefully analyzes each case and advises our clients how to best make disclosures to the IRS, while making certain our clients’ constitutional and other rights are protected.

If you have unreported foreign income and/or unreported foreign bank accounts and other assets, contact Moskowitz, LLP and we will advise you how to minimize or eliminate your exposure to criminal and civil penalties.

Offshore Banking Representation in IRS Civil Audits and Criminal Investigations

Our international tax attorneys also are available to assist individuals who are being audited by the Internal Revenue Service relating to undisclosed foreign income or offshore banking.  Our international tax attorneys’ “high degree of in the trenches” experience, in these extremely complex areas that are unknown to so many, enable us to effectively represent our clients dealing with Internal Revenue Service auditors, criminal investigators, or federal prosecutors.  Our attorneys have been the trial counsel in a number of matters involving offshore tax compliance and offshore penalty cases.  If you are currently being audited by the IRS or investigated by the U.S. government, please call us to arrange a consultation with an international tax attorney.  We will aggressively advocate on your behalf to protect your freedom and assets.

Foreign Tax Compliance

To prevent compliance issues, our international tax attorneys and certified public accountants have extensive experience in advising our clients on how to properly disclose their foreign transactions when preparing their U.S. tax returns including the following areas:

  • Passive Foreign Investment Company Reporting (“PFIC”) on Internal Revenue Service Form 8621.  We advise our clients regarding making Qualified Electing Fund (“QEF”) and Mark-to-Market elections, which must be timely made to can avoid an extremely harsh tax treatment.
  • Preparation of Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR).
  • Form 8938, Statement of Specified Foreign Financial Assets (FATCA).
  • Form 3520, Annual Return to Report Transactions with Form Trusts and Receipt of Foreign Gifts.  In regards to preparing Form 3520s, we advise clients on how to properly disclose Canadian Registered Retirement Plans, including: Registered Retirement Savings Plans “RRSP,” Registered Retirement Income Funds “RRIFs,” Canadian Profit Sharing Pension plans “PSPs,” United Kingdom Employer-Financed Retirement Benefits Scheme “EFURB” or “EFRBS,” and Australia Superannuation accounts.
  • We advise clients with interests in foreign corporations if Form 5471s are required to be filed.  If they are required to be filed, we prepare the necessary Forms.

Representation of Financial Institutions before the United States Government

Moskowitz, LLP’s team of international tax attorneys also consult with and represent foreign financial institutions and foreign financial advisors.  We can counsel any foreign financial advisor potentially facing penalties in the U.S. in regards to the advice provided to U.S. account holders.

Also on August 29, 2013, the U.S. offered a Voluntary Disclosure Program for Swiss Banks to resolve previously undeclared income from U.S. account holders.  We expect the U.S. government to expand the voluntary disclosure to financial institutions outside of Switzerland.  Our international tax attorneys are available to consult with any Swiss or foreign financial institution in regards to the compliance requirements necessary to enter into the new Voluntary Disclosure Program.

Conclusion

Whatever your foreign situation, whether you have just discovered that you may have inadvertently violated some harsh laws that you never heard of, if in retrospect, you may have made some past mistakes, or if you are looking for tax planning advice to remain compliant; Moskowitz, LLP has the experience to obtain the best possible results no matter what your case and circumstances.

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