Articles Posted in FBAR Violations

In January I appeared on a panel with several other tax lawyers at the 2012 University of Southern California Tax Institute. One of the topics was Quick Tips on Offshore Bank and Financial Accounts. The presentation was intended for tax attorneys, CPAs, and other tax professionals. However, anyone who has FBAR issues including the non-filing of the Foreign Bank Account Report, TDF 90-22.1 may find the outline that I distributed at the meeting to be helpful. For that reason I have posted a copy of the outline on our website.

The outline includes a look at the various options open to taxpayers who have failed to file FBARs, and some of the factors that our tax lawyers consider in advising clients on how to proceed.
Continue Reading ›

In a little noticed development, Switzerland’s oldest private bank Clariden Leu has informed some of its U.S. clients that it has been ordered to turn over their names, and offshore bank account information to the IRS. Clariden Leu posted a notice on its website dated Nov. 29, 2011 to that effect. This is bad news for U.S. offshore account owners who have not previously made a voluntary disclosure to the IRS. Such individuals run the risk of the IRS filing criminal tax fraud charges against them, or criminal charges related to willful FBAR violations. Alternatively, only civil tax fraud or other penalties may be involved, but the FBAR penalties alone could far exceed the balances in the offshore accounts.

The notice refers to a U.S. treaty request apparently covering U.S. beneficial owners of beneficial accounts at Credit Suisse AG, Neue Aargauer Bank AG, and Clariden Leu. Also in November Credit Suisse announced that it is in the process of integrating Clariden Leu’s operations into Credit Suisse. The treaty request appears to be limited to U.S. account holders who hold their accounts through “domiciliary companies.”

The notice also points out that although the account holders have appeal rights to the SFTA (Swiss Federal Tax Authority) attempts to block the turnover of information to the IRS may require compliance with 18 USC Section 3506. That section provides that:

“…any national or resident of the United States who submits, or causes to be submitted, a pleading or other document to a court or other authority in a foreign country in opposition to an official request for evidence of an offense shall serve such pleading or other document on the Attorney General at the time such pleading or other
document is submitted.”

The notice correctly observes that anyone in this situation should consult with a qualified attorney concerning any obligations under Section 3506.

Obviously serving the Attorney General would defeat the whole purpose of filing an appeal with the SFTA since the owner of the account would then become known to the IRS. Interestingly 18 USC section 3506 does not on its face appear to provide any sanctions for failure to obey its terms. However, at least one federal prosecutor has publicly stated that he would seek to charge anyone violating 18 USC section 3506 with obstruction of justice.
Continue Reading ›

According to press reports Credit Suisse, Basler Kantonalbank, Julius Baer, HSBC Switzerland and seven other Swiss banks are poised to turnover data related to U.S. persons suspected of tax evasion or Foreign Bank Account Reporting (FBAR) violations. The story was published on December 18th in SonntagsZeitung, a Swiss newspaper. Supposedly the banks had until Dec. 20th to accept the offer, and that three of the banks have been given until Dec. 31st to turn over the information. Those Swiss banks who accept the deal would be assured immunity from criminal prosecution, and would pay a fine. According to “one insider” the banks are unlikely to turn down the deal.

Since there has been no confirmation from either the Swiss banks or the IRS it is unclear whether the story is true. The deadlines don’t seem realistic, however. In the view of our tax attorneys it would be unlikely that the Swiss banks could comply with turning over documents that quickly, and there would have to be notification of the clients, and an opportunity to appeal if past experience with the UBS settlement is any guide.

Still it is a reminder that in all likelihood that at least the larger Swiss banks will be turning over the names of their U.S. account holders to the IRS sometime in the not too distant future. Those U.S. persons who still have undisclosed Swiss bank accounts, or for that matter any offshore financial accounts would do well to consider whether to make a voluntary disclosure before the choice is made for them.
Continue Reading ›

IRS Fact Sheet 2011-13 (FS -2011-13) has been heavily touted (mostly in the Canadian Press) as providing FBAR (Foreign Bank Account Report) relief for dual U.S. citizens abroad. However, in the view of our tax attorneys it simply reiterates existing law. As readers of the Tax Problem Attorney Blog are aware, U.S. persons with offshore bank accounts with a balance of greater than $10,000 are required to file a Foreign Bank Account Report (aka FBAR) with the Internal Revenue Service annually. Penalties for failure to file the FBAR can be draconian. In addition U.S. citizens living in foreign countries are required to file U.S. tax returns reporting their worldwide income. Penalties for failure to file a tax return may also be imposed.

FS-2011-13 states that no penalties will be imposed for failure to file a tax return or failure to pay tax if no tax is owed. Well big deal! If you don’t owe taxes then there is no failure to pay penalty. Since both the failure to pay tax penalty, and the failure to file penalty are based upon a percentage of the taxes owed this is not a concession by the IRS. FS-2011-13 does not state that if no taxes are owed no FBAR penalty will be applied!

Instead FS-2011-13 points out that if “reasonable cause” is determined to exist by the IRS then there will be no penalty. Again this is no change from the IRS’ current position. The devil is of course is in the details. The IRS lists various factors that might go into to the determination. Here we quote:

Factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account. There may be factors in addition to those listed that weigh in favor of a determination that a violation was due to reasonable cause. No single factor is determinative.

Factors that might weigh against a determination that an FBAR violation was due to reasonable cause include whether the taxpayer’s background and education indicate that he should have known of the FBAR reporting requirements, whether there was a tax deficiency related to the unreported foreign account, and whether the taxpayer failed to disclose the existence of the account to the person preparing his tax return. As with factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause, there may be other factors that weigh against a determination that a violation was due to reasonable cause. No single factor is determinative.

Let’s break this down a bit. In virtually all cases the tax preparer was not informed of the existence of the offshore bank account. As to a small tax deficiency, in the context of the Offshore Voluntary Disclosure Program (OVDP), the IRS routinely took the position that even a zero tax deficiency did not mean it would impose no penalty. If the IRS is changing its tune that is good news, but what does it mean for those persons who signed binding closing agreements with the IRS because they were threatened with penalties in excess of the balance in the account?

Example 4 is interesting. Here it is:

Taxpayer is a United States citizen who lives and works in Country B as a computer programmer. Taxpayer has checking and savings accounts with a bank that is located in the city where he lives. The aggregate balance of the checking and savings accounts is $50,000 during the tax year. Taxpayer complied with Country B’s tax laws and properly reported all his income on Country B tax returns. Taxpayer failed to file federal income tax returns and failed to file FBARs to report his financial interest in the checking and savings accounts. After reading recent press and thus learning of his federal income tax return and FBAR reporting obligations, Taxpayer filed delinquent FBARs, reporting both foreign accounts, and attached statements to the FBARs explaining that he was previously unaware of his obligation to report the accounts on an FBAR. Taxpayer also filed federal income tax returns properly reporting all income and no tax was due. The IRS will determine whether the FBAR violation was due to reasonable cause based on all the facts and circumstances. Taxpayer had a legitimate purpose for maintaining the foreign accounts, there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and no tax was due. Taxpayer’s explanation for why he failed to timely file an FBAR appears reasonable in view of the facts and circumstances of the case. Since the IRS determined that the FBAR violation was due to reasonable cause, no FBAR penalty will be asserted.

First this Taxpayer has no tax liability. This will not generally be the case unless the foreign jurisdiction tax rates are higher than the U.S., or the Taxpayer has no income for which the foreign earned income exclusion is not available. Also this Taxpayer had a relatively small account balance. What about the more successful taxpayer who had $200,000 or $1,000,000 in his account? This Taxpayer had his accounts in the “same city” as the city where he lived. What about the UK citizen who has an account in the Isle of Mann to legally avoid income tax in the UK? Will she fare as well, or will that be seen by the IRS as an indication of intent to conceal the existence of the account? What about the occupation of computer programmer? What if the Taxpayer were an attorney, but not a tax attorney? Will that person be assumed to have an education and background so that he “should have known” about the FBAR filing requirements?

Only time will tell, but the point is that news reports stating that the IRS is providing FBAR relief for dual citizens is premature.
Continue Reading ›

The Swiss Federal Tax Authority (SFTA) has ordered Credit Suisse to submit offshore bank account information in response to an IRS request for assistance, according to a New York Times article. Credit Suisse has notified some of its offshore account holders by letter about the order. Apparently the order is not directly related to the IRS negotiations going on with approximately 11 Swiss banks to turnover the names of all of their U.S. clients. Instead, it appears from the New York Times article that these requests relate to individuals who the IRS already has reason to believe have foreign bank accounts. If that is the case then it may be too late for these individuals to file a voluntary disclosure with the IRS to attempt to escape criminal penalties. Still in some cases a late voluntary disclosure is better than no disclosure. Without a detailed examination of all of the facts and circumstances there is no way of advising someone as to the best path to take.

Although account holders may appeal the SFTA decision, the act of doing so requires that they notify the U.S. government that an appeal has been filed. Failure to do so could result in separate penalties. Sort of a catch twenty two.

The SFTA order to Credit Suisse highlights the noose that the IRS is attempting to tighten around the neck of offshore account holders who failed to file their Foreign Bank Account Reports (FBAR) on TDF 90-22.1. The civil penalty for willfully failing to file the FBAR can be up to 50% of the account balance so even if no jail time ensues it is still a very expensive proposition.
Continue Reading ›

The IRS issued a news release on Sept. 15th headlined “IRS Shows Progress on International Tax Evasion.” IRS Commissioner Shulman was quoted as saying: “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.” Shulman noted that the IRS has increased its efforts to prosecute criminal tax cases involving international tax fraud. The release goes on to state that the IRS’ Offshore Voluntary Disclosure Program (OVDP), and its recently closed Offshore Voluntary Disclosure Initiative (OVDI) has provided the IRS with “a wealth of information on various banks and advisors assisting people with offshore tax evasion…”

The key thing here for anyone who has an unreported offshore bank account is that last quote about the information the IRS has gathered about advisors assisting people with offshore tax evasion. It is getting more and more dangerous to own an undisclosed foreign bank account. While the IRS will never be able to find more than a small percentage of the folks who have an unreported income from offshore bank accounts it is clear that for those that do get caught the stakes are very high. Jail time for criminal tax violations, or failure to file Foreign Bank Account Reports, TDF 90-22.1 (FBARs), and ruinous civil penalties including a penalty equal to the greater of $100,000 or of 50% of the balance in the offshore account per year.

While the time for making a voluntary disclosure under the OVDI program has expired it is still possible to make voluntary disclosure and avoid criminal prosecution; it may also be possible to cut a better deal with the IRS on any civil penalties, by coming forward voluntarily. Penalties for non-willful violations may cap out at $10,000 per year, and it is easier to argue that a violation is non-willful if a taxpayer comes forward voluntarily then if he is caught as the result of a foreign bank turning him in to the IRS.
Continue Reading ›

The Supervisor of Banks at the Bank of Israel and the supervisory authorities in the US–signed a Statement of Cooperation. The Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the U.S. or Israel, and in the context of their ongoing function as regulators of banking activity.

The announcement didn’t specifically mention FBARs, or foreign bank accounts, however, it appears that this will be just one more avenue for the Internal Revenue Service to pursue in locating U.S. citizens who have unreported bank accounts in Israel. According to the press release the Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

When added to the ongoing grand jury investigations of Israeli banks, and the implementation of FATCA in 2013 it demonstrates the danger of continued non-reporting of foreign bank accounts-especially for dual Israeli citizens.
Continue Reading ›