Monday, December 28, 2015

Disclosing Foreign Accounts -- Streamlined Foreign Offshore Procedures (SFOP) | Bethesda Tax Lawyer

As I previously discussed, in addition to the OVDP, the IRS offers the Streamlined Filing Compliance Procedures. These procedures consist of two programs, one for US tax residents/citizens living in the United States (Streamlined Domestic Offshore Procedures), and a separate program for US tax residents living abroad (the Streamlined Foreign Offshore Procedures, SFOP).  This post will discuss the foreign procedures. 

The requirements for the SFOP are very similar to those for the SDOP. The two primary differences are, first the offshore penalty is zero, and second the IRS has a non-residency requirement. 

Eligibility for SFOP

To enter the SFOP, the IRS requires that a taxpayer: 
  1. Non-residency --during the previous three tax years the individual has lived outside the United States for 330 or more days and did not maintain an abode in the USA
  2. Has filed tax returns for the previous three years; 
  3. Has not reported income from foreign accounts, assets, entities, etc.;
  4. Has not reported the said foreign assets on the FBAR and other required informational federal tax returns; and
  5. She must certify that the failure to report these assets was due to non-willful conduct. 
The general concern with entering the SFOP is that the taxpayer must certify under the penalties of perjury that her non-reporting of foreign assets was non-willful. Additionally, entrance into the SFOP does not provide immunity from criminal prosecution. 

Willfulness

Entry into the SFOP requires taxpayer certification, under the penalties of perjury, that the failure to report foreign accounts/assets was due to non-willful behavior. The IRS defines non-willful conduct as "conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law." While this definition seems pretty straight forward, it is very nuanced. Moreover, the IRS has intentionally not provided additional guidance on how to interpret the definition, nor has it provided examples of this behavior.  

Another complication to this definition is that it does not address willful blindness.  Willful blindness in the simplest of terms means that a taxpayer should have known to research the filing requirements, but failed to make this inquiry. The test for willfulness is a very fact and circumstances based analysis requiring careful judgment. I will write a separate post about willfulness in a few weeks.      


Required Documents for Entry into the SFOP

  1. Amended tax returns for the three most recent tax years that includes any unreported foreign income and unfiled informational returns; 
  2. The six previous years of FBARs; 
  3. Form 14654; Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures; and
  4. A check for any unpaid taxes and interest from the amended returns and a separate check for the offshore penalty. 

Penalties

  1. 0% penalty based upon the year-end balances of the foreign accounts and assets. 
  2. Unlike the OVDP, the SFOP does not assess penalties on the unpaid taxes.

Dealing with offshore accounts can be a complicated matter, and not selecting the correct disclosure method could have significant long-term repercussions on penalties.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

Tuesday, December 15, 2015

The FAST Act May Slow Your Travel Plans if You Have Tax Debt | Bethesda Tax Lawyer

The recently enacted Fixing America's Surface Transportation Act (FAST) was signed into law on December 4, 2015.  The FAST Act includes a few provisions that are relevant to taxpayers if they owe back taxes.  The two provisions that will affect the most people are, first, that the IRS can request that the Secretary of State revoke or deny a passport for individuals with a "seriously delinquent tax debt."  Second, the bill requires the IRS to hire private debt collections for certain types of debt. 

Under the section, a seriously delinquent tax debt is defined as $50,000 in assessed taxes, interest, and penalties for which a lien has been filed.  The bill does provide for exceptions to the international travel ban if the debts are being paid in a timely manner (e.g. the taxpayer has requested an installment agreement, offer-in-compromise, or innocent spouse relief).  Further, the taxpayer may file suit in the tax court or district court to determine whether the certification of the seriously delinquent was erroneous.  

If you have questions about the FAST act you should contact a tax professional.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

Friday, November 27, 2015

Disclosing Foreign Accounts -- Streamlined Domestic Offshore Procedures (SDOP) | Bethesda Tax Lawyer

In addition to the OVDP, the IRS offers the Streamlined Filing Compliance Procedures. These procedures consist of two programs, one for US tax residents/citizens living in the United States (Streamlined Domestic Offshore Procedures), and a separate program for US tax residents living abroad (the Streamlined Foreign Offshore Procedures).  This post will discuss the domestic procedures.  

Eligibility for SDOP

To enter the SDOP, the IRS requires that a taxpayer: 
  1. Is a US tax resident or citizen who resides in the United States; 
  2. Has filed tax returns for the previous three years; 
  3. Has not reported income from foreign accounts, assets, entities, etc.;
  4. Has not reported the said foreign assets on the FBAR and other required informational federal tax returns; and
  5. She must certify that the failure to report these assets was due to non-willful conduct. 
The general concern with entering the SDOP is that the taxpayer must certify under the penalties of perjury that her non-reporting of foreign assets was non-willful. Additionally, entrance into the SDOP does not provide immunity from criminal prosecution. 

Willfulness

Entry into the SDOP requires taxpayer certification, under the penalties of perjury, that the failure to report foreign accounts/assets was due to non-willful behavior. The IRS defines non-willful conduct as "conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law." While this definition seems pretty straight forward, it is very nuanced. Moreover, the IRS has intentionally not provided additional guidance on how to interpret the definition, nor has it provided examples of this behavior.  

Another complication to this definition is that it does not address willful blindness.  Willful blindness in the simplest of terms means that a taxpayer should have known to research the filing requirements, but failed to make this inquiry. The test for willfulness is a very fact and circumstances based analysis requiring careful judgment. I will write a separate post about willfulness in a few weeks.      


Required Documents for Entry into the SDOP

  1. Amended tax returns for the three most recent tax years that includes any unreported foreign income and unfiled informational returns; 
  2. The six previous years of FBARs; 
  3. Form 14654; Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures; and
  4. A check for any unpaid taxes and interest from the amended returns and a separate check for the offshore penalty. 

Penalties

  1. 5% penalty based upon the year-end balances of the foreign accounts and assets. 
  2. Unlike the OVDP, the SDOP does not assess penalties on the unpaid taxes.

Dealing with offshore accounts can be a complicated matter, and not selecting the correct disclosure method could have significant long-term repercussions on penalties.  For a free consultation on these and other tax-related matters, please contact 
The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

Monday, November 9, 2015

Disclosing Foreign Accounts -- Disclosing Foreign Accounts -The OVDP | Bethesda Tax Lawyer

The IRS created four programs to resolve your undisclosed foreign accounts and entities for individuals.  These programs are the Offshore Voluntary Disclosure (OVDP); Streamlined Filing Compliance Offshore Procedures for foreign or domestic US Tax residents (SFOP and SDOP, respectively); Delinquent FBAR Submission Procedures; and the Delinquent Internation Informational Return Submission Procedures.  This post will focus on the requirements for the OVDP.  My posts in the upcoming weeks will discuss the other programs.

OVDP

Eligibility for OVDP

The IRS has the following requirements to enter the OVDP:

1) The funds of the undisclosed foreign accounts and entities must be from legal sources.   

2) The OVDP is available only to address a taxpayer’s personal liability. 

3) Individuals who facilitated the tax noncompliance of others are not eligible to participate in OVDP.

4) A taxpayer must cooperate with the IRS in determining his/her correct tax liability;


5) The taxpayer needs to make good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. (An IRS payment plan is permitted if you are unable to pay the balance due at the time the OVDP submission.); and


6) The taxpayer is not under an IRS civil audit/examination or criminal investigation. (The IRS permits a taxpayer to submit a preclearance request to determine whether he is under investigation by the IRS and eligible for the OVDP.)

Willfulness

The OVDP does not require a taxpayer to certify that he was non-willful in his tax non-compliance, failure to file FBARs and information returns.  The other programs all require a certification that the failure to file said forms was non-willful. 

Submission Requirements

To satisfy the requirements of the OVDP, the taxpayer will have to submit an OVDP letter and attachments; eight years of corrected income tax returns, FBARs, and any unfiled informational returns; a check to pay the taxes, penalties and interest; and a separate check to pay the offshore penalty.  There may be additional documents depending on the size of the accounts/assets. 

OVDP Penalties 

There are two penalty regimes under the OVDP: 

1) 50% - A 50% offshore penalty applies if either the taxpayer's foreign financial institution or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.  The 50% penalty applies to all assets including those that are at different institutions, and the 50% penalty applies even if the asset has been moved to a different bank or brokerage.

The list of foreign banks and facilitators subject to the 50% penalty can be found here


2) 27.5% - The 27.5% penalty applies to all other taxpayers.  

The 27.5% and 50% penalties applies to the year with the highest aggregate balance off all accounts during the eight year OVDP period.  

3) In addition to the OVDP penalty, there is a 20% penalty and interest on past due balances. 

Dealing with offshore accounts can be a complicated matter, and not selecting the correct disclosure method could have significant long-term repercussions on penalties.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

Monday, September 14, 2015

Corporate, Partnership, and Trust Returns are Due September 15

Just a friendly reminder, if you filed an extension for your corporation, partnership or trust, the returns are due September 15.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you have a requirement to file this form contact a tax professional.

Monday, June 29, 2015

FBAR is Due June 30th

This post is a friendly reminder that your 2014 FBARs (FinCEN Form 114) is due June 30th.  If you are a US resident for tax purposes and you have foreign assets, there is a good chance you need to file this form.

The FBAR is now filed electronically on the BSA website. You can find the form and filing instructions, here.

The penalties failing to file the FBAR are steep.  If you have any foreign accounts and do not think you are required to file; at least contact someone to verify that you are correct.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you have a requirement to file this form contact a tax professional.