Let’s learn a bit more about the Government’s ability to collect on old debts.
Unlimited Time to Collect Government Debt by Offset
Due to a change in the law, the US Government now has the ability to
collect, by way of “administrative offset”, debts owed to it for an
unlimited time period. Under prior law, if the debt was not collected
within 10 years, the statute of limitations barred the Government from
pursuing the claim. The 10 year statute of limitation has been modified
by Public Law Public Law 110-246 Section 14219 to
allow administrative offsets after the general 10 year expiration
period has run. It has been reported that the Treasury Department has
collected close to US$2 billion in intercepted tax refunds in 2014 with
$75 million of that on debts that were delinquent for over 10 years.
What does this mean if you owe taxes to Uncle Sam and the tax
assessment is over 10 years old? Can the IRS still collect the taxes
due?
The IRS cannot levy or seize a taxpayer’s assets after the 10-year
statute has run, but the IRS will be able to take future tax refunds as
an administrative offset against the debt without a limitation on time
period. It is unclear to me to what extent the IRS may be able to take
amounts owed by another Government agency to the individual taxpayer as
an offset for delinquent taxes (for example, can the IRS take social
security payments owed to an individual in order to offset tax
liabilities beyond the 10-year statute of limitation period?). This is
apparently a complicated area. Certain Federal payments are statutorily
exempt from offset. Other payments may be exempted from offset by the
Secretary of the Treasury (Secretary) upon the request of the Federal
agency which issues the payments. Upon the request of the head of an
agency, the Secretary is required to exempt payments made under
“means-tested programs,” and may exempt other classes of payments under
standards prescribed by the Secretary. The standards must “give due
consideration to whether administrative offset would tend to interfere
substantially with or defeat the purposes of the payment certifying agency’s program.” More information on this complex topic can be found here.
Monday, June 30, 2014
Why does Senator Reed propose such legislative modifications?
Senator Reed’s shadow looms large, at least theoretically, over anyone considering renouncing their United States citizenship.
The 1996 Reed Amendment which is part of the immigration law (Title 8), but not the tax law (Title 26) - - has never been invoked by the federal government to bar reentry of a former U.S. citizen in its history (even when it was relevant from the mid 1990s through the following two decades).
This past week Senator Reed was a sponsor of a new
appropriates bill for the Department of Homeland Security; the “2015 Homeland Security”
bill that provides for US$47.2B (billion) in appropriates for a range
of spending; such as $10.2B for the Coast Guard, $5.5B for Immigration
and Customs Enforcement (ICE), $1.6B for the Secret Service, among other
spending items.
Senator Reed is identified in his own website as ” . . . A member of the powerful Appropriations Committee, which controls the purse strings of the federal government, Reed has been described by the Boston Globe as “a relentless advocate for his home state.” -
Within Senator Reed’s “2015 Homeland Security” proposed amendments, he apparently introduces a new provision to the immigration law – which is explained in his website as -
Where is the benefit for expats from this government for all of this? Do they receive free healthcare? No. Do they receive world class education for their children ? No. Do they receive any kind of guaranteed income should they loose their jobs ? No.
No, instead, they have a country which is the only one in the world next to Eritrea to tax its overseas citizens
The 1996 Reed Amendment which is part of the immigration law (Title 8), but not the tax law (Title 26) - - has never been invoked by the federal government to bar reentry of a former U.S. citizen in its history (even when it was relevant from the mid 1990s through the following two decades).
This past week Senator Reed was a sponsor of a new
appropriates bill for the Department of Homeland Security; the “2015 Homeland Security”
bill that provides for US$47.2B (billion) in appropriates for a range
of spending; such as $10.2B for the Coast Guard, $5.5B for Immigration
and Customs Enforcement (ICE), $1.6B for the Secret Service, among other
spending items.Senator Reed is identified in his own website as ” . . . A member of the powerful Appropriations Committee, which controls the purse strings of the federal government, Reed has been described by the Boston Globe as “a relentless advocate for his home state.” -
Within Senator Reed’s “2015 Homeland Security” proposed amendments, he apparently introduces a new
provision to the immigration law – which is explained in his website as -- Reed’s provision to help prevent expatriate tax dodgers from reentering the United States calls on DHS to report
within 90 days on their efforts to enforce the law that Senator Reed
authored to prohibit individuals from reentering the United States if
they renounced their citizenship in order to avoid taxes.
Where is the benefit for expats from this government for all of this? Do they receive free healthcare
? No. Do they receive world class education for their children ? No. Do they receive any kind of guaranteed income should they loose their jobs ? No.No, instead, they have a country which is the only one in the world next to Eritrea to tax its overseas citizens
Laura Saunders, The Hazards of Offshore-Account Disclosure (WSJ 6/27/14)
1. People certifying non-willfulness can be a risk of "severe penalties and criminal prosecution."
2. Willful / non-willful is a facts and circumstances test requiring careful judgment.
3. Loser Arguments for Certification of Non-Willfulness:
on a go-forward strategy:
http://online.wsj.com/articles/offshore-account-disclosure-comes-with-hazards-1403908162
2. Willful / non-willful is a facts and circumstances test
requiring careful judgment.3. Loser Arguments for Certification of Non-Willfulness:
Scott Michel, a criminal tax lawyer at Caplin & Drysdale in Washington, says people often assume they weren't willful if they had "compelling emotional reasons for not declaring the account," such as safeguarding assets from expropriation, or that they were told by a relative never to reveal it. "If those are your only reasons, they're losers," he says.4. Evidences / indicia of willfulness include:
having an account in a country with bank secrecy rules; holding the account in a trust, foundation or other entity typically used to conceal ownership; moving the account from a firm under U.S. pressure to another, presumably to avoid disclosure; making large cash5. Size Matters (Maybe, Well Likely but not Certainly):
The amount of money
Mr. Robbins says that although IRS resources6. Evidence of Non-Willful Behavior:
Experts say that evidence of nonwillful behavior could include having a small account7. Following
on a go-forward strategy:While the streamlined program offers a welcome option for many taxpayers with undeclared accounts, other ways to address past noncompliance remain viable, experts say. Both Mr. Robbins and Bryan Skarlatos, a criminal tax lawyer at Kostelanetz & Fink in New York, say they sometimes counsel people with smaller undeclared accounts—say, $500,000 or less—and little evidence of willfulness not to enter a program but simply to file
"I say, 'If it blows up on you, call me,' but none of them ever has," Mr. Robbins says. "The important question is not 'What can the IRS do to me?' but 'What will the IRS want to
http://online.wsj.com/articles/offshore-account-disclosure-comes-with-hazards-1403908162
Sunday, June 29, 2014
IRS live video stream & Q&A - post final FATCA Regulations
Tara Ferris, Attorney - Office of Chief Counsel at the IRS discusses in a
live video stream all you need to know about the final FATCA
regulations and offers future guidance ahead of the 7/1/2014 deadline,
recorded live at the 8th FATCA & Withholding Tax Congress.
https://www.youtube.com/watch?feature=player_detailpage&v=HMqGRip5bWk
https://www.youtube.com/watch?feature=player_detailpage&v=HMqGRip5bWk
FATCA Update: Treasury and IRS Release Wave of Guidance as July 1 Approaches
With the July 1, 2014, implementation date of the Foreign Act Tax Compliance
Act (FATCA) just two days away, the Treasury Department and the
Internal Revenue Service have published long-awaited, and much
anticipated, guidance in a number of important areas over the past week,
as described below:- Instructions for Form W-8BEN-E (see my post from 6/26) , entitled “Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities),” have finally been released (available here).
- Instructions for Form 8966, entitled “FATCA Report,” have been released (available here). From 8966 is used by foreign financial institutions to report information about their U.S. accounts to the IRS.
- Instructions to Form 1042-S (available here). Form 1042-S, entitled “Foreign Person’s U.S. Source Income Subject to Withholding,” is used by withholding agents to report any U.S. source payments or withholding under FATCA.
- Instructions for the Form W-8IMY, entitled “Certificate of Foreign
Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for
United States Tax Withholding and Reporting,” were also published (available here).
- An updated FFI Agreement has been released and posted to the FATCA website (available here). The revised FFI Agreement was published in Revenue Procedure 2014-38, which updates and supersedes the FFI Agreement originally released as Revenue Procedure 2014-13.
In a related development, the IRS also released draft revised instructions to Form 8938 (available here). Form 8938, which is entitled “Statement of Foreign Financial Assets,” is required to be filed by individual taxpayers who have certain foreign assets. This filing requirement, which was imposed as part of the FATCA legislation, has been the law since 2011.
FBAR fundraiser and ethical responsibility of tax lawyers to clients with foreign account problems
It does seem to me, that a practitioner has a first responsibility to their client and not the IRS ! They should present all the various options available for compliance and the risks associated with each, depending on their client’s facts. This doesn’t necessarily mean that they have to covertly compel the client to choose the IRS favorite route over another to reach a compliance objective. I don’t see it as an attorney’s obligation to tell the client they have to join the OVDP, as the only approved route for offshore compliance.
Some lawyers have admitted that they feared being accused of “Circular 230″ violations if they did NOT advise clients to go into OVDP. Really ? So, OVDP lawyer – let me get this straight: You are advising a client to enter OVDP, because you believe that if you don’t, that you are in violation of IRS rules of conduct. What about the ABA rules of professional responsibility? Don’t they require you to disclose all legal options to the client? Don’t they require you to represent the interests of the client? If a client comes to you, who do you think you are representing? The client, the IRS or yourself?
Let me put it this way:
Any person with a license to practise law, who does not educate and counsel the client in terms of all legal options is NOT ACTING AS A LAWYER SHOULD !
“QD with a microphone” is:
- consistent with the Dec 11 FS
- really not much different from “traditional voluntary disclosure”
If you accept that a lawyer has ethical obligations to the client which include:
- determining the client’s facts,
- researching the law,
- advising the client on whatever existing legal options may be available,
- allowing the client to decide which legal option he wants to pursue
- then assisting the client in pursuing the chosen legal option
then a tax lawyer who fails to do this may be guilty of professional negligence. It would be very interesting to have some lawyers comment on what they see as their ethical obligations to the client.
Ethical Representation of Clients With Foreign Account Problems
This is a spinoff question from the thread titled Another FBAR Conviction. Another advisor indicated that his firm’s policy is not to assist clients with so-called quiet disclosures (QDs), at least in connection with foreign assets. As I understand it, they acknowledge that taxpayers have every right to make QDs, but they fear the the Office of Professional Responsibility (OPR) would impose some form of discipline, e.g., because sending in returns “quietly,” hoping no one will notice, seems a bit “sneaky.”
Putting aside the question of whether OPR could justifiably punish tax advisors merely for assisting clients in taking permissible actions they have every lawful right to take, there’s a huge ethical problem here.
My view is that, if a tax advisor (for reasons relating to the tax advisor’s own self-interest) is unwilling to advise his clients of all permissible, legal options that may benefit the client (such a QD), he can’t properly and ethically advise that client.
Some lawyers have admitted that they feared being accused of “Circular 230″ violations if they did NOT advise clients to go into OVDP. Really ? So, OVDP lawyer – let me get this straight: You are advising a client to enter OVDP, because you believe that if you don’t, that you are in violation of IRS rules of conduct. What about the ABA rules of professional responsibility? Don’t they require you to disclose all legal options to the client? Don’t they require you to represent the interests of the client? If a client comes to you, who do you think you are representing? The client, the IRS or yourself?
Let me put it this way:
Any person with a license to practise law, who does not educate and counsel the client in terms of all legal options is NOT ACTING AS A LAWYER SHOULD !
“QD with a microphone” is:
- consistent with the Dec 11 FS
- really not much different from “traditional voluntary disclosure”
If you accept that a lawyer has ethical obligations to the client which include:
- determining the client’s facts,
- researching the law,
- advising the client on whatever existing legal options may be available,
- allowing the client to decide which legal option he wants to pursue
- then assisting the client in pursuing the chosen legal option
then a tax lawyer who fails to do this may be guilty of professional negligence. It would be very interesting to have some lawyers comment on what they see as their ethical obligations to the client.
Ethical Representation of Clients With Foreign Account Problems
This is a spinoff question from the thread titled Another FBAR Conviction. Another advisor indicated that his firm’s policy is not to assist clients with so-called quiet disclosures (QDs), at least in connection with foreign assets. As I understand it, they acknowledge that taxpayers have every right to make QDs, but they fear the the Office of Professional Responsibility (OPR) would impose some form of discipline, e.g., because sending in returns “quietly,” hoping no one will notice, seems a bit “sneaky.”
Putting aside the question of whether OPR could justifiably punish tax advisors merely for assisting clients in taking permissible actions they have every lawful right to take, there’s a huge ethical problem here.
My view is that, if a tax advisor (for reasons relating to the tax advisor’s own self-interest) is unwilling to advise his clients of all permissible, legal options that may benefit the client (such a QD), he can’t properly and ethically advise that client.
U.S. international tax enforcement
Tax evasion is indeed a serious crime, one that warrants both civil and criminal sanctions, but you have to wonder whether it is serious enough to warrant either the current enforcement priority or the approach to enforcement (at least in the offshore space).
For the offshore initiatives, neither Congress nor the IRS are really focussed on tax evasion, money laundering or any other underlying "mala in se." Rather, they are focussing on the "malum prohibitum" and a weak one at that - the mere failure to report. The draconian penalties that come with failure to file the FBAR (or one of the many other required forms such as 3520) are no longer being used as an additional stick to punish someone who has committed tax evasion but rather as a serious crime in and of itself, one that warrants a harsher (at least in civil practise) penalty than the underlying offense of tax evasion/fraud. One has to wonder where this type of enforcement practice fits in a "civilised society".
1. Joint Committee on Taxation, Explanation of Proposed Protocol to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, (JCX-9-14), February 21, 2014, which may be downloaded here .
2. Collection Aspects of International Cases : https://docs.google.com/file/d/0B719qAMBEjGQaGJ0cFhBb2ViWUU/edit?pli=1
3. There is a multilateral treaty, called the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, sponsored by the OECD to which the U.S. is a party.
http://www.oecd.org/tax/exchange-of-tax-information/conventiononmutualadministrativeassistanceintaxmatters.htm
Presently, the United States is a party to more than 60 income tax conventions, more than 20 tax information exchange agreements (“TIEAs”), and more than 50 Mutual Legal Assistance Treaties (“MLATs”). In this network of agreements, exchange of information is not the sole type of assistance that has been agreed upon, but it is the principal form of assistance that the United States has been willing to provide. In its treaties with France, Canada, Sweden, Denmark, and the Netherlands, the United States has specifically agreed to provide mutual assistance in collection, and does so under its Mutual Assistance Collection Program.
For the offshore initiatives, neither Congress nor the IRS are really focussed on tax evasion, money laundering or any other underlying "mala in se." Rather, they are focussing on the "malum prohibitum" and a weak one at that - the mere failure to report. The draconian penalties that come with failure to file the FBAR (or one of the many other required forms such as 3520) are no longer being used as an additional stick to punish someone who has committed tax evasion but rather as a serious crime in and of itself, one that warrants a harsher (at least in civil practise) penalty than the underlying offense of tax evasion/fraud. One has to wonder where this type of enforcement practice fits in a "civilised society".
1. Joint Committee on Taxation, Explanation of Proposed Protocol to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, (JCX-9-14), February 21, 2014, which may be downloaded here .
2. Collection Aspects of International Cases : https://docs.google.com/file/d/0B719qAMBEjGQaGJ0cFhBb2ViWUU/edit?pli=1
3. There is a multilateral treaty, called the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, sponsored by the OECD to which the U.S. is a party.
http://www.oecd.org/tax/exchange-of-tax-information/conventiononmutualadministrativeassistanceintaxmatters.htm
Presently, the United States is a party to more than 60 income tax conventions, more than 20 tax information exchange agreements (“TIEAs”), and more than 50 Mutual Legal Assistance Treaties (“MLATs”). In this network of agreements, exchange of information is not the sole type of assistance that has been agreed upon, but it is the principal form of assistance that the United States has been willing to provide. In its treaties with France, Canada, Sweden, Denmark, and the Netherlands, the United States has specifically agreed to provide mutual assistance in collection, and does so under its Mutual Assistance Collection Program.
Warner is on Government appeal to the 7th Circuit
Defense Spreadsheet in Ty Warner Case.
The spreadsheet is a selective reporting of the sentencing
characteristics of others prosecuted for use of offshore financial
accounts.
https://docs.google.com/file/d/0B0SLTNWD-Z3YYWE3THlCUG14Q3c/edit
https://docs.google.com/file/d/0B0SLTNWD-Z3YYWE3THlCUG14Q3c/edit
Friday, June 27, 2014
Some last minute help with those FBARs
4.26.16.3.7.3 (07-01-2008)
Filing Verification
- Filed FBARs are entered onto the Detroit
Computing Center’s Currency and Banking Retrieval System (CBRS)
database. Filing can be checked by IRS personnel with CBRS passwords.
- A CBRS printout of a filed FBAR establishes that any retained FBAR was actually filed and that the retained FBAR has the same information as the filed FBAR. CBRS printouts should be obtained for both the filer’s name and his TIN.
- Filers can request verification of the FBARs that they filed 60 days after the date of filing. A request for verification of FBAR filing must be made in writing and should include the filer's name, Taxpayer Identification Number, and filing period. There is a $5.00 fee for verifying five or fewer forms and a $1.00 fee for each additional form. If copies are needed, the additional fee is $0.15 per copy. Checks or money orders should be made payable to the United States Treasury. The payment should be mailed to:IRS Detroit Computing Center, P.O. Box 32063, Detroit, MI 48232 Attn.: Verification
The Economist: America’s new law on tax compliance is heavy-handed, inequitable and hypocritical
Taxing America’s Diaspora: FATCA’s flaws
http://www.economist.com/news/leaders/21605907-americas-new-law-tax-compliance-heavy-handed-inequitable-and-hypocritical-fatcas-flawsThis is also a fine article even mentioning the Dutch BinckBank anti-discrimination case.
“Using anti-discrimination laws, a Dutch-American sued a Dutch lender that had pre-emptively shut his account and 149 others; he won the case in April.”
http://www.economist.com/news/finance-and-economics/21605911-americas-fierce-campaign-against-tax-cheats-doing-more-harm-good-dropping
FATCA is turning into a story of persecution and discrimination. Hopefully this will start the debate of should a resident citizen’s private financial data be sent to a foreign power automatically, with no right of recourse, without any notice whatsoever be allowed ? It’s really very simple: citizenship-based taxation is America’s Apartheid system. It is repugnant, immoral and indefensible. Since CBT is so clearly irredeemable, there is really nothing to talk about, unless your intellectual curiosity exists in a profoundly amoral vacuum.
CBT discriminates against a particular group of people on the basis of their place of birth – a characteristic as immutable as the colour of their skin. It labels
them, tracks them, intimidates them, criminalizes them and forces them
into virtual prisons from which escape is nearly impossible. Worse, the
architects of CBT are now co-opting the rest of the world to implement
this discriminatory regime for them. It is astonishing and disheartening
how quickly and easily this is unfolding.Far too many countries, cowed by the 30% withholding stick that the U.S. threatens to beat them with, like the FBAR and OVDP sticks they already beat their CBT victims with, simply refuse to challenge America on fundamental moral grounds and it is wrong.
Thursday, June 26, 2014
Murky Guidance on Whether Digital Currency Must Be Included on the FBAR
The IRS has yet to release any formal
guidance on whether a Bitcoin account is required to be reported on an
FBAR. However, during a recent IRS webinar
entitled “Reporting of Foreign Financial Accounts on the Electronic
FBAR,” an IRS representative stated that taxpayers do not need to
include Bitcoin accounts on their 2013 FBAR. The IRS representative
cautioned that the IRS could change this policy in the future, and we
further caution that any such informal guidance is not binding on the
IRS.
Conversely, a federal district court in California, in a case captioned United States v. Hom, 2014 U.S. Dist. LEXIS 77489 (N.D. CA 2014), recently upheld an FBAR penalty assessment against an individual who failed to report his interest in a FirePay, PokerStars and PartyPoker account. Such decision appears to conflict with the informal IRS guidance on Bitcoin
accounts. Individuals with similar online poker accounts should file an
FBAR if, at any time during 2013, they had $10,000 or more in the
online poker account.
As the use of digital currency continues to increase, the IRS is likely to revisit its guidance and practices. As evident from the recent guidance on Bitcoin and online poker accounts, the rules relating to digital currency are often not intuitive.
Is Bitcoin for You? See the risks, opportunities, & ways to invest in this volatile yet compelling alt currency. http://on.barrons.com/1pHnogY
entitled “Reporting of Foreign Financial Accounts on the Electronic
FBAR,” an IRS representative stated that taxpayers do not need to
include Bitcoin accounts on their 2013 FBAR. The IRS representative
cautioned that the IRS could change this policy in the future, and we
further caution that any such informal guidance is not binding on the
IRS. Conversely, a federal district court in California, in a case captioned United States v. Hom, 2014 U.S. Dist. LEXIS 77489 (N.D. CA 2014), recently upheld an FBAR penalty assessment against an individual who failed to report his interest in a FirePay, PokerStars and PartyPoker account. Such decision appears to conflict with the informal IRS guidance on Bitcoin
accounts. Individuals with similar online poker accounts should file an
FBAR if, at any time during 2013, they had $10,000 or more in the
online poker account.As the use of digital currency continues to increase, the IRS is likely to revisit its guidance and practices. As evident from the recent guidance on Bitcoin and online poker accounts, the rules relating to digital currency are often not intuitive.
Is Bitcoin for You? See the risks, opportunities, & ways to invest in this volatile yet compelling alt currency. http://on.barrons.com/1pHnogY
The government must prove that the defendant acted knowingly and willfully
False Statement Crime :
Willful" simply means that the defendant did the forbidden act e.g., made a false, fictitious, or fraudulent statements deliberately and with knowledge.
It further means at a minimum knowing that the conduct is illegal or acted with knowledge that his or her conduct was unlawful. Now on the bright side or the quintessence of black humor — Certifying non-willfulness - let this conundrum throw what is left of your brain into an infinite entropic loop.
I didn’t know until I knew .....I didn’t know until I knew........I didn’t know until I knew.
The DOJ has indicated and clarified in some briefings that to make the case that a defendant acted "willfully," the government must prove that he or she knew the statement was unlawful — not just that it was false. That requires a state-of-mind element that can be hard to nail down. Defendants often claim they were unaware that lying to the government was illegal, especially in casual conversations or when not under oath.
http://lawprofessors.typepad.com/whitecollarcrime_blog/2014/06/doj-narrows-basis-for-section-1001-prosecutions.html
http://www.justice.gov/tax/readingroom/2008ctm/CTM%20Chapter%2024.pdf
As to the knowingly and willfully element, the CTM says that “several courts” permit the element to be met by proof of “willful blindness” or “conscious avoidance.”
The Supreme Court has recognized an ignorance-of-law or mistake-of-law defense, or has required affirmative proof of the defendant's knowledge that his or her conduct was unlawful. See Bryan v. United States, 524 U.S. 184 (1998); Ratzlaf v. United States, 510 U.S. 135, 141-49 (1994); Cheek v. United States, 498 U.S. 192, 199-201 (1991).
Analysis of W-8BEN-E
Who Must Provide W-8BEN-E?
The Form W-8BEN has been split into two forms. The new 2014 Form W-8BEN (revision date 2014) is for use solely by foreign individuals, whereas the new Form W-8BEN-E is for use by entities for 2014 (revision date 2014) to provide US withholding agents. The newest version of Form W-8BEN-E must be used by all entities that are beneficial owners of a payment, or of another entity that is the beneficial owner.
A foreign entity must submit a Form W-8BEN-E to the withholding agent if it will receive a FATCA withholdable payment, receive a payment subject to chapter 3 withholding, or if it maintains an account with an FFI. W-8BEN-E instructions
W-8BEN
Foreign individuals (non-resident aliens – NRAs) must use Form W-8BEN to document their foreign status and claim any applicable treaty benefits for chapter 3 purposes, including a foreign individual that is the single member of an entity that is disregarded for U.S. tax purposes.
The NRA must give the Form W-8BEN to the withholding agent or payer if he/she is the beneficial owner of an amount subject to withholding, or if he/she an account holder of an FFI then to the FFI to document his/her status as a nonresident alien. Note that a sole member of a “disregarded” entity is considered the beneficial owner of income received by the disregarded entity, and thus the sole member must provide a W-8BEN.
The Form W-8BEN has been split into two forms. The new 2014 Form W-8BEN (revision date 2014) is for use solely by foreign individuals, whereas the new Form W-8BEN-E is for use by entities for 2014 (revision date 2014) to provide US withholding agents. The newest version of Form W-8BEN-E must be used by all entities that are beneficial owners of a payment, or of another entity that is the beneficial owner.
A foreign entity must submit a Form W-8BEN-E to the withholding agent if it will receive a FATCA withholdable payment, receive a payment subject to chapter 3 withholding, or if it maintains an account with an FFI. W-8BEN-E instructions
W-8BEN
Foreign individuals (non-resident aliens – NRAs) must use Form W-8BEN to document their foreign status and claim any applicable treaty benefits for chapter 3 purposes, including a foreign individual that is the single member of an entity that is disregarded for U.S. tax purposes.
The NRA must give the Form W-8BEN to the withholding agent or payer if he/she is the beneficial owner of an amount subject to withholding, or if he/she an account holder of an FFI then to the FFI to document his/her status as a nonresident alien. Note that a sole member of a “disregarded” entity is considered the beneficial owner of income received by the disregarded entity, and thus the sole member must provide a W-8BEN.
This is not a Republican issue, this is not a Democrat issue, this is an American issue.
America is so much more than that. There is a nation beyond the government and perhaps it's time to start putting the people above the state. While a Republican controlled House and Senate cannot necessarily repeal
FATCA as Obama will veto, they CAN defund it. It is ABSURD for the
Democratic Abroad to continue to vote for the Democrats who brought this
nightmare on them. I support some of the Democratic liberal social policies like gay rights – but
frankly, all of that is outweighed by the disaster of CBT and FATCA as
created by the Democrats. You need to understand that Democrats Abroad is an organization
that exists for the sole purpose of furthering the interests of “The
Party” abroad. Once you understand this principle, you can see their
statements and behavior for the foolishness and stupidity that it is.
If Democrats Abroad were interested in changing the oppression of
Americans Abroad (which they aren’t) then they would appreciate the
efforts of all groups – including Republicans Overseas who oppose FATCA. Democrats abroad should get with the program and stop making opposition to FATCA a partisan issue. This is what the angle should be: eliminate FBAR
penalties for local accounts, and go to exemptions from taxation for
long time US persons resident abroad. The penalties and the double
taxation are what represent U.S. government discrimination against U.S.
citizens abroad. Individual rights under the U.S. constitution are not
being applied in an even handed way across all Americans, no matter
where they live. The U.S. is showing disrespect for the rights of
nationals and their families of other countries, and disrespect for
other governments pretending that the sovereign borders of America
extend the globe.https://www.democratsabroad.org/group/fbarfatca/june-2014-fatca-delayed-new-program-delinquent-filers-announced
Wednesday, June 25, 2014
Be careful what you wish for the IRS may view the facts and equities of a case very differently than the taxpayer
With the June 18 announcements, the IRS may have come up with a good way
to avoid a near certain train wreck of its own making if it didn't do
something soon about its offshore compliance program.
But remember it is a procedure designed by lawyers for lawyers and simply put…..it is a “Buyer Beware” world when you enter the New simplified process. The IRS may or may not be fair NOW. While the Commissioner has praised the various OVDP progress as a huge success - which many would disagree with for various reasons, no government program can be deemed a success if it takes 1-2 years to get an agent assigned to do the work that needs to be done to allow a taxpayer to take care of a tax issue and get on with his life. The IRS has conceded finally that “one size does not fit all” and the agency now has the chance to dispel the widely-held perception that it was not up to the task of sorting out willful from non-willful conduct and in the process bring the long standing voluntary disclosure protocols to a standstill. We have yet to see whether the new FATCA technology will live up to its anticipated promise of an efficient, “one world” financial and banking data base. I doubt it.
Btw. to clarify that the increase in the OVDP offshore penalty rate from 27.5% to 50% beginning on August 4, 2014, taxpayers will be subject to an enhanced 50% offshore penalty only if :
But remember it is a procedure designed by lawyers for lawyers and simply put…..it is a “Buyer Beware” world when you enter the New simplified process. The IRS may or may not be fair NOW. While the Commissioner has praised the various OVDP progress as a huge success - which many would disagree with for various reasons, no government program can be deemed a success if it takes 1-2 years to get an agent assigned to do the work that needs to be done to allow a taxpayer to take care of a tax issue and get on with his life. The IRS has conceded finally that “one size does not fit all” and the agency now has the chance to dispel the widely-held perception that it was not up to the task of sorting out willful from non-willful conduct and in the process bring the long standing voluntary disclosure protocols to a standstill. We have yet to see whether the new FATCA technology will live up to its anticipated promise of an efficient, “one world” financial and banking data base. I doubt it.
Btw. to clarify that the increase in the OVDP offshore penalty rate from 27.5% to 50% beginning on August 4, 2014, taxpayers will be subject to an enhanced 50% offshore penalty only if :
1. Their foreign financial institution has become a target of investigation by the IRS or the Department of Justice; or
2. Their foreign financial institution is
cooperating with the IRS or the Department of Justice to help them
locate tax evaders (FATCA IGA etc.) ; or
3. Their foreign financial institution
has been identified in a court-approved summons seeking information
about U.S. taxpayers who may hold financial accounts at that
institution.
Critical Links – 2014 OVDP & Streamlined Filing Compliance Procedures
1. IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate (FS-2014-6, June 2014). http://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate
2. IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance (IR-2014-73, June 18, 2014). http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance
3. Offshore Income and Filing Information for Taxpayers with Offshore Accounts (FS-2014-7, June 2014). http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts
4. Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets
http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets
5. Streamline Filing Compliance Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures
6. U.S. Taxpayers Residing Outside the United States
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States
7. Certification by U.S. Person Residing Outside of the U.S
http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf
8. U.S. Taxpayers Residing in the United States
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States
9. Certification by U.S. Person Residing in the U.S
http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf
10. Delinquent FBAR Submission Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures
11. Delinquent International Information Return Submission Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures
12. Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers
FAQs Effective for OVDP Submissions Made On or After July 1, 2014 are available at http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised
13. Transition Rules Frequently Asked Questions
http://irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
14. Revised Offshore Voluntary Disclosure Letter
http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf
15. Offshore Voluntary Disclosure Letter Attachment
http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf
16. List of Foreign Financial Institutions or Facilitators
http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators
17. Modified OVDP The Disclosure Period
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
18. Requesting Pre-Clearance into the OVDP
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
19. FBAR Form to use for the OVDP. http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
20. Special Requirements for the OVDP Power of Attorney
http://www.irs.gov/pub/irs-utl/f2848-ovdp.pdf
2. IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance (IR-2014-73, June 18, 2014). http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance
3. Offshore Income and Filing Information for Taxpayers with Offshore Accounts (FS-2014-7, June 2014). http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts
4. Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets
http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets
5. Streamline Filing Compliance Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures
6. U.S. Taxpayers Residing Outside the United States
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States
7. Certification by U.S. Person Residing Outside of the U.S
http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf
8. U.S. Taxpayers Residing in the United States
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States
9. Certification by U.S. Person Residing in the U.S
http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf
10. Delinquent FBAR Submission Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures
11. Delinquent International Information Return Submission Procedures
http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures
12. Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers
FAQs Effective for OVDP Submissions Made On or After July 1, 2014 are available at http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised
13. Transition Rules Frequently Asked Questions
http://irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
14. Revised Offshore Voluntary Disclosure Letter
http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf
15. Offshore Voluntary Disclosure Letter Attachment
http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf
16. List of Foreign Financial Institutions or Facilitators
http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators
17. Modified OVDP The Disclosure Period
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
18. Requesting Pre-Clearance into the OVDP
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
19. FBAR Form to use for the OVDP. http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
20. Special Requirements for the OVDP Power of Attorney
http://www.irs.gov/pub/irs-utl/f2848-ovdp.pdf
The IRS Scandal, Day 412
the IRS is the victim here. The IRS is spinning a tale of bureaucratic incompetence to explain the vanishing emails
from former Tax Exempt Organizations doyenne Lois Lerner and six other
IRS employees. We have less faith by the minute that there is an
innocent explanation for this failure to cooperate with Congress, but
even if true it doesn't matter. The IRS was under a legal obligation to
retain the information because of a litigation hold. Under
the Federal Rules of Civil Procedure and legal precedent, once the suit
was filed the IRS was required to preserve all evidence relevant to the
viewpoint-discrimination charge. That means that no matter what dog ate
Lois Lerner's hard drive or what the IRS habit was of recycling the
tapes used to back up its email records of taxpayer information, it had a legal duty not to destroy the evidence in ongoing litigation. ...
Attorney
General Eric Holder won't name a special prosecutor, but there's still
plenty of room for the judge in the Z Street case to force the IRS to
explain and answer for its "willful spoliation" of email evidence.
evidence.Quoting the esteemed tax practitioner, Elmer Fudd, willfulness is a “wascally” little word.
What burden of proof will the IRS apply in deciding whether a
taxpayer has truthfully certified non-willful conduct: Preponderance of
the evidence, or, clear and convincing proof ? That remains to be seen. The non-willful certification process appears to place the burden
of proving non-willfulness on the taxpayer. However, one should not
forget that the IRS bears the burden of proving willfulness in an FBAR
civil penalty suit.
Without further guidance we might just have to settle for the good old phrase......... " I know it when I see it ".
Notably absent is any discussion on the role of willful blindness (or similar formulations, such as deliberate ignorance) and whether it even applies within this new framework. The theory of willful blindness permits the trier of fact to infer willfulness. Instead of proving that the defendant intentionally violated a known legal duty, the government need only show that “the defendant consciously avoided any opportunity to learn what the tax consequences were.” United States v. Bussey, 942 F.2d 1241, 1428 (8th Cir. 1992).
In other words, it is a “watered-down” substitute for the burden of proof on what is otherwise the most serious element of a criminal offense – the mens rea element. Because willful blindness is much easier for the government to prove than willfulness, most courts restrict its use.
Presumably, the definition of non-willfulness, as quoted, excludes willful blindness. Why? Because willful blindness is inconsistent with the IRS’s definition of non-willful conduct. For example, a taxpayer who consciously avoids learning about his obligation to report foreign financial assets is not one who fails to disclose such assets due to a mistake or a good faith misunderstanding of the tax law. Indeed, the former has a sinister motive while the latter is innocent. Stated otherwise, if willful blindness had been contemplated, the IRS would not have defined non-willful as narrowly as conduct that was due to “negligence, inadvertence, mistake, or a good faith misunderstanding of the tax law.”
One way to view the path between willfulness and non-willfulness is on a continuum. The facts of some cases will present themselves on either end of the continuum. In those cases, recognizing whether the conduct is willful or non-willful will be as easy as finding a free drink in Las Vegas.
Without further guidance we might just have to settle for the good old phrase......... " I know it when I see it ".
Notably absent is any discussion on the role of willful blindness (or similar formulations, such as deliberate ignorance) and whether it even applies within this new framework. The theory of willful blindness permits the trier of fact to infer willfulness. Instead of proving that the defendant intentionally violated a known legal duty, the government need only show that “the defendant consciously avoided any opportunity to learn what the tax consequences were.” United States v. Bussey, 942 F.2d 1241, 1428 (8th Cir. 1992).
In other words, it is a “watered-down” substitute for the burden of proof on what is otherwise the most serious element of a criminal offense – the mens rea element. Because willful blindness is much easier for the government to prove than willfulness, most courts restrict its use.
Presumably, the definition of non-willfulness, as quoted, excludes willful blindness. Why? Because willful blindness is inconsistent with the IRS’s definition of non-willful conduct. For example, a taxpayer who consciously avoids learning about his obligation to report foreign financial assets is not one who fails to disclose such assets due to a mistake or a good faith misunderstanding of the tax law. Indeed, the former has a sinister motive while the latter is innocent. Stated otherwise, if willful blindness had been contemplated, the IRS would not have defined non-willful as narrowly as conduct that was due to “negligence, inadvertence, mistake, or a good faith misunderstanding of the tax law.”
One way to view the path between willfulness and non-willfulness is on a continuum. The facts of some cases will present themselves on either end of the continuum. In those cases, recognizing whether the conduct is willful or non-willful will be as easy as finding a free drink in Las Vegas.
73 Year Old Taxpayer from Manhattan Faces 5 Years Prison for Unreported FBAR
. Gabriel Gabella pleaded guilty last week in a Brooklyn courtroom to a single count. In announcing the conviction, U.S. Attorney Loretta Lynch said, “Those
who willfully conceal assets abroad will be investigated and prosecuted,
and those convicted of such conduct will not only face imprisonment but
significant financial penalties.” In Gabella’s case, those financial
penalties will mean a civil penalty of $3,140,346 and back taxes of
$239,000. He also faces possibly five years in prison when sentenced later this
year. A Justice Department press release says that the penalty is equal to 1/2 Gabella’s offshore bank balance in 2007.
“Regular Dividends” and “Qualified Dividends”
In general, there are two different types of dividends – “regular dividends” and “qualified dividends”. One is taxed far more favorably than the other. A so-called “qualified” dividend is given beneficial tax treatment because it is taxed at a lower more beneficial long-term capital gains tax rate. For most individuals this rate is currently at 15% , but the rate can be lower or higher for very low / or very high income earners.
For individuals whose income tax rate is in the 10% or 15% brackets, then the dividend and long-term capital gains tax rate is zero. What this means is that there is no tax imposed on qualified dividends or long-term capital gains on a single person with taxable income up to $36,250, heads of households having taxable income of up to $48,600 or a married couple having taxable income up to $72,850.The 15% rate applies to long term capital gains and qualified dividends for individuals filing as single and having taxable income over $36,250 but below $400,000; for married persons with taxable income above $72,850 but below $450,000; and for head of households with taxable income above $48,600 but below $400,000.
High income earners will be taxed on their long-term capital gains and qualified dividends at a rate of 20%. This means, single individuals with taxable income over $400,000 or married couples over $450,000.
The capital gains tax should not be confused with the new 3.8% Medicare surcharge imposed on net investment income. These are two separate taxes; each with their own particular set of rules. Broadly speaking, the 3.8% net investment income tax (“NIIT”) applies to any unearned income, including capital gains, for certain high-income taxpayers. Generally, the NITT applies to single/head of household taxpayers with a modified adjusted gross income (“MAGI”) above $200,000 and married couples with MAGI above $250,000. Once the threshold limits are exceeded, only the income that is investment income will be subject to the NIIT (earned income such as wages or salary are not subject to the tax). You can learn more about the NIIT and all its nuances here.
Qualified Dividends
So, what is a “qualified dividend,” eligible for favorable tax rates?
As a general matter, the typical dividend paid by a US corporation is “qualified” and thus taxed at the favorable rates, discussed above. In comparison, dividends paid by foreign corporations are not as easily treated as “qualified”. The tax rate for non-qualified, or ordinary dividends, is at a taxpayer’s ordinary income tax rates, which can be as high as 39.6%. (Don’t forget to add on the 3.8% NIIT, if applicable!). Since the qualified rates are lower than the typical income tax rate that applies to non-qualified, or ordinary dividends, you can pay significantly higher taxes on a non-qualified dividend.
Can a Dividend Paid by a Foreign Corporation be “Qualified”?
Yes, a dividend paid by a foreign corporation can be a “qualified” dividend provided certain requirements are met.
The tax law clearly defines what is meant by “qualified dividend income” (see IRC Section 1(h)(11)(B)(i))
Under the rules, “qualified dividend income” means dividends received during the taxable year from domestic corporations and from “qualified foreign corporations.” A qualified foreign corporation is defined by IRC Section 1(h)(11)(C)(i) as (subject to certain exceptions, for example, a PFIC) “any foreign corporation that is either (i) incorporated in a possession of the United States, or (ii) eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for purposes of this provision…..” This latter provision is generally referred to as the so-called “Treaty Test”.
A foreign corporation that does not satisfy either of these two tests can still possibly pay a qualified dividend if the dividend paid by that corporation is with respect to stock that is “readily tradable on an established securities market in the United States”. Section 1(h)(11)(C)(ii). Notice 2003-71, 2003-2 C.B. 922 defines the meaning of “readily tradable on an established securities market in the United States”. Generally this means the exchange is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or on the Nasdaq Stock Market. According to the Notice as at Sept. 30, 2002, registered national exchanges, include the American Stock Exchange, the Boston Stock Exchange, the Cincinnati Stock Exchange, the Chicago Stock Exchange, the NYSE, the Philadelphia Stock Exchange, and the Pacific Exchange, Inc.
Which Countries Have “Satisfactory” Treaties and Is Incorporation in Such a Country Sufficient?
The IRS has listed the countries determined to be satisfactory for purposes of paying “qualified dividends”. The countries are listed in the table below, excerpted from IRS Publication 17.
For individuals whose income tax rate is in the 10% or 15% brackets, then the dividend and long-term capital gains tax rate is zero. What this means is that there is no tax imposed on qualified dividends or long-term capital gains on a single person with taxable income up to $36,250, heads of households having taxable income of up to $48,600 or a married couple having taxable income up to $72,850.The 15% rate applies to long term capital gains and qualified dividends for individuals filing as single and having taxable income over $36,250 but below $400,000; for married persons with taxable income above $72,850 but below $450,000; and for head of households with taxable income above $48,600 but below $400,000.
High income earners will be taxed on their long-term capital gains and qualified dividends at a rate of 20%. This means, single individuals with taxable income over $400,000 or married couples over $450,000.
The capital gains tax should not be confused with the new 3.8% Medicare surcharge imposed on net investment income. These are two separate taxes; each with their own particular set of rules. Broadly speaking, the 3.8% net investment income tax (“NIIT”) applies to any unearned income, including capital gains, for certain high-income taxpayers. Generally, the NITT applies to single/head of household taxpayers with a modified adjusted gross income (“MAGI”) above $200,000 and married couples with MAGI above $250,000. Once the threshold limits are exceeded, only the income that is investment income will be subject to the NIIT (earned income such as wages or salary are not subject to the tax). You can learn more about the NIIT and all its nuances here.
Qualified Dividends
So, what is a “qualified dividend,” eligible for favorable tax rates?
As a general matter, the typical dividend paid by a US corporation is “qualified” and thus taxed at the favorable rates, discussed above. In comparison, dividends paid by foreign corporations are not as easily treated as “qualified”. The tax rate for non-qualified, or ordinary dividends, is at a taxpayer’s ordinary income tax rates, which can be as high as 39.6%. (Don’t forget to add on the 3.8% NIIT, if applicable!). Since the qualified rates are lower than the typical income tax rate that applies to non-qualified, or ordinary dividends, you can pay significantly higher taxes on a non-qualified dividend.
Can a Dividend Paid by a Foreign Corporation be “Qualified”?
Yes, a dividend paid by a foreign corporation can be a “qualified” dividend provided certain requirements are met.
The tax law clearly defines what is meant by “qualified dividend income” (see IRC Section 1(h)(11)(B)(i))
Under the rules, “qualified dividend income” means dividends received during the taxable year from domestic corporations and from “qualified foreign corporations.” A qualified foreign corporation is defined by IRC Section 1(h)(11)(C)(i) as (subject to certain exceptions, for example, a PFIC) “any foreign corporation that is either (i) incorporated in a possession of the United States, or (ii) eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for purposes of this provision…..” This latter provision is generally referred to as the so-called “Treaty Test”.
A foreign corporation that does not satisfy either of these two tests can still possibly pay a qualified dividend if the dividend paid by that corporation is with respect to stock that is “readily tradable on an established securities market in the United States”. Section 1(h)(11)(C)(ii). Notice 2003-71, 2003-2 C.B. 922 defines the meaning of “readily tradable on an established securities market in the United States”. Generally this means the exchange is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or on the Nasdaq Stock Market. According to the Notice as at Sept. 30, 2002, registered national exchanges, include the American Stock Exchange, the Boston Stock Exchange, the Cincinnati Stock Exchange, the Chicago Stock Exchange, the NYSE, the Philadelphia Stock Exchange, and the Pacific Exchange, Inc.
Which Countries Have “Satisfactory” Treaties and Is Incorporation in Such a Country Sufficient?
The IRS has listed the countries determined to be satisfactory for purposes of paying “qualified dividends”. The countries are listed in the table below, excerpted from IRS Publication 17.
Multiple accounts and multiple FBAR penalties
In many cases multiple accounts are an indication of legitimate reasons for having foreign accounts. Just like I have multiple accounts in the US for multiple reasons and purposes, such may be the case with foreign accounts. Keep in mind that the more foreign accounts you have, the more chances of one account becoming known, so it seems that if secrecy is your goal you would want one account, not many.
Also as far as the IRM it says that multiple penalties per year (ie per-account) should be limited to egregious cases. In my view egregious conduct would be to establish various offshore companies and accounts so transfers are smaller and more likely to have a justifiable purpose, then churn the money through a daisy chain of accounts in different banks, countries and company names to obscure the trail; in other words a typical money laundering scheme. Merely having multiple accounts does not fit this description.
Example of reasonable cause : We have no other formal structures, corporations, trusts, foundations or entities affiliated with any of the accounts. The nature of all accounts are simply joint , with no power of attorneys, parent, entity or corporate account holders. We do not have or participate in any exotic investment instruments like credit default swaps, offshore hedge funds, offshore feeder funds, offshore master funds, offshore money laundering funds, PFICs, or special purpose investment vehicles (SIVs). In other words, our financial arrangements are plain vanilla for ordinary people living fairly ordinary lives overseas with standard checking accounts and we do not even have a savings account.
With regards to the ``foreign accounts`` we always had a legitimate purpose for establishing -like receiving local salary payments- and even maintaining the accounts and interest income when earned was always reported on Form 1040 . All accounts were opened as part of a normal, lawful residence and activities in these countries .
FBAR filings go to Treasury and the only way the IRS would have known about FBAR would have been to 1) have a reason to query Treasury in Detroit then 2) actually query. I am basing this on what's been reported publicly. It would be much easier for the IRS to spot those answering YES at the bottom of Schedule B for the first time, or those filing 8938 for the first time in future years.
The IRS administers the FBAR filings pursuant to an agreement between the IRS and Treasury. So, in that administration, it would be easy for the computer to find a first time filer (or even a not recent filer) for purposes of determining whether to do an FBAR audit. Now, when it is or gets combined with an income tax audit, I think there are some extra internal steps that must be covered because of Section 6103.
The FBARs are filed with the IRS Enterprise Computing Center in Detroit. The mailing is to "U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621," but that zip code is to the IRS Enterprice Computing Center in Detroit.
Also as far as the IRM it says that multiple penalties per year (ie per-account) should be limited to egregious cases. In my view egregious conduct would be to establish various offshore companies and accounts so transfers are smaller and more likely to have a justifiable purpose, then churn the money through a daisy chain of accounts in different banks, countries and company names to obscure the trail; in other words a typical money laundering scheme. Merely having multiple accounts does not fit this description.
Example of reasonable cause : We have no other formal structures, corporations, trusts, foundations or entities affiliated with any of the accounts. The nature of all accounts are simply joint , with no power of attorneys, parent, entity or corporate account holders. We do not have or participate in any exotic investment instruments like credit default swaps, offshore hedge funds, offshore feeder funds, offshore master funds, offshore money laundering funds, PFICs, or special purpose investment vehicles (SIVs). In other words, our financial arrangements are plain vanilla for ordinary people living fairly ordinary lives overseas with standard checking accounts and we do not even have a savings account.
With regards to the ``foreign accounts`` we always had a legitimate purpose for establishing -like receiving local salary payments- and even maintaining the accounts and interest income when earned was always reported on Form 1040 . All accounts were opened as part of a normal, lawful residence and activities in these countries .
FBAR filings go to Treasury and the only way the IRS would have known about FBAR would have been to 1) have a reason to query Treasury in Detroit then 2) actually query. I am basing this on what's been reported publicly. It would be much easier for the IRS to spot those answering YES at the bottom of Schedule B for the first time, or those filing 8938 for the first time in future years.
The IRS administers the FBAR filings pursuant to an agreement between the IRS and Treasury. So, in that administration, it would be easy for the computer to find a first time filer (or even a not recent filer) for purposes of determining whether to do an FBAR audit. Now, when it is or gets combined with an income tax audit, I think there are some extra internal steps that must be covered because of Section 6103.
The FBARs are filed with the IRS Enterprise Computing Center in Detroit. The mailing is to "U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621," but that zip code is to the IRS Enterprice Computing Center in Detroit.
FBAR penalties should not be used to extract penalties for income tax underpayments that are in excess of the penalties that Congress specifically provided for income tax underpayment. The income tax penalty at worst would be 75% of the tax due (civil fraud), but the FBAR penalties (particularly if multiple year) can exceed 500 % of the tax due. No FBAR penalty where the FBAR violation arose solely from avoiding the income tax, because the income tax penalties should only apply. I would impose the tax and income tax penalties and a much lighter FBAR penalty with a warning letter that should it happen again stiffer penalties would apply.
http://taxlitigator.me/
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
http://taxlitigator.me/
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
To determine willfulness with unfiled FBAR forms, the IRS will look at facts such as:
- Was the income from the foreign financial account reported on the income tax return?
- Was the box checked “Yes” or “No” at the bottom of Schedule B where the question “At any time during the tax year, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? “ is asked
- Were the bank statements for foreign financial account being sent to a U.S. address?
- Was the tax professional advised of the existence of the foreign financial account?
- Was there a valid reason for the maintenance of the account?
- Why was an account opened and maintained in a foreign country?
- What is the connection to the country where the bank account was opened and the taxpayer?
- Is the account in the name of the taxpayer or in the name of a trust or other offshore entity such as a foreign corporation?
- The FBAR statute continues to run whether or not the FBAR was filed. According to the IRS the FBAR statute may be extended by consent, although there is no explicit statutory authority for this view. The SOL is based on the penalized event -- June 30 of each year passing without filing. It does not run from the date of filing a delinquent FBAR. Of course, if the delinquent FBAR is willfully false, then a statute of limitations for another crime may commence.
- The unlimited SOL applies only to the civil side of the income tax. There is no unlimited criminal SOL. And, there is no unlimited civil SOL for the FBAR. If willfulness (the FBAR analog of civil fraud) is involved, the SOL is still just 6 years.
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There is no rule against quiet disclosures. If the assertion is that such a rule exists merely because the IRS doesn’t like them, that’s (to use a technical term) way out there.
I also strongly disagree with the statement that “the IRS has said not to do it this way.” The IRS has emphasized that, if one makes a QD, all of their options (civil and criminal) are on the table. And they seemingly have tried to intimidate people who probably have no business being in the program into joining for fear that the IRS will assert the worst, regardless of the true facts. But nowhere has the IRS ever said “not to do it this way.” And nowhere has the IRS articulated any rule that would be violated — by either a taxpayer or the taxpayer’s tax advisor — if a QD is made.
If the assertion is that IRS preference constitutes a rule that taxpayers or their advisors must follow, I’m in utter shock that anyone could actually believe that.