Joint accounts : the date of the FBAR filing violation is 6/30 of the year following the calendar year for which the account is being reported

--------- For each co-owner against whom a penalty is determined, the penalty will be based on the co-owner's percentage ownership of the highest balance of the foreign financial account.---------
 
I think who earns may not be the same as who owns. Assume, for example, the H (US citizen) and W (nonUS citizen) reside in France with a community property law that says 50% of earnings for personal services belong 1/2 to each, then if W earns everything in the account, it is still owned 1/2 by each. So, if W has no FBAR filing obligation, H's penalty would be based on the 50% he owned. At least that is how I interpret the concept.
If W has an FBAR filing requirement, then 100% of the account is the penalty base, but split 50-50 to each of them.
Of course, in applying the offshore penalty in OVDP, the IRS has always only applied it to the owned portion of the account for the U.S. taxpayer.
Since 100% of europe goes by a community property type law one way or another, this means very good news for ``H`` because his FBAR penalty will only be based on 50% of the joint account value. There are inconsistencies here.
Why should it be based on the highest joint account balance ?
Again the date of the filing violation is 6/30 of the year following the calendar year for which the account is being reported. I am not sure where the IRS outside of OVDI gets this from !?
Hazards of Litigation present.
Example:
2012 : joint account 6/30 balance $150K but max. balance $300K
Penalty base should be $75K for ``H`` and not $150K !!

willful : ---------In no event will the total penalty amount exceed 100 % of the highest aggregate balance of all unreported foreign financial accounts during the years under examination-------------
Example :
2010 : $250.000 aggregate balances as of 6/30 and not high/max. balance
2011 : $250.000 aggregate balances as of 6/30 and not high/max. balance
2012 : $250.000 aggregate balances as of 6/30 and not high/max. balance
Before for willful penalties was $100k or 50% whatever is greater. Which would have been hypothetically $375K (3x125K)
Now worst case scenario is 100% of $250K = $250K which is a reduction of $125K from earlier guidance.
willful: ---------In most cases, the total penalty amount for all years under
examination will be limited to 50 % of the highest aggregate
balance of all unreported foreign financial accounts during the years
under examination.-------------------
I would like to emphasize by aggregate balance we are talking about the amount as of 6/30 for each tax year under examination.
To use the example from the guidance :
2010 : $50.000 aggregate balances as of 6/30 and not high/max. balance
2011 : $100.000 aggregate balances as of 6/30 and not high/max. balance
2012 : $200.000 aggregate balances as of 6/30 and not high/max. balance

NW :  -------------- In no event will the total amount of the penalties for nonwillful violations exceed 50% of the highest aggregate balance of all unreported foreign financial accounts for the years under examination.-----------------

 This really feels like a turkish bazar when I take into consideration the $10K max. penalty per year and account and holder vs. the NW mitigation guidelines and this new guidance.
I still do not see the original intentions of Congress well represented here.
There is supposed to be consideration of the desired result “of improving compliance in the future” which can be obtained without penalties.
Further, there is nothing in the Statues that require full application of all technical penalties. The Federal courts have consistently held that when Congress uses the word “may”, it means “may”, not “must” or “shall”, so even absent the IRM FBAR policy guidelines, there is discretion that the IRS can exercise. Additionally, it is obvious that the IRS appreciates the discretionary nature of its authority. I quote from a IRS Division Council memo providing guidance on the application of civil FBAR penalties (“Guidance Memo”) “The penalty statute, however, provides for discretion in asserting the penalty.
The purpose for the penalty, and the reason for the flexibility Congress provided in asserting the penalty is to encourage compliance. There is no requirement to assert a separate FBAR penalty for every possible technical violation encountered and doing so could lead, in some cases, to an absurd result.”

New IRS FBAR Penalty Guidance

Heather Maloy, Commissioner, LB&I, has issued a memo dated 5/13/15 titled Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties. here.

The key points of the memorandum that I find interesting are:

1.  The FBAR penalty provisions are "only maximum penalty amounts, leaving the IRS to determine the appropriate FBAR penalty amount based on the facts and circumstances of each case."  I think we all knew that, but I am glad the IRS is reminding its agents of that proposition.

2.  Attachment 1 provides procedures

developed to ensure consistency and effectiveness in the administration of FBAR penalties. They will help ensure FBAR penalty determinations are adequately supported and penalties are asserted in a fair and consistent manner. Examiners must continue to use their best judgment (LOL) when proposing FBAR penalties. They must take into account all the available facts and circumstances of a case. See IRM 4.26.16.4.7, FBAR Penalties -- Examiner Discretion, concerning the use of examiner discretion when proposing FBAR penalties.

Most Recent IRS International Hacking Reveals Vulnerability

According to national reports, hackers allegedly stole the personal data of approximately 100,000 taxpayers from the IRS’s computer system.  The most recent investigative report from CNN reveals the IRS believes the cyber-attack has links to Russia.  In the coming days, weeks and months, federal law enforcement will no doubt do everything it can to detect who is behind this alleged cybercrime and, if possible, to bring charges against those allegedly responsible.

As the IRS continues to combat stolen identity tax refund fraud, an epidemic that costs the Government more than $5 billion per year, the significance of this cyber-attack cannot be overstated: it is game-changing.  At a minimum, if the latest news coverage is accurate, it is crystal clear that international hackers successfully infiltrated the IRS’s computer system to steal legally-protected and extremely sensitive taxpayer information.  This information must inevitably threaten the IRS’s filters in place to detect fraudulent tax returns filed in the names of stolen identities.  After all, if the IRS is looking at a taxpayer’s prior tax returns, the hackers now have that information.

The IRS’s response: “We’re confident that these are not amateurs,” IRS Commissioner John Koskinen said.  “These actually are organized crime syndicates that not only we but everybody in the financial industry are dealing with.”

The IRS’s response is fair in some respects – cybercriminals have perpetrated attacks against large retail stores and small businesses.  But the difference between the IRS’s identity theft epidemic and the private sector is that no other private company or government agency continues to lose more than $5 billion year after year to the same crime.  That the IRS’s data security systems did not shield the agency – and taxpayers – from an international hack of this caliber is as frightening as it is reflective of the fact that the agency’s systems are simply vulnerable.  What Commissioner Koskinen should understand is that if a large bank were losing billions of dollars year after year to the same brand of fraud, the bank would do something about it to stop the bleeding.

Perhaps more than anything else, this cyber-attack reveals that stolen identity tax refund fraud is not a problem the Government can prosecute its way out of.  Resources are limited and the IRS should spend every last dime on making it harder to steal money from the Treasury by improving filters, enhancing its data security systems, and protecting taxpayers from becoming victims of identity theft – not on seeking long prison sentences for the less sophisticated identity thieves the Government can actually catch.  If resources are the issue, the IRS should ask Congress to reallocate funding to cyber-infrastructure improvements and retain a company like Google to help.

Ultimately, this may be an embarrassment to the IRS – but perhaps it can also be the beginning of improved technology, improved policies and procedures, and improved perspectives on how to combat the identity theft tax fraud epidemic.

Swiss naming of suspected tax cheats causes waves - Bundesblatt Nr. 19

When Switzerland makes a decision to turn over bank information of a foreign depositor upon request of a treaty party, the depositor is entitled to invoke procedures under Swiss law to test whether the turn over is appropriate.  This requires that the Swiss authority notify the depositor so that the depositor can invoke the procedure.  But, what to do when the depositor has disappeared from the bank's radar screen and the bank does not know how to contact the depositor?  "In such cases the tax authorities notify the account holder via the government’s online gazette – sometimes giving the full name of the client and in other instances just the initials and date of birth."  See Swiss naming of suspected tax cheats causes waves (Swissinfo 5/25/15), here.

 but the more important link with the names or initials is here :
 https://www.admin.ch/opc/de/federal-gazette/2015/index_19.html

Florida CPA Charged with Filing Fraudulent Tax Returns

A Florida CPA has been arrested and charged with using her tax preparation business to facilitate an income tax refund fraud scheme.

Pre-Expatriation Gifts and A step-by-step "how to" -- answering the key question on a gift tax return to report such a gift.

One of the easiest ways to bring your net worth down below $2,000,000 -- and be a noncovered expatriate -- is to give stuff away. U.S. citizens married to noncitizens are especially good candidates for this strategy. The situation is simple: a U.S. citizen gives $300,000 cash to a non-citizen spouse. In order to make this a winning strategy for exit tax purposes, a gift tax return will be necessary.

The IRS Scandal, Day 746

House Republicans formally asked the IRS to review whether the Clinton Foundation is complying with the rules governing its tax-exempt status. The letter was signed by Marsha Blackburn and 51 other House Republicans, and comes on the heels of a flurry of reports and speculation about the Foundation’s international fundraising. Blackburn asked the IRS to respond within 30 days.

But is the IRS going to take any action? It hardly seems likely. Besides, an IRS spokesman has already said that the IRS does not comment on individual tax cases. More broadly, there is no reason to believe that the IRS will probe much of anything. Lois Lerner ran the tax exempt organizations wing of the IRS, but she evidently focused on what she thought were bad conservative causes. The Clinton Foundation is a charity, but seems inextricably entwined with politics, State Department business personal emails, and speech-making. ...

To anyone with a thinner coating of Teflon, the subject would be embarrassing: donations by foreign governments while Mrs. Clinton was Secretary of State. Mrs. Clinton resigned from the Foundation’s board after she announced her Presidential run. But upon becoming Secretary of State, Mrs. Clinton promised that the Foundation would stop accepting donations from foreign governments. It turns out there were exceptions. It also turned out–another oops–that the Foundation’s IRS tax filings were less than transparent.

Survey Shows Rise in U.S. Expats ‘Seriously’ Mulling Renouncing Their Citizenship

	76% of respondents do not feel they should be required to file US taxes
	86% said they do not feel they are well-represented in the US government
	There was a 50% jump in US expats 'seriously considering ' renouncing their US citizenship when compared to last year
	Nearly 60% of surveyed US expats voted in the last Presidential election  http://blogs.wsj.com/expat/2015/05/07/survey-shows-rise-in-u-s-expats-seriously-mulling-renouncing-their-citizenship/

Conditional green card = green card

A "permanent resident" visa is commonly called a "green card" because that is what the piece of plastic more or less is -- green. You either hold that visa status (and have the card) or you do not.

The only variable in your status is whether you have that visa status forever, or only for a little while. Some people get permanent resident status right away. Other people get the permanent resident status but have to wait for a while to prove that they will be allowed to keep it permanently.

One of these conditional permanent resident visa situations involves marriage. When a U.S. citizen marries someone who is not a U.S. citizen (or green card holder), the spouse can receive a conditional permanent resident's visa. After two years (to be sure that the marriage is real!) the conditions are removed and the green card is permanent.

Another common conditional green card situation is the EB-5 visa. If the investment that you put money into works as the promoter promised, you convert yourself to a permanent green card holder. If not, you lose that conditional green card.

FinCEN Provides Additional E-Filing Method for FBAR Individual Filers

The Financial Crimes Enforcement Network (FinCEN) has announced that the BSA E-Filing System now provides an alternative E-Filing method for individuals filing the Report of Foreign Bank and Financial Accounts (FBAR).
Filers can now choose between the current method of filing using an Adobe PDF or use the new online form that only requires an Internet browser to file. More information is available at http://www.fincen.gov/whatsnew/pdf/20150511.pdf.

What happens to the 10% early distribution penalty on a retirement account if a covered expatriate had paid the exit tax on the account ?

• A traditional IRA that had a pretend distribution under section 877A(e).
• A 401(k) for which the covered expatriate forgot to give Form W-8CE within 30 days of expatriating. The 401(k) had a pretend distribution under section 877A(d)(2).

The traditional IRA

A traditional IRA, or an individual retirement account, is established under Internal Revenue Code Section 408(a). Distributions from a traditional IRA are taxed under Section 72. 26 U.S.C. §408(d)(1).

A covered expatriate is treated as receiving a full distribution from an IRA on the day before the expatriation date. 26 U.S.C. §877A(e)(1)(A). As the question noted, no early distribution penalty is imposed because of this deemed distribution. 26 U.S.C. §877A(e)(1)(B).

Section 877A(e)(1)(C) says that after the pretend distribution:

The mechanics of Form 8854

If you are late filing Form 8854 you will be a covered expatriate.
Someone who expatriated in 2013 would have a filing deadline for Form 8854 sometime in 2014 – the same filing deadline as applies to the final income tax return filed for 2013.
Part II applies to people who expatriated on a date between June 3, 2004 and June 17, 2008.

If the only thing you are doing in the United States is buying stocks, bonds, and holding cash than you are merely an investor but you are not engaged in a U.S. trade or business. Since you are not engaged in a U.S. trade or business, your income cannot possibly be effectively connected with a U.S. trade or business.

The upshot of finding that income is “effectively connected with the conduct of a U.S. trade or business” is that the income is taxed at the normal income tax rates (income minus allowable deductions, multiplied by the appropriate tax rate). If income is NOT “effectively connected with the conduct of a U.S. trade or business” it is taxed at a flat 30% rate, with no deductions.

In both cases, income tax treaties can alter the result. And in both cases, but people are only at risk for U.S. income taxation if the income is received from sources in the United States.

IRS Officer Busted for Identity Theft and Fraud

An Internal Revenue Service revenue officer has been indicted for committing mail and wire fraud, filing false tax returns, identity theft and perjury.
James Brewer, a 38-year-old Staten Island, N.Y., resident who works in the IRS’s Edison, N.J., office, was charged in the U.S. District Court for the Eastern District of New York in a 28-count indictment that was unsealed Thursday. The charges include seven counts of wire fraud, mail fraud, three counts of subscribing to false federal tax returns, six counts of aiding and assisting in the preparation of false federal tax returns, ten counts of aggravated identity theft, and perjury. Brewer was assigned to an IRS office in Edison, N.J. He was arrested in Las Vegas and is expected to be arraigned Friday afternoon.
According to the indictment, Brewer operated two outside businesses, contrary to IRS regulations. He prepared tax returns for others in exchange for fees, and he operated a business selling designer clothes, collectable toys, sports memorabilia, and other items on eBay.
As part of a scheme to fraudulently reduce his taxable income and increase his tax refunds, Brewer allegedly failed to report any income he received for his unauthorized tax prep business. He also underreported the gross receipts earned from his Internet retail business, and claimed false dependents on federal tax returns he prepared and filed on his own behalf for three tax years.
Brewer also allegedly engaged in a multi-year scheme in which he prepared and filed false tax returns for others. In that business, Brewer listed false dependents and false deductions to fraudulently cause his clients to receive a refund to which they were otherwise not entitled or fraudulently inflate their refunds.
In doing so, Brewer listed the names and Social Security numbers of various people on the tax returns as dependents without their authorization. As part of this scheme, Brewer also diverted a portion of those clients’ refunds to himself, in some cases without his clients’ authorization or knowledge. Finally, in an effort to fraudulently obtain for himself a tax credit for first time homebuyers, Brewer lied under oath about his residency when he testified in a matter in the U.S. Tax Court in New York, New York.
“The crimes alleged in this indictment are very serious. While employed by the IRS to enforce our nation’s tax laws, it is alleged that James Brewer was himself breaking these laws,” said Jonathan D. Larsen, special agent-in-charge of IRS-Criminal Investigation’s Newark Field Office, in a statement. “Today’s indictment underscores our commitment to work in a collaborative effort to promote honest and ethical government at all levels and to prosecute those who allegedly violate the public’s trust.”

Form 8938 update

H.S. has published an article titled "Form 8938 and Foreign Financial Assets:  A Comprehensive Analysis of the Reporting Rules after IRS Issues Final Regulations," here.  It is published in the March/April issue of the International Tax Journal.  The article (i) analyzes the new/final regulations for Form 8938, describing both the changes accepted and rejected by the IRS, (ii) divides and organizes the complicated rules into manageable portions, addresses the confusing overlap between Form 8938 and the FBAR, and (iv) incorporates guidance from multiple sources, aiming to be a “one-stop shop” for all things Form 8938.