In latest report from a government watchdog agency called the Government Accountability Office (GAO) the GAO makes recommendations to the IRS, and the IRS pays attention. Those recommendations could put some taxpayers in trouble, but some are beneficial. Particularly helpful tax laws education commentary regarding offshore assets. Below is an excerpt from the report.
In our [GAO] case file review, we [GAO] found examples of immigrants who stated in
their 2009 OVDP applications that they were unaware of their FBAR filing
requirements. We found they had often opened banks accounts in their
home country prior to immigrating to the United States. IRS officials from
the Offshore Compliance Initiative office stated that although there are
several FBAR education programs, none are specifically targeted at new
immigrants. Furthermore, these IRS officials were unaware of any IRS
work with other federal agencies such as the State Department or the
Department of Homeland Security to educate recent immigrants about
their foreign account filing requirements. These officials stated that one of
the challenges that they face in their office, which is part of IRS’s Large
Business and International Division, is that taxpayer education and
outreach is the responsibility of IRS’s Wage and Investment Division and
that issues concerning FBARs fall under IRS’s Small Business/SelfEmployed Division.
IRS officials from the Offshore Compliance Initiative office agree that
more could be done to improve taxpayer education and outreach about
offshore reporting requirements. They [IRS], like us [GAO], recognize that multiple
outreach efforts could help to draw additional taxpayers into the offshore
programs, and that data mining information from the program applications
can help identify these groups.
Many clients ask if they must re-do their estate plan when they move to a different state. The answer is generally “no”. A Will made in New Jersey or New York or Florida is likely going to be “valid” in almost any other state to which one relocates. Several states formerly required three witnesses for a Will to be valid, but it appears that those laws have been changed to bring them in line with the vast majority of state that require only two witnesses. (Vermont may have been the last state to change its law from three to two witnesses, and that was done in 2005). Thus, if a written Will is signed by you and is attested and signed by two witnesses, it should be valid in any of the fifty states.
Be aware that “valid” is important, but it is a low standard. Each state has a variety of laws that make Wills not only valid, but efficient under their legal system. One such nod to efficiency is the concept of a “self-proving affidavit”. When you die, if the Will has to be reviewed by a Judge, the Judge needs proof of the Will’s validity. Part of that proof is provided by the witnesses who saw you sign the Will. If they signed the Will and also signed a “self-proving affidavit” attached to the Will, then the affidavit is all the Judge will require. If the Will did not include a proper affidavit, then the witnesses may have to be tracked and brought to court (an inconvenience for all, and possibly a large expense).
Many states have recently modified their laws to acknowledge that mobility is an important consideration. This type of reciprocity makes it very much easier to move from state-to-state. If you have an idea to what state your company may eventually move you, your estate planning lawyer can check that state’s reciprocity law and can adapt the terms of your Will to accommodate the anticipated relocation.
Your estate planning documents should, at minimum, also include a Durable Power of Attorney and advance medical directives. Reciprocity may apply to these additional estate planning documents. Most states grant reciprocity to legally valid advance directives that were created when you were a resident of one state but later relocate to another state. For instance, if you create a Medical Power of Attorney and a Directive to Physicians, then later leave State A, your new state’s laws may recognize the validity of the State A documents under the laws of your new state.
Most importantly, you should not wait to make an estate plan just because you may relocate in a few years. You will protect your family and your assets, could save estate taxes, and you will gain peace-of-mind by carefully crafting an estate plan with a skilled lawyer. If minor adjustments need to be crafted after you relocate, it is just part of the cost of relocating.
The Internal Revenue Service has collected over $5.5 billion in revenue from taxpayers who came forward and reported on their foreign holdings under its Offshore Voluntary Disclosure Programs, but it could be missing billions more in revenue from tax evaders, according to a new report.
The report, issued by the Government Accountability Office, found that as of December 2012, the IRS’s four offshore programs have resulted in more than 39,000 disclosures by taxpayers, producing over $5.5 billion in revenue. The offshore disclosure programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.
Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to amount to several tens of billions of dollars, but no precise figure exists. The IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest and penalties.
For the 2009 Offshore Voluntary Disclosure Program, nearly all the program participants received the standard offshore penalty of 20 percent of the highest aggregate value of the accounts, meaning the account value was greater than $75,000 and taxpayers used the accounts (that is, made deposits or withdrawals) during the period under review.
The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000. Participant cases with offshore penalties greater than $1 million represented about 6 percent of all the 2009 OVDP cases, but accounted for almost half of all offshore penalties.
Taxpayers from these cases disclosed a variety of reasons for having offshore accounts. More than half of them had accounts at the Swiss bank UBS, which signed a deferred prosecution agreement in 2009 with the IRS under which it agreed to pay $780 million in fines, penalties, interest and restitution and later agreed to turn over thousands of names of its U.S. account holders.
Using 2009 OVDP data, the IRS identified bank names and account locations that helped it pursue additional noncompliance. Based on a review of the cases, the GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants. Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance, the GAO noted.
The IRS has detected some taxpayers with previously undisclosed offshore accounts who were attempting to circumvent paying the taxes, interest and penalties that would otherwise be owed, but based on GAO reviews of IRS data, the IRS may be missing attempts by other taxpayers attempting to do so.
The GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to the IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected. In addition, the IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent the money owed, thereby missing opportunities to help ensure compliance.
From tax years 2007 through 2010, the IRS estimated that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest and penalties by not participating in an offshore program, but instead by simply amending past returns or reporting on their current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness, according to the GAO.
Among other suggestions, the GAO recommended that IRS use its offshore data to identify and educate taxpayers who might not be aware of their reporting requirements. The IRS should also explore options for using a methodology to detect and pursue quiet disclosures more effectively and implement the best option. The GAO also suggested that the IRS analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance.
The IRS agreed with all of the GAO recommendations. “Global tax enforcement is a top priority at IRS, and we have made significant progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments,” wrote IRS Acting Commissioner Steven T. Miller in response to the report. “In addition, the IRS and the Justice Department have increased efforts regarding criminal investigation of international tax evasion. This combination of efforts helped support the 2009 Offshore Voluntary Disclosure Program (2009 OVDP), the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the ongoing 2012 Offshore Voluntary Disclosure Program (2012 OVDP). The goal of these programs is to get individuals back into the U.S. tax system and to turn the tide against offshore tax evasion.”
Patel Law Offices has consulted with hundreds of clients regarding their offshore compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.
The Internal Revenue Service’s four amnesty programs for those who have undeclared offshore accounts have resulted in more than 39,000 disclosures by taxpayers and more than $5.5 billion in revenues as of December 2012.
A report Friday by the Government Accountability Office (GAO) also reveals that the IRS could draw more voluntary disclosures from these tax evaders, if the agency increases “education and outreach.” Based on a review of cases for the 2009 Offshore Voluntary Disclosure Program (OVDP), the GAO found examples of immigrants who stated that they were unaware of offshore account declarations required under U.S. tax laws. Numerous immigrant groups have long complained that immigrants are totally unaware of offshore account declarations required under U.S. tax laws and that the IRS should do more increase awareness.
Of the 10,439 closed 2009 OVDP cases, the GAO estimates that the bottom 10 percent of the participants had account balances of less than $79,000 and the top 10 percent had balances over $4 million. The median account balance was $570,000.
IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants, the GAO’s report said. “Obtaining information on how taxpayers found out about IRS’s offshore voluntary disclosure programs could help IRS better identify populations that could benefit from additional taxpayer education and outreach and potentially improve voluntary compliance by taxpayers with new offshore accounts,” the GAO said.
The offshore amnesty programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.
Those with offshore penalties greater than $1 million represented about 6 percent of all 2009 OVDP cases, but accounted for almost half of all offshore penalties. Taxpayers from these cases disclosed a variety of reasons for having offshore accounts, and more than half of them had accounts at Swiss bank UBS.
Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists. IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties. The U.S. government should use some of the $5.5 billion in revenues collected to increase education of the offshore account declarations required under U.S. tax laws.
Patel Law Offices has consulted with hundreds of clients, many of which are unaware immigrants, regarding their offshore asset compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.
The recent report from a government watchdog agency called the Government Accountability Office (GAO) shows how well the IRS attack on offshore tax evasion is coming. The GAO makes recommendations to the IRS, and the IRS pays attention. Those recommendations could put some taxpayers in trouble. Particularly concerning is the Quiet Disclosure commentary. Below is an excerpt from the report.
Despite the significant risks of not coming forward through one of IRS’s
offshore programs, some taxpayers decide to do nothing and remain
noncompliant. Other taxpayers have attempted to disclose their offshore
accounts without paying all the delinquent taxes, interest, and penalties
required by the programs. In a quiet disclosure, taxpayers file amended
tax returns for all or some of the tax years covered by an offshore
program, and report the income from the previously unreported accounts.
The taxpayers would generally pay interest and either accuracy-related or
delinquency penalties on the newly reported income, but would avoid the
higher offshore penalty.
At the same time, taxpayers attempting quiet
disclosures would file late FBARs, if they had not previously filed FBARs,
or amended FBARs, if they had, to disclose the offshore accounts that
they had not previously reported. Taxpayers might also try to circumvent
some of the taxes, interest, and penalties that would otherwise be owed
in offshore programs by reporting the existence of any offshore accounts
and any income from the accounts on their current year’s tax return,
without amending prior years’ returns. These taxpayers would also likely
disclose the existence of the accounts by filing FBARs for the current
calendar year. This filing would appear similar to the opening of a new
account. Such a taxpayer would avoid paying any delinquent taxes,
interest, or penalties, unless audited. As described earlier, taxpayers who
are caught disclosing offshore accounts outside of one of IRS’s offshore
programs risk steeper penalties and criminal prosecution, based on the
facts and circumstances of their cases.
Patel Law Offices has consulted with hundreds of clients regarding their offshore compliance issues, including Quiet Disclosures. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.
HSBC customer Josephine Bhasin was sentenced last month.
Josephine Bhasin of New York earlier pleaded guilty before U.S. Magistrate Judge E. Thomas Boyle in Central Islip, N.Y., to filing a false 2008 individual income tax return that did not report her ownership of a bank account in India at the Hongkong and Shanghai Banking Corporation Limited (HSBC India).
Bhasin filed a false individual income tax return for 2008 that failed to include a Schedule B reporting her interest in or signature authority over foreign financial accounts at HSBC India. In 2008, Bhasin’s bank accounts at HSBC India were valued at approximately $8.3 million. The 2008 income tax return was further false because it reported, on Line 8a, interest income of only $1,257.16, whereas during 2008 Bhasin actually earned approximately $169,000 of interest income on certificates of deposit maintained at HSBC India.
Bhasin admitted that after being contacted by attorneys for the Justice Department’s Tax Division on July 15, 2010, she filed a false Report of Foreign Bank and Financial Accounts (FBAR) for 2009 and a false amended tax return for 2009 that reported ownership of a foreign bank account in India holding only $49,000. In addition, Bhasin also admitted that in September 2010 she filed similar false FBARs for 2007 and 2008.
At sentencing, Bhasin received a very light sentence: no jail time, two years of probation and a $30,000 fine. Additionally, Bhasin agreed to pay a 50 percent civil penalty based on the year with the highest aggregate account balance between 2004 and 2009 for failing to file FBARs relating to her undeclared bank accounts.
Sentencing was delayed several times, with an indication that the defendant was cooperating with the government and may have provided valuable information to support other prosecutions. Bhasin was originally indicted in 2011.
Patel Law Offices has consulted with dozens of HSBC clients regarding their offshore asset compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.
Can I Disclose Issues to the IRS After the Tax Return Is Filed? This question is very important for our clients exploring silently disclosing previously unreported income on an amended income tax return.
The general rule is that taxpayers are stuck with a position once they take it on a tax return filed the IRS. However, there is one obscure exception to this rule is the qualified amended return (QAR), which can be a powerful self-help remedy for taxpayers who erroneously omit issues on their income tax returns (or they cannot sleep because the stance they took on their tax return was too aggressive).
Filing a QAR in these situations may allow a taxpayer to avoid penalties stemming from the inaccurate tax return.
First the QAR rule: Disclosures can be made on a qualified amended return. Treas. Reg. § 1.6664-2(c)(2).
Amounts of tax reported on a qualified amended return will be treated as if they had been reported on the original return for purposes of computing the amount of the tax “underpayment,” unless the original return reported a fraudulent position. Treas. Reg. § 1.6664-2(c)(2).
To be “qualified,” the amended return must be filed before: (1) the date the taxpayer is first contacted concerning an IRS examination; (2) in the case of a promoted transaction, the date the tax shelter promoter is first contacted concerning an IRS examination; (3) in the case of a pass-through item, the date the pass-through entity is first contacted concerning an IRS examination; and (4) the date a John Doe summons is served on a third party with respect to an activity of the taxpayer for which the taxpayer claimed a tax benefit, and (5) the date on which the Service announces a settlement initiative for a listed transaction. Treas. Reg. § 1.6664-2(c)(3)(i).
If a taxpayer fails to disclose a listed transaction for which a tax benefit is claimed, an amended return will be treated as a “qualified” amended return only if it is filed before: (1) the dates described above for qualified amended returns in general; (2) the date the IRS first contacts a person regarding an examination of that person’s liability for penalties under Code § 6707(a) with respect to the undisclosed listed transaction of the taxpayer; and (3) the date on which the Service requests from a taxpayer’s material advisor (or any person who made a tax statement for the benefit of the taxpayer) the information required to be included in a list under Code Section 6112 relating to a transaction that is the same as, or substantially similar to, the undisclosed listed transaction. Treas. Reg. § 1.6664-2(c)(3)(ii).
The QAR rules, like most things tax, are complex. However, the QAR is a powerful tool to remedy an error on an income tax return and avoid penalties arising from the inaccurate tax return.
A local New Jersey client of HSBC Holdings Plc (HSBA) last month pleaded guilty to evading taxes on $1.2 million in income and using an account in India to hide some of his money. This is at least the second guilty plea by a New Jersey defendant with an HSBC India account in 2013.
Sameer Gupta, 33, who co-owns a wholesale adult paraphernalia business in New York, entered his plea yesterday in federal court in Newark, New Jersey.
Gupta, of Edison, New Jersey, admitted that from 2006 to 2009, he diverted receipts from the business, J.S. Marketers, and used a false invoicing scheme to cheat the Internal Revenue Service. Gupta admitted that he diverted receipts into 17 bank accounts, including six at HSBC India.
Gupta is a 50 percent owner of J.S. Marketers Inc., which sold adult paraphernalia to large adult-store chains and smaller retail video stores and bodegas. From 2006 through 2009, Gupta diverted $822,916 of J.S. Marketer business receipts into 17 different personal bank accounts held in the names of various individuals, including himself, his wife, identified only as “A.G.,” and his daughter, identified as “D.G.” He directed more than $250,000 of those diverted funds into six different accounts held offshore at a branch of HSBC in India. From 2007 through 2009, Gupta caused 22 J.S. Marketers corporate checks to be made payable to himself, or his father, identified as “J.G.,” in amounts identical to invoices from J.S. Marketers’ suppliers. Gupta endorsed those checks, which totaled $375,138, and deposited them into bank accounts that he controlled. Gupta filed individual income tax returns for the years 2006 through 2009 that did not report his income arising from the diverted J.S. Marketers funds.
Gupta evaded taxes on $1,198,054 in income for 2006 through 2009. He also failed to file Reports of Foreign Bank and Financial Accounts, (FBARs), for 2005 through 2008. As part of his plea agreement, Gupta has agreed to pay a one-time FBAR penalty of $259,045. The tax loss resulting from Gupta’s conduct is greater than $200,000 but less than $400,000.
Gupta faces a maximum sentence of five years in prison and a fine of $250,000 or twice his gain from the offense, together with the costs of prosecution. Gupta agreed to file true and accurate tax returns and to pay to the IRS all taxes and penalties owed, in addition to the $259,045 penalty imposed for his failure to disclose the foreign accounts. Judge Shwartz scheduled sentencing for June 13, 2013, before U.S. District Court Judge Faith Hochberg.
Gupta faces as many as five years in prison. He agreed to pay back taxes and penalties, as well as a $259,045 penalty for failing to file Reports of Foreign Bank and Financial Accounts, or FBARs.
HSBC’s Geneva-based private bank is one of at least 11 Swiss firms under investigation by U.S. prosecutors investigating offshore tax evasion. HSBC’s Swiss unit gave lists of employees to aid the U.S. probe, a spokesman said in April. Since 2009, at least 84 people have been charged with tax crimes by the U.S., including two dozen offshore bankers, lawyers and advisers. Several HSBC clients were charged. More than 38,000 Americans avoided prosecution by entering the IRS amnesty program (OVDI/OVDP) in which they paid back taxes and penalties while disclosing the banks and bankers who helped them hide offshore accounts.
The case is U.S. v. Gupta, U.S. District Court, District of New Jersey.
Patel Law Offices has consulted with hundreds of clients regarding their offshore asset compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.
Following the IRS’ successful 2009 and 2011 offshore voluntary compliance initiatives, tax professionals should expect an increase in IRS examination activity of taxpayers who did not enter into these compliance initiatives. Approximately 30,000 taxpayers entered into the initiatives. There are hundreds of thousands that the IRS suspects are not in compliance.
The IRS has a fertile source of leads to taxpayers who are not in compliance—from the offshore voluntary compliance submissions submitted (which often leads to other taxpayers and advisors thereto) and from banks such as UBS and HSBC who have turned over the identifying information regarding thousands of taxpayers pursuant to the “John Doe” summons. Our recent informal discussions with IRS and Department of Justice officials indicate that several other pending summonses. Some other helpful leads include criminal enforcement initiatives by the Department of Justice (which result in foreign banks being required to turn over information on U.S. taxpayers pursuant to Deferred Prosecution Agreements) and using recent FATCA legislation, which starting this year will force many foreign banks to disclose their U.S. account holders or be subject to a potentially punitive withholding tax regime.
As a result, information is rapidly flowing to the IRS and tax professionals should be prepared for numerous IRS audits. Most of the audits will be income tax return audits seeking the unreported foreign income. These audits will likely identify the non-filing of Report of Foreign Bank and Financial Accounts, TD F 90.22-1 (FBAR) forms.
The failure to file the FBAR forms could result in significant consequences. If it is determined that if a taxpayer has an unreported foreign bank account, there can be a number of many different consequences—depending on whether the IRS determines there was a violation, a violation which should not be penalized, a violation subject to a penalty or a violation which warrants a referral to the IRS Criminal Investigation Division.
Critical to any FBAR examination are issues surrounding willfulness, which directly impacts the imposition of penalties. To establish a willful violation for purposes of the civil FBAR penalty under 31 USC §5321 or to sustain the heavy burden of proof to obtain a criminal conviction under 31 USC §5322, the government must establish “a voluntary intentional violation of a known legal duty.” The government must prove that the taxpayer was aware of the requirement to fi le the FBAR and intentionally failed to do so (or fi led a false FBAR). Unless there is a confession, the government will rely on circumstantial evidence and infer willfulness based on a course of conduct. Willfulness is difficult to prove and our law firm has aggressively defended numerous FBAR cases resulting in a non-willfulness finding.
A skilled tax attorney should carefully monitor an FBAR case and be proactively engaged if the IRS examiner is considering asserting penalties. Our firm aggressively defends taxpayers, including making appropriate legal submissions on whether there was a violation and, if so, whether there was reasonable cause for the violation. Our submissions aim to convince the IRS examiner (and the IRS examiner’s supervisors) for the imposition of low or no penalties.
Meetings with the examiner and the IRS examiner’s supervisor may be helpful in appropriate circumstances to further advocate the taxpayer’s legal position.
Since the penalty for willful failures carries a high burden of proof which the government must meet to sustain the penalty and the amount of the penalty may depend on the taxpayer’s degree of culpability under the IRS’s penalty mitigation guidelines, there is significant opportunity at the IRS examination stage for a skilled tax attorney to influence a more favorable outcome of the examination in favor of the taxpayer.
Patel Law Offices has consulted with hundreds of clients regarding their FBAR compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.