New Court Case Limits the Reasonable cause exception to FBAR penalties

- By : P. Patel

Taxpayers across the country rely on advice from their accountants and CPAs to meet the complicated requirements of the U.S. Tax Code. But a new case, Jarnagin v United States, in the U.S. Court of Federal Claims suggests that CPA advice may not be enough to stop the IRS from assessing FBAR penalties for non-willful

New IRS practice unit: “Substantial compliance” doctrine, international information return penalties

- By : P. Patel

The IRS Large Business and International (LB&I) division last week publicly released a “practice unit” that addresses what the term “substantially complete” means with reference to international information return penalties, particularly Form 5471. The IRS recently released a new International Practice Unit (“IPU”) on failures to file form 5471.  IPUs are meant to act as a

Penalties for Form 5472 Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

- By : P. Patel

We would like to highlight a recent change in the IRS’ policy with respect assessing statutory late filing penalties related to certain international information forms. Of particular concern to international businesses is the revised policy that the $10,000 penalty may be systematically applied during the initial processing of a Form 5472 that is attached to

Large Penalties: Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations

- By : P. Patel

Internal Revenue Code (I.R.C.) Section (§) 6038(a) and Treasury Regulation § 1.6038-2(a) require a U.S. citizen or resident alien to furnish information with respect to certain foreign business entities. This information includes any foreign partnership/corporation entity data, stock ownership data, financial statements, and intercompany transactions with related persons. The Form 5471, Information Return of U.S.

Method to Cure Delinquent or Incomplete Foreign Information Returns Without Penalties

- By : P. Patel

Last year, the IRS announced its third offshore voluntary disclosure initiative. Like the earlier initiatives, the 2012 OVDP is designed to encourage taxpayers with unreported offshore accounts and assets to voluntarily disclose them to the IRS. The 2012 OVDP is available to individuals and entities, including corporations, partnerships and trusts. Unlike the previous initiatives, this

IRS Announces New Rules for FBAR Penalties

- By : P. Patel

There are two types of penalties applicable to FinCEN  Form 114 (Report of Foreign Bank and Financial Accounts) (FBARs):  (1) Non-Willful and (2) Willful.  The penalties are theoretically assessed per account and not per FBAR; however, in practice, our firm has seen application on a per FBAR filing.  Additionally, the penalties are assessed for each

Opt Out of OVDI Program Penalties to Get a Lower Penalty

- By : P. Patel

Under the 2011 Offshore Voluntary Disclosure Initiative (OVDI) or 2012 Offshore Voluntary Disclosure Program (OVDP), the 2012 program gives no discretion to the IRS agents to reduce penalties. If a participant does not believe that he or she should have to pay the 27½% penalty, their only choice is to “opt out” of the program,

HSBC Bank Expects Significant Penalties from US Government for Violations

- By : P. Patel

Global bank HSBC has said it may face “significant” penalties from the US authorities with regard to an ongoing probe into suspected tax evasion by the US-based clients of its Indian unit, among other cases. The US tax department is investigating possible evasion of federal income taxes by the American residents of Indian origin through

How to Defend Against FBAR Penalties

- By : P. Patel

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

Appeals of penalties imposed during the Offshore Voluntary Opt-Out

- By : P. Patel

When a taxpayer has a tax increase though a civil tax audit (or examination, in IRS terminology), a taxpayer has the right to appeal that increase administratively and through court, if unsuccessful administratively.  For taxpayers not willing to accept the 27.5% FBAR-equivalent penalty, they may opt-out of the standard FBAR penalty scheme and argue for