Detroit, Michigan Tax Law Blog

Whether you file your own tax returns or use a CPA, you are best advised to report any and all foreign and offshore accounts valued at more than $10,000 to the IRS because careful eyes are poring over your holdings.

Being pro-active on your tax returns will help avoid criminal prosecution or steep penalties. The IRS - in a November 2010 press release - wrote over 18,000 people had made voluntary disclosures. The tax collecting agency has worked out an agreement with the Swiss Banks for international tax compliance. Data mining can uncover evidence almost anywhere with the slimmest leads.

If you didn't file the Report of Foreign Bank and Financial Accounts you can still qualify for tax amnesty. The IRS recently re-opened its Offshore Voluntary Disclosure initiative for an indefinite period of time.  There may be other options as well depending on a client's circumstances.  Now is the time for disclosure of these accounts because the Foreign Banks and Financial Institutions will be providing account information of US persons to be in compliance with the Foreign Account Tax Compliance Act (FATCA).

Ignore the inquiries at your peril. The most notable example of tax cheaters was Walter Anderson, a telecommunications entrepreneur who, according to MSNBC, hid $450 million between 1995 and 1999 in offshore accounts. He was sentenced to nine years in jail, near the high range of the sentencing range. He was able to keep $100 million to $175 million with the help of good lawyers.

He isn't alone. Among the celebrity tax evaders reported recently by Women's Day were Wesley Snipes, ordered to pay $17 million in back taxes plus penalties and interest in a 2006 case; photographer Annie Leibovitz owed $2.1 million for taxes in 2004, 2006 and 2007 plus New York state tax liens, and the infamous Al Capone was sentenced to 11 years in jail and $50,000 fines in 1931 for ill-gotten gains.

Regardless of how you accumulated your wealth, you will need an expert to review your tax filings, understand your offshore holdings and advise you accordingly. At the law offices of Jeffrey S. Freeman we help individuals and corporations bring their foreign accounts into compliance with the federal reporting requirements while avoiding criminal prosecution and minimizing penalties.

Tax law remains a specific and highly trained discipline within the legal realm. The individual who handles your divorce, real estate, copyright and corporate acquisitions may not have that singular focus in taxes that our firm brings to the table.  Our team of attorneys, accountants and former IRS agents work diligently to fix your tax conflicts in a timely manner. We've been down to the mat with the IRS on numerous occasions and know what is crucial to problem solving and conflict resolution.

No one is untouchable. Step forward now and work with people who ask the right questions, compile the proper documentation and represent you with respect and thoroughness.   Contact our office or email us at info@freemantaxlaw.com for a consultation.

The new Foreign Asset Reporting requirements imposed by Internal Revenue Code (hereafter referred to as "IRC") 6038D left many unanswered questions for taxpayers that were unsure about their future filing obligations.

Finally, we have some detailed guidance.  The IRS has issued temporary (and proposed) regs providing the specifics on the IRC Section 6038D requirement for individuals to attach a statement to their income tax return to provide information on foreign financial assets in which they have an interest.

The regulations are effective for tax years ending after Dec. 19, 2011, but taxpayers can apply them to earlier years. IRS has also recently released the final version of Form 8938 (Statement of Specified Foreign Financial Assets) and its Instructions, which individual taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

A specified person who fails to provide required information for any tax year is subject to a $10,000 penalty. A failure continuing for more than 90 days after the day on which IRS mails a notice of the failure to the specified person subjects the specified person to an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired, up to a maximum penalty of $50,000 for each such failure.No penalty applies if the failure was due to reasonable cause and not willful neglect. IRC Sec. 6038D(g).  

In October of 2011, IRS released a draft version of Form 8938, the form used to report Foreign Assets. The final version, which is used to by individuals to report specified foreign financial assets for tax year 2011, was released in December of 2011.

The temporary regulations define terms that apply for purpose of IRC Sec. 6038D; provide rules to determine if a specified individual or a specified domestic entity (collectively, a specified person) must file a Form 8938 with their annual return; define what are specified foreign financial assets; detail what information needs to be reported; provide guidelines for valuing specified foreign financial assets; list exceptions to the reporting requirements; and describe the penalties that apply for failure to comply with the reporting requirements.

The big questions were who is a specified individual for purposes of this law and what assets are to be included. The temporary regs provide that a specified individual is a U.S. citizen, a U.S. resident alien, or a nonresident alien who has elected under IRC Sec. 6013(g) or (h) to be taxed as a U.S. resident. A resident alien who elects to be taxed as a resident of a foreign country under a U.S. income tax treaty's residency tie-breaker rules is also a specified individual. In addition, certain nonresident aliens who are treated as residents under other Code sections are specified individuals. 

Under the temporary regs, a specified person must file Form 8938 if the person has an interest in one or more specified foreign financial assets and those assets have an aggregate fair market value (FMV) exceeding either $50,000 on the last day of the tax year or $75,000 at any time during the tax year ($100,000 and $150,000, respectively, for married specified individuals filing a joint annual return).

The reporting requirements by each specified person that is a joint owner of the asset. In general, each joint owner includes the full value of the jointly owned asset for purposes of determining whether the aggregate value of all specified foreign financial assets in which the joint owner has an interest exceeds the reporting thresholds. 

Married specified individuals who file a joint annual return or a separate return for the tax year also have specific reporting requirements that taxpayers must follow as well. The filing requirments are very specifically defined in the regulations and should be closely reviewed to determine the proper filing needed.

Whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances. This is good for taxpayers in my opinion and presents an opportunity to clean up the problem of not filing the Form 8938 without severe penalties if it was missed by an accountant or the taxpayer themselves.

The bottom line is that 6038D has many traps for the unweary taxpayer and there are definitely more filing requirements for those that have Foreign Assets.  This new filing requirement has many questions still unanswered.  Consult with a qualified tax attorney today by calling the Law Offices of Jeffrey S. Freeman to determine if you indeed have a filing requirment at 1-866-236-4829 or email us at info@freemantaxlaw.com.

The November 1st, 2011 deadline for persons who have signature authority over, but no financial interest in, foreign financial accounts to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) is quickly approaching. This deadline was extended by IRS in Notice 2011-54, to provide those individuals additional time to gather the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years.

Background. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30th of the succeeding year.

In IRS Notice 2009-62, the IRS extended the deadline to June 30, 2010, to file a FBAR for years 2008 and earlier, for (i) persons with no financial interest in a foreign financial account but with signature or other authority over that account; and (ii) persons with a financial interest in or signature authority over a foreign financial account in which the assets are held in a commingled fund. 

In IRS Notice 2010-23, which modified and supplemented Notice 2009-62, the IRS deferred the deadline for persons with signature authority over, but no financial interest in, a foreign financial account for which a FBAR would otherwise have been due on June 30, 2010, until June 30, 2011. This deadline applied to FBARs reporting foreign financial accounts for the 2010 and prior calendar years. Both of these extensions were provided to give Treasury more the time to develop comprehensive FBAR guidance.

On Feb. 24, 2011, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued a final rule to amend the Bank Secrecy Act (BSA) regs regarding FBAR reporting requirements. The rule was made effective as of March 28th, 2011 and applies to 2010 reports required to be filed by June 30th, 2011, and those for subsequent years. It largely adopted the proposed regs issued on February 26th, 2010, which provided additional guidance and clarification regarding who must file FBARs.

Deadline further deferred. In response to comments that individuals with signature authority over, but no financial interest in, foreign financial accounts were having difficulty gathering the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years by the June 30, 2011 deadline, IRS pushed the deadline back to Nov. 1, 2011. However, the June 30, 2011, deadline for reporting either signature authority over, or financial interest in, foreign financial accounts for the 2010 year remained unchanged. IRS also stressed that Notice 2011-54, had no effect on the requirements to provide information or file FBARs in connection with IRS's 2009 or 2011 Offshore Voluntary Disclosure Programs.

Extended deadline quickly approaching. Individuals with signature authority over foreign financial accounts are reminded of the November 1st, 2011 deadline to file FBARs for 2009 and earlier calendar years.

There is no indication at this point that there will be further extensions.

This was a news release that I found from the irs.gov website:

IR-2011-94, Sept. 15, 2011

WASHINGTON - The Internal Revenue Service continues to make strong progress in combating international tax evasion, with new details announced today showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.

The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program - a figure that will increase because it doesn't yet include penalties.

"By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts," said IRS Commissioner Doug Shulman. "We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion."

Global tax enforcement is a top priority at the IRS, and Shulman noted progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.

The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009. The programs gave U.S.taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.

The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.

"My goal all along was to get people back into the U.S. tax system," Shulman said. "Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion."

In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.

The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.

"This dollar figure will grow in the months ahead," Shulman said. "But just as importantly, we have changed the risk calculus. Americans now understand that if they try to hide assets overseas, the chances of being caught continue to increase."

The financial impact can be seen in a variety of other areas beyond the 2009 and 2011 programs.

• Criminal prosecutions. People hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars.
• UBS. UBS AG, Switzerland's largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government.

The two disclosure programs provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion, and the IRS will use this information to continue its international enforcement efforts.

The IRS's Small Business/Self-Employed (SB/SE) Division has issued an internal memorandum which says that the trust fund recovery penalty (TFRP) may be imposed against third-party payroll service providers as well as the employer. Third Party payroll services providers and their employees can be subject to the TFRP.

Trust fund recovery penalty. The Internal Revenue Code (IRC Section 6672) imposes the TFRP on any person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. The amount of the penalty is equal to the amount of the tax that was collected and not paid. The penalty is imposed on a "responsible person." A responsible person may be anyone in a business entity who has the duty to collect, account for, or pay over the tax.

Common law employers. The new IRS memorandum applies to "common law employers." A common law employer is any person who has the status of employer under the usual common law rules applicable in determining the employer-employee relationship.

Factors considered by courts in determining whether an employer-employee relationship exists include:

(1) the degree of control exercised by the principal;

(2) which party invests in the work facilities used by the worker;

(3) the opportunity of the individual for profit or loss;

(4) whether the principal can discharge the individual;

(5) whether the work is part of the principal's regular business;

(6) the permanency of the relationship;

(7) the relationship the parties believed they were creating; and

(8) the provision of employee benefits.

Third-party arrangements. Common law employers may designate a third party who is not the common law employer or a statutory employer under IRC Section 3401(d)(1) to take over some or all of the employer's federal employment tax withholding, reporting, and payment responsibilities and obligations. A third party that could be subject to a TFRP includes a payroll service provider, a professional employer organization, or a employee leasing company that is not the common law or statutory employer. The TFRP may be assessed against the payroll service provider, professional employer organization, or responsible parties within those entities.

New guidance. A third-party payer is considered a responsible person under Code Section 6672 if the person had significant control over the payment of its client's employment taxes. A third-party payer is considered to have willfully failed to perform the payroll tax responsibility if the failure to perform the responsibility was intentional, deliberate, voluntary, reckless, or knowing, as opposed to accidental. No evil intent or bad motive is required.

The memo identified a number of factors considered by IRS in determining willfulness in situations involving third-party payers, including whether the client had knowledge of a pattern of noncompliance by the third-party payer at the time the delinquencies were accruing, whether the third-party payer fraudulently concealed the noncompliance from the client, and whether the client had received prior IRS notices indicating problems with its employment tax returns.

Use of a third-party payer does not relieve a common law employer from its responsibilities of ensuring that its tax obligations are met. A common law employer that uses a third party to prepare its employment taxes can still be subject to the TFRP if it satisfies the responsible person and willfulness requirements of IRC Section 6672(a) . Third Party providers should be aware of this memorandum and should recognize the importance of their obligations in this process.

If you have any trust fund recovery penalty problems, please get the advice of a tax attorney.  Contact our firm for a consultation at info@freemantaxlaw.com 

In a news release IR 2011-70, the IRS reminded taxpayers of the pending June 30th deadline for individuals who either have a bank or other financial account in a foreign country, or who have signature authority over such an account, to file Form TD F 90-22.1, Report of Foreign Bank and Foreign Accounts (FBAR) for the 2010 tax year.

Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30, of the succeeding year.

In Notice 2010-23, the IRS deferred the deadline for persons with signature authority over, but no financial interest in, a foreign financial account for which a FBAR would otherwise have been due on June 30, 2010, until June 30, 2011. Thus, the June 30, 2011, deadline applied to FBARs reporting foreign financial accounts for the 2010 and prior calendar years.

In Notice 2011-54, the deadline was further deferred for individuals who have signature authority over, but no financial interest in, foreign financial accounts, to file FBARs for pre-2010 years. These individuals now have until Nov. 1, 2011, to report their signature authority over such accounts for 2009 and earlier years. The deadline for 2010, however, remains unchanged at June 30, 2011.

The June 30, 2011, deadline was also further extended for certain employees and officers of an investment advisor registered with the Securities and Exchange Commission who have signature or other authority over, and no financial interest in, a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940. These individuals now have until June 30, 2012, to file FBARs.

In IR 2011-70, the IRS reminded taxpayers of the pending June 30th due date for everyone who either has a bank or other financial account in a foreign country, or who has signature authority over such an account (except financial professionals subject to the June 30, 2012, deadline), to file an FBAR for 2010. The IRS further cautioned taxpayers that they may be subject to the FBAR filing requirements, even if their foreign accounts don't generate any taxable income.

IRS warned taxpayers that the civil and criminal penalties for noncompliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to $10,000 per violation, and civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

If you have an FBAR or Offshore Disclosure Initiative question, please contact our firm today.

How many of us have done things in our past that we desperately wish we could go back and change? Thanks to a recent Memorandum that was published from Steven T. Miller, Deputy Commissioner for Services and Enforcement, for the Internal Revenue Service, those of you who participated in the IRS's 2009 Offshore Voluntary Disclosure Initiative and feel that you were unjustly penalized, may have a chance to change the past!

One of the main differences between the 2009 Offshore Voluntary Disclosure Initiative and the 2011 Initiative is the penalty structure. In 2009, the initiative set forth a flat 20% penalty on the offshore accounts of all Taxpayer's who came forward. The 2011 Initiative has set forth a three tier penalty structure. Although the highest penalty rate has been raised from 20% to 25%, the IRS has attempted to provide some relief for taxpayers who they deem less culpable and/or less lucrative in their quest to bring in more revenue. Some taxpayers with Non-disclosed Offshore Income who meet certain delineated requirements, may now, under the 2011 Initiative, qualify for a reduced penalty of 12.5% or even as little as 5%.

The March 1, 2011 Memorandum from Steven T. Miller states that taxpayers who participated in the 2009 Offshore Voluntary Disclosure Initiative and believe that the facts of their case may qualify them for the 5% or 12.5% reduced penalty criteria of the 2011 Offshore Voluntary Disclosure Initiative may, after following certain procedures, have their case reviewed. In the instance where a case has already been closed, a taxpayer may be able to get a portion of the penalties that they paid returned to them, and if the case is still open, the examiner will have the option of using the 2011 penalty structure.

If you participated in the 2009 Offshore Voluntary Disclosure Initiative and need help first, determining whether you are able to have your case reexamined and have your penalties lowered, and second, taking the steps necessary to complete this process, please contact our office immediately. Let us help you turn back the hands of time!