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U.S. Reporting of Undisclosed Foreign Accounts

Insight September 01, 2009

The IRS has now implemented a special approved penalty framework for resolving the civil side of offshore voluntary disclosures and this approved penalty framework is effective till September 23, 2009 at which time the IRS intends to re-evaluate the approved penalty framework. Under the approved penalty framework, the taxpayer has to file correct or amended tax returns for tax years 2008 back to 2003.

INTRODUCTION

There may be more than 50,000 U.S. taxpayers who have held accounts at UBS in Switzerland that were undisclosed to the IRS. They could face criminal prosecution and significant penalties.
VOLUNTARY DISCLOSURE PRACTICE
The IRS has had a voluntary disclosure practice in its Criminal Manual for many years.
The IRS has now implemented a special approved penalty framework for resolving the civil side of offshore voluntary disclosures and this approved penalty framework is effective till September 23, 2009 at which time the IRS intends to re-evaluate the approved penalty framework. Under the approved penalty framework, the taxpayer has to file correct or amended tax returns for tax years 2008 back to 2003.
Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.
Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including forfeiture of the money in the foreign accounts, the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS

The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters. Thus, if a taxpayer reported and paid tax on all taxable income but did not file a Report of Foreign Bank and Financial Accounts (FBAR), the taxpayer should not use the voluntary disclosure process but should file the delinquent FBAR.

An FBAR gets reported by filing Form TD F 90-22.1 with the Department of the Treasury (not the IRS) on or before June 30, of the succeeding year.

An FBAR is required to be filed for all accounts where a U.S. person or entity has a financial interest or signature authority in foreign financial accounts if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

In the case of a corporate officer, for securities that are listed on a national exchange over which there is no direct financial interest on the part of the officer, there is not an individual filing requirement. This exception is only if the organization has filed the Form and notified the officer in writing that they are not required to file.

CRIMINAL CHARGES AND CIVIL PENALTIES

A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000.

Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

OUR SERVICES

Rimon Law Group is well positioned to assist you and your clients with foreign disclosure matters as a result of our attorneys’ extensive experience working with high-net-worth individuals and companies and their expertise in international tax.

We have made extra efforts for the next three weeks for our attorneys to be available to speak with you in more detail about how we might work with you to ensure that you or your clients take the smartest steps and make the best decisions when it comes to foreign bank account disclosure and the IRS voluntary compliance program.

FOR FURTHER INFORMATION

Additional information about the foreign bank account disclosure or the IRS voluntary disclosure practice can be found on the IRS website or by contacting Dave Wolf, Esq. at dave@rimonlaw.com

Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter(s) addressed herein.