Offshore Banking

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The Bank Secrecy Act requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’ enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The FBAR covers a calendar year and must be filed no later than June 30th of the following year and includes any interest a U.S. person has in:

  • Offshore bank accounts
  • Offshore mutual funds
  • Offshore hedge funds
  • Offshore variable universal life insurance policies
  • Offshore variable annuities a/k/a Swiss Annuities
  • Debit card and prepaid credit card offshore accounts

Tax Debt Resolution Tax levies Tax Liens Tax Filing Tax Returns Tax Debt Tax assistance Tax Resolution Tax Help Tax Services Income Tax Services Income Taxes Payroll Tax Services Tax Payment Plans Tax Innocent Spouse Bank Levies Offer in Compromise Tax Penalty Abatement Payroll Taxes Offshore Banking Currently Non-Collectable Audit RepresentationThe penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

The Department of Justice started pressuring Swiss Banks including UBS and Credit Suisse to reveal bank account information on their account holders who are U.S. citizens or U.S. residents. Information from the Swiss Banks and other European Banks has now been flowing to IRS and is being used by IRS to uncover taxpayers who have not disclosed foreign income and foreign accounts.
We can assist with IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

The IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls an “initiative” (amnesty program).

The first initiative was announced by IRS on March 23, 2009. The program designated as the IRS Offshore Income Reporting Initiative (the “First Initiative”) was initially available until September 23, 2009 and then extended to October 15, 2009.

  • The First Initiative required that taxpayers:
  • File 6 years of back tax returns reflecting unreported foreign source income;
  • Calculate interest each year on unpaid tax;
  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
  • Apply up to a 20% penalty based upon the highest balance of the account in the past six years.

The IRS is now aggressively supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world, with a new emphasis in Asia and the Middle East pressuring banks like HSBC and others to reveal U.S. accountholder information..

The IRS on February 8, 2011 announced the terms of its Second Voluntary Disclosure Initiative (the “Second Initiative”) which is available until September 9, 2011. Taxpayers who qualify for the Second Initiative will be required to follow certain filing procedures in exchange for not being subject to criminal and civil fraud penalties.

The Second Initiative requires that taxpayers:

  • File 8 years of back tax returns reflecting unreported foreign source income;
  • Calculate interest each year on unpaid tax;
  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
  • Apply up to a 25% penalty based upon the highest balance of the account in the past eight years.
  • In return, the IRS has agreed not to pursue:
  • Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and
  • Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS. For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.

We have found that the Revenue Agents working these cases have made errors that favor the IRS. These errors include using the wrong exchange rate, wrong valuation dates, including foreign assets not subject to the FBAR penalty, and not considering all mitigating circumstances to abate penalties or apply a lower FBAR penalty rate of 12.5% or 5%. Let our experience work for you to avail you of the benefits of this amnesty program with the lowest liability possible.

This program does not only affect tax cheats, but hundreds of thousands of honest U.S. taxpayers including immigrants living in the U.S. and U.S. citizens living overseas, who have offshore accounts that innocently have gone unreported.

Given the wealth of foreign account information released to the IRS and the IRS’ expansion of resources to enforce compliance, this may be the last opportunity for taxpayers to resolve unreported foreign income issues without criminal prosecution. We recommend that taxpayers in this situation act immediately and seek assistance from a tax attorney with expertise in the Voluntary Disclosure Program for undisclosed foreign accounts.

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