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IRS Cracking Down On Banks With US Citizens

Posted by James Simango, CPA
James Simango, CPA
James Simango CPA (U.S. Qualified), CPA Australia, B.Sc (Fin)(Acc) James is a
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on Saturday, 28 January 2012
in US Expatriates

If you're thinking that you "got away" with not filing a tax return five years ago because the IRS never contacted you, it may come back to haunt you. Think Again. 

If you do owe back taxes and do not pay, you can incur additional penalties and interest for the time lapse of these unpaid taxes.

What are you waiting for? The sooner you take care of your delinquent tax return the better. Do not wait for the IRS to contact you first.

The IRS is cracking down on foreign banks making them report US citizens on the banks books. Wegelin & Co., the 270-year-old Swiss private bank, agreed to a sale to Switzerland’s Raiffeisen Group after coming under investigation in the U.S. for allegedly helping Americans evade taxes. Wegelin & Co., the 270-year-old Swiss private bank, agreed to a sale to Switzerland’s Raiffeisen Group after coming under investigation in the U.S. for allegedly helping Americans evade taxes.

UBS settled the U.S. tax-evasion scandal that threatened to bring the banking giant to its knees. UBS agreed on February 18, 2009 to pay a fine of $780 million to the U.S. government and entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service. As part of the deal, UBS also settled Securities and Exchange Commission charges of having acted as an unregistered broker-dealer and investment adviser for Americans.

In July 2008, a United States Senate panel accused Swiss banks, including UBS and LGT Group, of helping wealthy Americans evade taxes through offshore accounts. U.S. clients held about 19,000 accounts at UBS, with an estimated $18 billion to $20 billion in assets, in Switzerland, according to the findings. In response to the report and the FBI investigation, UBS announced that it would cease providing cross-border private banking services to US-domiciled clients through its non-US regulated units as of July 2008.

The U.S. government agreed last August to drop tax-evasion charges against UBS after Switzerland promised it would transfer the details of around 4,450 clients that UBS had helped to dodge taxes. The transfer lifted the veil on Switzerland's cherished tradition of banking secrecy.

UBS, in a statement, said it was "pleased" to learn the Swiss authorities would transfer the names and meet terms of the U.S. agreement.

"UBS expects that implementation of the treaty will be completed in the coming weeks, although the exact date of completion is not yet defined," UBS said.

UBS's wealthy clients left in droves, with the threat of renewed legal action looming if Switzerland failed to deliver on its promises to release the account names within a year of the U.S. deal being struck.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

Foreign Banking Account Reporting (FBAR) rules apply to all U.S. individuals and organizations and across all industries and are not limited to financial services. Compliance with these rules is likely to be a significant undertaking for many organizations. Time is of the essence, because of the effort required to gather required information and to prepare FBAR forms. Penalties associated with failure to report these accounts can be significant and proper preparation is important.

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Posted by James Simango, CPA
James Simango, CPA
James Simango CPA (U.S. Qualified), CPA Australia, B.Sc (Fin)(Acc) James is a
User is currently offline
on Saturday, 28 January 2012
in US Expatriates

The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.  The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

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IRS Offers Some Relief for Expats and Dual Citizens

Posted by James Simango, CPA
James Simango, CPA
James Simango CPA (U.S. Qualified), CPA Australia, B.Sc (Fin)(Acc) James is a
User is currently offline
on Friday, 02 December 2011
in US Expatriates

The Internal Revenue Service has provided information to clarify the tax responsibilities of U.S. citizens and dual citizens living abroad in response to concerns from Canadians and expatriates from other countries about penalties that might be levied on their unpaid taxes and undeclared bank accounts.

The IRS posted the information on its Web site Friday after meetings between the U.S. Ambassador to Canada and Canadian officials to address worries from Americans living abroad that they would be subject to heavy penalties they had never been aware of until recently (see IRS to Ease Tax Penalties for Americans Living in Canada).

The Foreign Account Tax Compliance Act, or FATCA, which was included as part of the HIRE Act last year, requires foreign financial institutions to report directly to the IRS information about the financial accounts held by U.S taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Taxpayers who don’t report the information on foreign bank account reporting forms could be subject to heavy penalties. Expatriate groups such as American Citizens Abroad have expressed concerns about being penalized for having retained their U.S. citizenship.

The IRS tried to allay such fears in its new page, entitled “Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.,” but still insisted that some of the requirements for reporting are necessary.

“The IRS is aware that some taxpayers who are dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so,” it said. “Some of those taxpayers are now aware of their filing obligations and seek to come into compliance with the law. This fact sheet summarizes information about federal income tax return and FBAR filing requirements, how to file a federal income tax return or FBAR, and potential penalties. Note that penalties will not be imposed in all cases.”

However, the IRS is still under obligation to levy certain penalties for noncompliance since it cannot flout congressional legislation. The FATCA provisions were included in the HIRE Act of 2010 as a way to help offset the cost of tax credits for hiring new employees by cracking down on unpaid taxes that the IRS has been aggressively pursuing in countries like Switzerland.

In its new information page, the IRS noted, “If you are required to file a federal income tax return and fail to do so, or you fail to pay the amount of tax shown on your federal income tax return, you may be subject to a penalty under Internal Revenue Code (IRC) section 6651, unless you show that the failure is due to reasonable cause and not due to willful neglect.  The penalty is 5 percent of the amount of tax required to be shown on the return.  If the failure continues for more than one month, an additional 5 percent penalty may be imposed for each month or fraction thereof during which the failure continues.  The total failure to file penalty cannot exceed 25 percent.  Note that there is no penalty if no tax is due.”

As for FBAR penalties, the IRS left open the possibility of not imposing penalties if a taxpayer could show reasonable cause.

“If you fail to file an FBAR, in the absence of reasonable cause, you may be subject to either a willful or non-willful civil penalty,” said the agency. “Generally, the civil penalty for willfully failing to file an FBAR can be up to the greater of $100,000 or 50 percent of the total balance of the foreign account at the time of the violation.  See 31 U.S.C. Section 5321(a)(5).  Note that this penalty is applicable only in cases in which there is willful intent to avoid filing.  Non-willful violations that the IRS determines are not due to reasonable cause are subject to a penalty of up to $10,000 per violation.  There is no penalty in the case of a violation that IRS determines was due to reasonable cause.”

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