FBARs and Offshore Hedge Funds
The California Tax Lawyer (Summer 2009 Edition) published my article: FBARs and Offshore Hedge Funds. Please see copy below.
FBARs and Offshore Hedge Funds
After the landmark agreement between the U.S. and Swiss government over secret UBS Swiss bank accounts held by U.S. citizens, the IRS is now focusing on hedge funds in the Cayman Islands. Recently, IRS officials advised that certain U.S. investors in off-shore hedge funds must file a FBAR.
On June 12, 2009, an IRS official stated that the term “financial interest” (which requires a FBAR filing) includes hedge funds that “function as mutual funds.” It appears the IRS and Justice Department will identify U.S. taxpayers who evade U.S. taxes by investing with off-shore hedge funds. The IRS and Justice Department are pressing foreign financial institutions to provide them with information about Americans with “foreign, secret bank accounts.”
Senate Finance Committee Chairman Max Baucus (D., Mont.) has introduced legislation that would require an FBAR to be filed with a tax return. It would also require U.S. financial institutions to report to the IRS transfers of money into any foreign financial account. This would make it possible for the IRS to have information about the creation of a foreign account at the beginning.
Penalty Regime for Foreign Bank Account Filing (FBAR)
The California Tax Lawyer (Summer 2009 Edition) published my article: Penalty Regime for Foreign Bank Account Filing (FBAR), please see copy below.
Penalty Regime for Foreign Bank Account Filing (FBAR)
Each U.S. person who has a financial interest in, or signature or other authority over, one or more foreign financial accounts (valued over $10,000, at any time during a calendar year) is required to report the account on Schedule B/Form 1040, and TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR)), due by June 30 of the succeeding year (I.R.M. 5.21.6.1. (2/17/09)). The IRS has six years to assess a civil penalty against a taxpayer who violates the FBAR reporting rules.
Failure to file the required report or maintain adequate records (for 5 years) is a violation of Title 31, with civil and criminal penalties (or both). For each violation a separate penalty may be asserted.
(I) Non Willful Violation: Civil Penalty - Up to $10,000 for each violation.
(II) Negligent Violation: Civil Penalty - Up to the greater of $100,000, or 35 percent of the greatest amount in the account.
(III) Intentional Violations -
(1) Willful Failure to File FBAR or retain records of account: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - Up to $250,000 or 5 years or both.
(2) Knowingly and Willfully Filing False FBAR: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - $10,000 or 5 years or both.
(3) Willful Failure to File FBAR or retain records of account while violating certain other laws: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - Up to $500,000 or 10 years or both.
14,700 Offshore Tax Evaders Settle with IRS
Filed under: IRS, tax evasion, unreported income, voluntary disclosure
Previous estimates by the IRS project in excess of 700,000 unreported Foreign Bank Accounts (held by U.S. Taxpayers). Under the 2009 voluntary disclosure “last chance” compliance initiative 14,700 U.S Taxpayers came forward (approximately 2% of the undisclosed accounts).
Approximately 98% of U.S. Taxpayers’ foreign bank accounts still remain unreported.
Slew of offshore tax evaders settle with IRS
From MSNBC.com (11/17/09)
MIAMI - More than 14,700 U.S. taxpayers came forward to disclose billions in offshore bank accounts in 70 countries under a voluntary Internal Revenue Service program allowing most to avoid criminal prosecution as long as they pay what they owe, IRS officials said Tuesday…
“It shows we are serious about piercing the veil of bank secrecy,” he said. “The whole game has changed.”
Also Tuesday, the IRS and Swiss unveiled the criteria being used to determine which American UBS accounts will be disclosed under the August agreement.
Accounts being targeted include those that contained 1 million or more Swiss francs at any time between 2001 and 2008; instances in which there was clear fraudulent actions, such as false documents; and accounts that earned an average of 100,000 francs a year for at least three years.
The equivalent amounts in U.S. dollars vary widely depending on the year, as the dollar lost over a third of its value against the Swiss franc during that period. One million francs was worth about $600,000 in 2001, compared with about $900,000 seven years later.
Click here for complete article.
In related news, from the Wall St Journal (11/18/09),
Swiss to Turn Over U.S. Tax Names
FBAR: Filing Requirements for Gold or other Non-Cash Assets
Under IRS (6/29/09) FAQs regarding Report of Foreign Bank and Financial Accounts (FBAR), the IRS confirmed:
1. An FBAR must be filed whether or not the foreign account generates any income;
2. An FBAR is required for account maintained with financial institutions located in a foreign country if the account holds gold (or other non-cash assets).
FBAR Filing: Domestic Corporations with Foreign Accounts
In the IRS Workbook on the Report of Foreign Bank and Financial Accounts, the IRS advised that a domestic (e.g., NY) corporation that has foreign accounts:
1. The corporation must file a FBAR for the corporations’ accounts.
2. A majority shareholder (over 50% of the value of the stock), must also file a FBAR.
For a domestic corporation with foreign accounts, both the corporation and the majority shareholder must each file a FBAR to report the foreign account (owned by the domestic corporation).
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