FBAR Filing 2010 Updates
In March 2010, the IRS suspended TD F 90-22.1 (FBAR) filing requirements for persons other than U.S. Citizens and domestic entities (including those “in and doing business in the U.S.”). (IRS Announcement: 2010-16)
On 8/7/09, IRS Notice 2009-62, extended the deadline for filing FBAR’s for 2008 (and prior years) for persons with signature authority (but no financial interest) in foreign financial accounts until June 30, 2010.
In March 2010, the IRS extended the 2008 FBAR filings due June 30, 2010 until June 30, 2011 (for FBAR filings due for 2010 and prior years) for “persons with signature authority” (but no financial interest) in foreign financial accounts, defined as including: “Those in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund (including mutual funds). (IRS Announcement: 2010-23)
UBS and The IRS - What’s Next (Summary)
In February 2009, UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement with the U.S.:
1. Admitting guilt on charges of conspiring to defraud the U.S. by impeding IRS tax collection.
2. Paid $780 million in fines.
3. Agreed to provide the identities and account information of U.S. Taxpayers with “cross-border” UBS accounts.
To date, UBS has supplied the IRS with the names of 323 Americans who wired money from their U.S. accounts to Switzerland. By August 2010, UBS has agreed to disclose an additional 4,450 U.S. Taxpayers with cross-border UBS accounts.
The Swiss Government has issued an edict mandating that UBS cease and desist “turning over” the identities of U.S. Taxpayers to the IRS. UBS has proposed a course of conduct which insulates itself from conflicts with the Swiss legislature and the U.S. authorities.
UBS has proposed to send to each U.S. Taxpayer a USB stick (i.e., a flash drive) with their “cross-border” UBS bank account records. Once the USB stick is sent to the U.S. Taxpayer, the IRS may commence a civil tax audit, subpoena the USB sticks and obtain all tax information sought from UBS.
U.S. Taxpayers with unreported foreign bank accounts (and income) are subject to IRS civil tax audits with civil penalties (monetary penalty, only) and criminal tax prosecutions (monetary penalty and jail).
The IRS, under a civil tax audit:
1. May summon evidence which support culpability for a crime (e.g., tax evasion) and civil penalties (e.g., 75% fraud penalty).
2. May trigger investigation into money laundering (i.e., when U.S. Taxpayers attempt to repatriate into the U.S., funds from undisclosed foreign bank accounts, they may be culpable for money laundering).
3. Use evidence obtained under a civil tax audit to support a subsequent criminal prosecution (including culpability for 3rd party co-conspirators for obstructing tax collection and conspiracy).
H.I.R.E. and the Foreign Account Tax Compliance Act
On Thursday, March 18, 2010 President Obama signed the Hiring Incentives to Restore Employment Act (H.R. 2847). Included in the bills’ provisions is the Foreign Account Tax Compliance Act.
This Act requires foreign entities to provide U.S. Tax Withholding Agents with the name, address and Tax Identification Number of any U.S. Individual who is an account holder or a substantial owner of a foreign entity, i.e., owns more than 10% of:
1. the foreign corporation’s stock;
2. the profits or capital interest of a foreign partnership; or
3. holds more than 10% of the beneficial interest in a foreign trust (or is the trust grantor).
U.S. Tax Withholding Agents are required to report foreign account tax compliance to the U.S. Treasury Department. Publicly held corporations are exempt from the reporting requirement.
Foreign entities, who fail to report the required information will be required to withhold tax at the rate of 30% on payments made to U.S. Taxpayers.
IRS Audits for Wealthy on the Rise
In 2009, the IRS increased its audits of Taxpayers with $1 million income (and over):
1. $1M - $5M Up 45%
2008: 12,746
2009: 18,585
2. $5M - $10M Up 17%
2008: 1,784
2009: 2,090
3. $10M (or more) Up 9%
2008: 1,347
2009: 1,473
In 2009, the IRS created a new “Global High Wealth Industry Group” to examine tax-avoidance vehicles (e.g., sophisticated financial, business & investment vehicles for tax avoidance).
Under the 3/25/10 Healthcare and Education Reconciliation Act of 2010 (HR 4872) a new “investor tax”: “3.8% Medicare tax” on investment income: the lesser of:
1. Net Investment Income for the Tax Year.
2. Excess over $200,000, individual’s modified adjusted gross income.
In 2010, $1M + Earners Tax Risks:
1. 2010 (Forward) Increased Risk of Tax Audits.
2. Increased Taxes (3.8% Medicare Tax for these Investors with over $200,000 in adjusted gross income.
Please see: 4/4/10 Article from Investment News
Medicare Tax on Investment Income
On March 25, 2010, Congress passed the Healthcare and Education Reconciliation Act of 2010 (H.R. 4872).
The Reconciliation Act amends various provisions of the Patient Protection and Affordable Care Act (P.L. 111-148) which was enacted March 23, 2010. The Reconciliation Act adds provisions that were not included in the Patient Protection Act including a Medicare Tax Investment Income.
The Reconciliation Act added a new IRC Section 1411 that imposes a new 3.8% Medicare tax on investment income. The new tax on individuals is equal to 3.8% of the lesser of:
1. The individual’s net investment income for the year, or
2. The amount the individual’s modified adjusted gross income exceeds the threshold amount ($200,000 individual).
For estates and trusts, the tax equals 3.8% of the lesser of:
1. Undistributed net investment income, or
2. Adjusted gross income (over $11,200, the dollar amount of the highest trust and estate tax bracket).
For married couples, the threshold amount is $250,000 for a joint return and $125,000 for married, filing separately. For all other individuals the threshold amount is $200,000 (i.e., if the individual’s modified adjusted gross income exceeds $200,000, a 3.8% tax is imposed on the lesser of the individual’s net investment income (for the tax year) or the adjusted gross income amount, i.e., $200,000).
Net investment income (defined): income from interest, dividends, annuities, royalties and rents (other than such income derived in the ordinary course of a trade or business).
The definition of net income includes:
1. Income from passive activities
2. From a trade or business of trading in financial instruments or commodities.
This tax provision takes effect for tax years beginning after December 31, 2012 (i.e., commences January 1, 2013, first tax year, 2013).
IRS to Expand Audits as Cash Runs Low
By Joe Mont, TheStreet.com – The Internal Revenue Service, trying to recoup some of the estimated $14 billion that companies underpay in employer taxes a year, plans to wage a three-year campaign to audit 6,000 businesses.
Click link above for complete article.
Currency Transaction Report (CTR) & Suspicious Activity Report (SAR)
U.S. financial institutions file Currency Transaction Reports (CTR) and Suspicious Activity Reports (SAR) with the IRS Detroit Computing Center (uploaded into the IRS/DCC Currency Banking and Retrieval System database at the IRS/DCC).
The combined CTR/SAS currency transaction reports provides a paper trail (or roadmap) for investigations of financial crimes and illegal activities including: tax evasion, embezzlement and money laundering. Between 1994 - 1997, the IRS criminal Investigation Division initiated 1030 investigations as a result of CTR/SAR (Currency Transaction Reports).
Report/Requirements
Currency Transaction Report (CTR) - Filed by financial institutions that engage in a currency transaction in excess of $10,000.
Currency Transaction Report Casino (CTRC) - Filed by a casino to report currency transactions in excess of $10,000.
Report of Foreign Bank and Financial Accounts (FBAR) - Filed by individuals to report a financial interest in or signatory authority over one or more accounts in foreign countries, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business - Filed by persons engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or two or more related transactions within a twelve month period.
Suspicious Activity Report (SAR) - Filed on transactions or attempted transactions involving at least $5,000 that the financial institution knows, suspects, or has reason to suspect the money was derived from illegal activities. Also filed when transactions are part of a plan to violate federal laws and financial reporting requirements (structuring).
IRS to start regulating paid tax preparers
By Stephen Ohlemacher, Associated Press
WASHINGTON – The Internal Revenue Service plans to start regulating paid tax preparers, requiring them to register with the government, pass competency tests and adhere to ethical standards…
Shulman said he hopes to have all paid tax preparers registered by the 2011 filing season. Preparers will be given about three years to meet competency requirements.
Click link above for complete article.
Tax Informants Are On The Loose
By Janet Novack and William P. Barrett, Forbes.com
For 24 years Vincent A. Spondello toiled away as an accountant for a group of related companies known as Monex, a large Newport Beach, Calif. precious metals dealer. A trusted employee, he prepared tax returns and was given such tasks as overseeing the destruction of old corporate documents. It turns out that some records that were supposedly destroyed he took home instead.
In May Spondello sent 25 boxes of original Monex papers to the Internal Revenue Service–documents that could buttress the IRS’ claim that Monex’s owners fraudulently moved around assets to avoid a $378 million tax bill. He made his document drop after hiring lawyers and filing a claim for a whistleblower reward that could total $57 million or more. Monex denies it owes anything, has fired Spondello and is demanding back its documents.
“He’s a good guy,” says Spondello lawyer Robert D. Coviello. “But he is a rat.”
Pay attention. There are Vincent Spondellos taking notes, taking names and taking documents across America, and beyond.
For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million–only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.
The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants “often provide extensive documentation to support their claims,” the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged.
The slow-moving IRS has yet to pay any bounties under the new scheme, which the Inspector General report said still had “deficiencies” in its execution. But the government itself is already reaping big rewards.
In June 2007 Bradley C. Birkenfeld–motivated in large part, he now acknowledges, by the new reward law–came to U.S. officials with documents in hand and laid out how his former employer, UBS AG, helped wealthy Americans hide money offshore. So far the investigation he triggered has produced a $780 million payment to the U.S. government from UBS, Switzerland’s largest bank; an unprecedented agreement by the Swiss to finger 4,450 U.S. taxpayers with secret UBS accounts; and criminal investigations of more than 150 American UBS clients. That, in turn, helped pressure 14,700 taxpayers to make “voluntary” disclosures of previously undisclosed offshore kitties during a special program earlier this year, yielding extra billions in tax for the Treasury. “The entire game has changed on international tax evasion,” crows IRS Commissioner Douglas Shulman.
Click link above for complete article.
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
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