FBAR: Foreign Land and Artwork
On 6/24/09, the IRS updated their Voluntary Disclosure FAQ clarifying the FBAR reporting requirements for foreign land and artwork owned in the taxpayer’s own name.
In FAQ #37, the IRS confirmed that the FBAR filing for foreign land and artwork owned in the taxpayer’s own name, is due once the asset becomes income-producing (i.e., yields current income, or gain from the sale).
If the foreign land/artwork is held in an entity, the taxpayer is required to file tax information returns (Trust: Form 3520) (Corporation: Form 5471).
Re: FAQ 20 A taxpayer owns valuable land and artwork located in a foreign jurisdiction. This property produces no income and there were no reporting requirements regarding this property. Must the taxpayer report the land and artwork and pay a 20 percent penalty?
FAQ 20 relates to income producing property for which no income was reported. Under those circumstances, no distinction is made between assets held directly and assets held through an entity in computing the 20 percent offshore penalty. However, if the taxpayer owns nonincome producing property in the taxpayer’s own name, there has been no U.S. taxable event and no reporting obligation to disclose. The taxpayer will be required to report any current income from the property or gain from its sale or other disposition at such time in the future as the income is realized. Because there has as yet been no tax noncompliance, the 20 percent offshore penalty would not apply to those assets. If the foreign assets were held in the name of an entity such as a trust or corporation, there would have been an information return filing obligation that may need to be disclosed.
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
IRS Chief Pleased With Offshore Amnesty Haul
by Leroy Baker, Tax-News.com October 16, 2009
US Internal Revenue Service (IRS) Commissioner Doug Shulman has said that he is pleased with the response to the agency’s voluntary offshore bank account disclosure scheme, the deadline for which passed on October 15.
According to Shulman, the IRS received some 7,500 applications for the scheme, with disclosures ranging from USD10,000 to as much as USD100m associated with foreign bank accounts in all corners of the globe.
The latest offshore disclosure initiative seems to have been much more successful than a similar scheme administered by the IRS in 2004 known as the Offshore Voluntary Compliance Initiative. Under the 2004 amnesty, only 1,300 individuals came forward and the IRS collected about USD170m in unpaid tax. Shulman, however, has not disclosed how much the 2009 scheme will bring in for the Treasury, but it is certain to be a much higher figure.
The latest amnesty scheme was launched by the agency in March this year, and is just one of the many initiatives being used by the Obama administration to ensure that offshore income, both personal and corporate, is taxed in the US. Under the terms of the 2009 scheme, those making a voluntary disclosure about money held overseas face a penalty of 20% of the highest aggregate value of the account on one day in the last six years. The IRS also removed the threat of criminal prosecution. Ordinarily, if a taxpayer is discovered to have undeclared offshore income or assets, they face penalties up to 100% and possible jail time. The original deadline was set for September 23, but the IRS extended the amnesty until October 15 after it received an influx of requests from tax practitioners who themselves have been inundated with enquires about the scheme from their clients. Shulman warned that no further extensions will be granted, and that the agency will be unlikely to run another amnesty program any time soon.
Buoyed by the success of the 2009 amnesty, Shulman has revealed that the IRS is opening more representative offices abroad in places like Panama, China and Australia, and will also increase staffing levels in existing overseas offices, which include Barbados and Hong Kong.
The agency is also to create a dedicated team of enforcement and investigation officers to chase up wealthy individuals with complex, often international-based, financial arrangements, and President Obama’s 2010 budget includes extra resources for the IRS to hire almost 800 additional enforcement personnel.
FBAR: Amended Tax Returns, and the Risks of Voluntary Disclosure
U.S. Taxpayers who fail to report offshore accounts by filing FBAR (TD F 90.22-1) face criminal and civil penalties:
1. Failure to Report Income
(3 Felonies and 1 Misdemeanor) up to 14 years in jail, plus 75% Civil Tax Fraud Penalty, 25% Failure to Pay Tax Penalty.
2. Failure to File FBAR’s
(a maximum annual penalty of 50% of the account balance, up to 10 years in jail a $500,000 fine).
3. Perjury
Taxpayers Form 1040/Schedule B must declare whether Taxpayers have any authority over, or interest in foreign accounts with a total of more than $10,000.
In the IRS 6/24/09 FAQ update, the IRS stated:
What is the distinction between filing amended returns to correct errors and filing a voluntary disclosure?
An amended return is the proper vehicle to correct an error on a filed return, whether a taxpayer receives a refund or owes additional tax. A voluntary disclosure is a truthful, timely and complete communication to the IRS in which a taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining the taxpayer’s correct tax liability and makes arrangements in good faith to fully pay that liability. Filing correct amended returns is normally a part of the process of making a voluntary disclosure under IRM 9.5.11.9.
Taxpayers and practitioners trying to decide whether to simply file an amended return with a Service Center or to make a formal voluntary disclosure under the process described in IRM 9.5.11.9 and the March 23, 2009 memoranda should consider the nature of the error they are trying to correct. Taxpayers with undisclosed foreign accounts or entities should consider making a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. 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. It is anticipated that the voluntary disclosure process is appropriate for most taxpayers who have underreported their income with respect to offshore accounts and assets. However, there will be some cases, such as where a taxpayer has reported all income but failed to file the FBAR (FAQ 9), or only failed to file information returns (FAQ 42), where it remains appropriate for the taxpayer to simply file amended returns with the applicable Service Center (with copies to the Philadelphia office listed in FAQ 9).
The IRS stated position is that a Taxpayer’s voluntary disclosure entitles the Taxpayer to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution.
In reality, a taxpayer who makes a voluntary disclosure may:
1. Spotlight their “tax crimes”
2. If the voluntary disclosure is not accepted, jeopardize them and subject them to criminal prosecution
The IRS SBSE 3/23/09 memorandum, Subject: Routing of Voluntary Disclosure Cases, which addresses a change in the processing of voluntary disclosure requests containing offshore issues.
1. Such requests will continue to be initially screened by Criminal Investigation to determine eligibility for voluntary disclosure, and, if involving only domestic issues will be forwarded to Area Planning and Special Programs for Civil Processing;
2. Voluntary disclosure eligibility for offshore issues will be initially screened by Criminal Investigation and forwarded to the Philadelphia Offshore Identification Unit (POIU) for processing.
Voluntary Disclosure risks include:
1. Heightened risk of criminal prosecution (since initial screening is by the IRS Criminal Investigation Division);
2. A voluntary disclosure may be used as an evidentiary admission of Taxpayer’s unreported income;
3. A voluntary disclosure may waive Taxpayer’s 5th Amendment right against self-incrimination;
4. While a voluntary disclosure is pending the IRS may request more information, commence an audit or initiate criminal prosecution.
As an alternative strategy to a voluntary disclosure, the “quiet filing” (for the Tax Years at issue) of an amended tax return (or original tax return) may instead:
1. Pre-empt criminal charges for the failure to file FBAR returns, Form 1040 tax returns and failure to pay tax;
2. Pre-empt a 75% civil tax fraud penalty, for failure to file or pay tax and a 25% failure to pay tax penalty;
3. If the income is properly reported (i.e., no substantial understatments which are subject to a 6 year statute of limitations), the tax filing will commence the 3 year statute of limitations (for each year) for IRS audit.
Voluntary Disclosure
From IRS.gov
Taxpayers with unreported income relating to offshore transactions who wish to voluntarily disclose the information to the IRS can find information on the process.
For a complete understanding of the voluntary disclosure procedures, see Internal Revenue Manual (IRM) 9.5.11.9
Taxpayers wanting to participate in the IRS voluntary disclosure process should call the phone number associated with the state in which they reside. See Contact IRS About Voluntary Disclosure. (Updated 7/29/09)
See also Voluntary Disclosure: Questions and Answers re: the voluntary disclosure process and undisclosed offshore accounts (Updated 8/25/2009).
-
Subscribe via RSS
Translator
-
BlogRoll
