Verni Tax Law

Offshore Disclosure of Foreign Financial Accounts: Deciding What Road to Take

Disclosing Offshore Bank Accounts

Taxpayers who are considering coming out of the shadows to disclose their offshore accounts need to be extremely careful when deciding what road to take. Too often, taxpayers simply default to the cheapest method (streamlined procedures) when deciding how to proceed in making an offshore disclosure without considering the significant financial and criminal risks associated with choosing the wrong method.

In addition, taxpayers who have elected to opt out of the Offshore Voluntary Disclosure Program rather than paying the miscellaneous offshore penalty have found that opting out was ill-advised. The rationale for opting out is the belief that the taxpayer will somehow be able to convince the IRS that his or her failure to (i) report their financial accounts on FinCEN Form 114 (FBAR) (ii) make the appropriate disclosure on Schedule B; and (iii) report the income derived from their foreign financial assets was not willful. While justification does exist for opting out of the OVDP in select cases, by and large, most taxpayers are best served by staying in the program and securing a Closing Agreement.

Other taxpayers have opted for using the streamlined procedures for disclosing their foreign financial accounts, based entirely upon 0% to 5% penalty, without carefully considering the veracity of their representations under oath or the likelihood that their statements will be vetted.

Taxpayers have also placed undue reliance upon the reasonable cause defense or the advice of a tax professional defense to support their certifications of non-willfulness, without fully understanding whether these defenses are legitimately available to them. Unfortunately, many of these taxpayers now face the imposition of the willful FBAR penalty, and in extreme cases, criminal prosecution.

The Government has become increasingly aggressive in both the assessment of the willful civil FBAR penalties as well as in the prosecution of those who make false statements. Just ask Brain Nelson Booker, who was recently charged by the Department of Justice for, among other things, filing a false document under 26 U.S.C. § 7206 (1) when he submitted a certification of non-willfulness in October 2015 as part of a submission using the Streamlined Domestic Offshore Procedures. The DOJ alleges that Booker “falsely certified that he met all the eligibility requirements for treatment under the streamlined procedures, and falsely claimed, among other things, that his failure to report all income pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct.” Mr. Booker is now a fugitive from Justice and has since taken up residency in a non-extradition jurisdiction.

Likewise, Taxpayers who either opted out of the OVDP or rolled the dice with the streamlined procedures, and in doing so, stretched the truth in their certifications, are quickly learning that the IRS has seen it all and can easily discern when a taxpayer is lying or stretching the truth. The IRS is making good on its pledge to carefully scrutinize opt out and streamlined disclosure cases. They will go after those who have been less than candid.

There are common characteristics in both criminal and civil FBAR cases including (i) the failure to report foreign financial assets; (ii) a “no” response to question 7(a), in Part III of Schedule B as to the existence of an interest in or signatory authority over a foreign financial account; (iii) the failure to report the income associated with the foreign financial accounts; and (iv) a signed income tax return. These characteristics are generally present in FBAR cases where the taxpayer self-prepared his or her return as well as in cases where the return was prepared by a third party.

The presence of the above common characteristics is by no means all inclusive. Nevertheless, in nearly all cases, these characteristics have been sufficient to sustain the assessment of non-willful FBAR penalties, despite taxpayer claiming of reasonable cause or reliance upon the advice of professionals as a defense.

More importantly, the presence of these factors is now routinely cited by the Courts in sustaining the assessment of willful FBAR penalties as well as in criminal prosecutions.

Accordingly, a decision to make an offshore disclosure as well as the method of disclosure is a serious decision that must be carefully evaluated, particularly in light of the closure of the OVDP in September 2018. Likewise, those who have participated in the OVDP need to carefully consider the financial and potential criminal risks associated with opting out. In this regard, it is necessary to analyze the total costs under the OVDP as well as the potential down side risks associated with opting out.

Factors to consider when deciding which type of offshore disclosure to make

Since each case will differ, a decision as to what type of offshore disclosure to make will depend on a many factors including, but not limited to:

Whether the taxpayer self-prepared his or her tax returns or whether the returns were prepared by a CPA.
Whether the taxpayer checked “no,” in response to disclosure question 7(a), Part III, Schedule B as to the existence of an interest in or signatory authority over a foreign financial account.
If the taxpayer failed to file FBARs, whether he nonetheless reported all of the income derived from his or her foreign assets.
The extent to which the taxpayer sought to evade Government detection of his or her foreign financial assets and any income associated therewith (nominee entity, foundation or straw person).
Any special arrangement the taxpayer has or had with the bank (unnumbered account, hold mail, nominee officers and directors, etc.).
The number and size of foreign financial accounts.
The length of time the foreign financial accounts have been open.
The purpose for opening the accounts.
Whether the foreign financial accounts are active (regular deposits and withdrawals, or atm use) or dormant (no activity in account for extended period of time).
The taxpayer’s efforts to familiarize himself with the FBAR filing and return disclosure requirements.
The taxpayer’s efforts to ascertain the selected tax professional’s competence in connection with the FBAR financial reporting requirements and disclosure rules.
Where the taxpayer used a third party preparer, whether he or she completed a tax organizer.
The existence of any written communications between the taxpayer and third party tax return preparer related to the existence of foreign financial accounts and the reporting requirements.
Whether the taxpayer provided the third party return preparer with sufficient documentation from which the return preparer could determine FBAR filing requirements and other return filing obligations.
Whether the taxpayer sought and obtained written advice from a tax attorney, independent from any advice he or she may have received from the tax return preparer.
The taxpayer’s level of education and sophistication.
The source of funds deposited into the accounts; (inheritance, after tax savings, etc.).
Whether the source of the funds in the foreign financial accounts is the by-product of legal vs criminal activity.
Taxpayer’s history with the IRS.
Whether the taxpayer has prior FBAR violations.
Whether a civil fraud penalty has ever been assessed against the taxpayer.
The existence of a current or past civil or criminal investigation by the IRS or other Government agency (i.e. SEC).
Whether the taxpayer was ever convicted of a felony.

The preceding represents some, but certainly not all, of the factors to be considered when deciding which method of disclosure to be used, or whether to opt out of the OVDP. Taxpayers are best served when they consult with a seasoned tax attorney, who has both the knowledge and experience with offshore disclosures. While some may be tempted to use a CPA or enrolled agent, these professionals generally lack the ability to understand the legal and financial implications associated with such a decision. Nor do they understand the discovery and the rules of evidence. In fact, these professionals often-times become fact witnesses in both civil and criminal FBAR cases.

The takeaway is simple, offshore disclosures are becoming much more complicated due to the changing legal landscape as well as the new rules related to voluntary disclosure practice that were announced in November of 2018. Equally important, the Government has had a succession of FBAR victories, both civil and criminal, and as such, is now emboldened.

September 3, 2019/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, Tax Returns

Fraudulent Tax Resolution Companies

Promises Too Good To Be True

In 1931, the famous jurist, Benjamin Nathan Cardozo, in discussing fraud stated that: “Fraud is the pretense of knowledge when knowledge there is none.” Ultramares Corp. v. Touche, 255 N.Y. 170, 179, 174 N.E. 441, 444 (1931). This famous quote has withstood the test of time and is particularly relevant to the tax resolution industry and the rampant fraud perpetrated upon the public each day.

Tax resolution or tax settlement firms are firms that advertise that they have tax experts who are capable of negotiating a settlement with the IRS for pennies on the dollar. In all but limited circumstances, the IRS will insist on full payment. The IRS offers Installment Agreements and Partial Payment Arrangements. In addition, a taxpayer who is in financial dire straits may qualify as being “noncollectable” thereby suspending IRS collection efforts. In rare circumstances, a taxpayer may be able to reduce the amount that he or she has to pay in order to settle up with the IRS.

False claims are repeated on late night TV, the radio, print ads and the internet. The constant barrage of advertising usually includes assertions that tax attorneys, certified public accountants and former IRS employees are on staff and are prepared to lead the charge on your behalf. In reality, most of these charlatans are merely sales people reading from a script designed to separate you and your hard earned money. Make no mistake, these enterprises are “boiler room” operations engaged in the unauthorized practice of law and operate in violation of federal and state consumer protection laws

Every year, I receive inquiries from taxpayers who have been scammed by one of the many tax resolution companies out there. In each case, the taxpayer paid a tax resolution company anywhere from $3,000 to $10,000 and received nothing in return. Consequently, the taxpayer’s tax problem was not resolved.

Offer in Compromise (OIC)

When a tax resolution company claims that they can settle IRS debt for pennies on the dollar, they are referring to what is known as an Offer in Compromise (OIC). Offers are rarely successful for a number of reasons. First, the documentation is substantial. Second, there is a high level of IRS scrutiny when reviewing an Offer. Finally, whether an Offer is accepted is based upon objective criteria including income and expenses, assets and liabilities and the time remaining under the statute of limitations for collections. The notion that a representative from a tax resolution company is going to march into an IRS and negotiate face to face is nothing less than absurd and conjures up the vision of a personal injury attorney negotiating the settlement of a slip and fall case with an insurance carrier.

Tax liens & Levies

These Companies utilize aggressive sales tactics and typically represent that they can have tax liens removed from public record and also remove levies. While it is possible to have a tax lien withdrawn in certain cases, the IRS will generally not subordinate its claims against a taxpayer. Nevertheless, tax resolution companies boast that they have the ability to magically have liens and levies released.

Many Taxpayers have told me that when they asked for a refund, the Company told them to go pound salt or engaged in dilatory tactics, thus avoiding having to refund the client fees. The most extreme case I handled involved an offshore disclosure where the Taxpayer paid a Tax Resolution Company over $45,000. The Company did nothing, except obtain the Taxpayer’s transcripts from the IRS exposing the Taxpayer to significantly greater penalties than would have been assessed had the Company taken appropriate action.

Tax resolution companies’ business model

The tax resolution business model compensates most of its employees based upon commission, which is an invitation for misrepresentations to the public, since the goal is to sign as many individuals as possible, irrespective of the facts surrounding a particular tax case. The sales people are well trained to tell anyone who calls that their case can be settled for a fraction of the outstanding tax debt. These assurances are generally made without ever reviewing a document or interviewing the client. Consequently, false advertising and representations are the order of the day.

Standards of practice

Since most of these scammers are unlicensed they operate outside the State Bar Ethics Rules, State Regulations governing Certified Public Accountants or Circular 230 all of which proscribe standards of practice, ethics and continuing professional education. The Department of the Treasury, Office of Professional Responsibility handles consumer complaints, as they relate to those subject to Circular 230, which includes attorneys, certified public accountants and those enrolled to practice before the IRS.

There has been ongoing debate in terms of who is subject to Circular 230 particularly in light of Loving v. Internal Revenue Service, a 2014 decision. In Loving the U.S. Court of Appeals held that a Department of Treasury rule governing a “tax return preparer,” (which is defined as a person who prepares tax returns for compensation) exceeded IRS rule making authority. The 2011 regulations required a tax return preparer to register with the IRS, pay a fee and pass a qualifying exam.

Karen Hawkins, former Director of the Office of Professional Responsibility, asserted that

“there is no doubt that OPR has jurisdiction over the tax debt resolution industry and those working in it.” OPR Targets Debt Resolution Industry in Campaign Against Sanctionable Practices. Since OPR only reports the names and professional designation of those who are disciplined by the OPR, it is difficult to assess the number of individuals who are engaged in the tax resolution business who have been sanctioned. In addition, an integral part of tax resolution involves tax return preparation including original and amended tax returns. As such, the OPR’s assertion that they have jurisdiction over the tax resolution industry is suspect.

Legal actions against tax resolution companies

In addition to the OPR, some states have taken legal action against tax resolution companies. In September of 2017 the State Attorney General for the Commonwealth of Virginia filed a lawsuit against Wall & Associates, Inc. (“Wall”) alleging that the Company misrepresented its tax debt settlement services, while at the same time they collected large retainers and monthly payment from their victims. The lawsuit alleges that Wall violated Virginia’s Consumer Protection Act by deceiving consumers by claiming that Wall’s average client settled his or her IRS debt for 10% of the total amount. The complaint further alleges that the Company made false claims concerning the tax related experience, qualifications and abilities of its employees, including characterizing sales people as “tax consultants” or “tax experts” and claiming that Wall’s employees were authorized, qualified or certified to practice before the Internal Revenue Service or state tax authorities when they were not. Id.

In December of 2018, the Attorney General for the State of Minnesota sued Wall alleging that the Company violated Minnesota’s consumer protection laws by failing to register with the state and collecting large advance payments, while remaining unresponsive to customers.

Other honorable mentions include the television “Tax Lady” Roni Deutch, who was sued in 2010 by the State of California for swindling thousands of consumers who were facing serious IRS problems. Other Companies such as JK Harris and Tax Masters were subject to multiple suits for deceptive practices and elected to file for Bankruptcy. Needless to say, these firms are no longer in business. In fact it is estimated that some 109 tax resolution companies have gone out of business from 2001-2011.

If you are contemplating retaining a professional in order to resolve your tax debt, you should only hire a duly licensed tax attorney who has the requisite training and experience to assist you in achieving closure with the IRS. If you do your homework, you can find a tax attorney whose fees are commensurate with the fees charged by the scammers.

By: Anthony N. Verni, Attorney at Law, Certified Public Accountant

March 29, 2019/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, FATCA, FBAR, Law Office News, OVDP

Willful FBAR penalty Case Study.

Wilfull FBAR Penalty.

The following is intended as an update to my January 26, 2019 Blog on the subject of the limitation of the willful FBAR (Foreign bank Account Report) penalty under United States v. Colliot, 2018 U.S. Dist. LEXIS 83159 (W.D. Tex. 2018) which capped the maximum willful FBAR penalty at $100,000. The predicate for the District Court’s decision is 31C.F.R. § 1010.820. In addition to Norman v United States (Ct. Fed. Cl. Dkt 15-872T, Order dated 7/31/18- (please see my January 26, 2019 Blog)), United States v. Horowitz, 2019 U.S. Dist. LEXIS 9484 (D. Md. 2019) and other recent decisions have dealt the Colliot decision a fatal blow. Consequently, individuals who are subject to the willful FBAR penalty should avoid using the Colliot decision as a basis for limiting their liability.

The District Court in Colliot held that the earlier regulation was still valid, notwithstanding the changes to the FBAR penalty structure under the American Jobs Creation Act of 2004 (AJCA), which increased the maximum FBAR penalty for willful violations to the greater of $100,000 or 50% of the Balance of the Account. § 5321(a) (5) (C)(i). The Court’s logic in reaching its conclusion was the absence of a new regulation adopting the higher penalty amount provided for under § 5321(a) (5)(C)(i).

The Horowitz and other recent decisions make clear that the Colliot decision is fatally flawed. While the Horowitz decision focused on the taxpayers’ “willful blindness” in sustaining the willful civil FBAR penalty, the Court also addressed the taxpayers’ reliance on the Colliot in asserting that the willful civil FBAR penalty was capped by 31 C.F.R. § 1010.820. The Horowitz decision came before the Court on a Motion for Summary Judgment filed by the Government seeking to sustain the FBAR penalties assessed against the Horwitz’s. The taxpayers filed a Cross Motion for Summary Judgement.

Is willful civil FBAR penalty limited?

The following discussion only addresses the issue of whether the willful civil FBAR penalty is limited under 31 C.F.R. § 1010.820(g) (2) in light of the 2004 Amendment which increased the maximum willful civil FBAR penalty to the greater of $100,000 or 50% of the account balance at the time of the violation.

United States v. Horowitz case analysis.

Peter Horowitz and his wife, Susan, lived in Saudi Arabia from 1984-2001 where Peter worked as an anesthesiologist. In 1988 the taxpayers opened a joint bank account at UBS. The account was funded with the money Peter earned as an anesthesiologist. The taxpayers returned to the United States in 2001 but did not close their UBS account, which as of 2008 had a balance of almost $2 million. Late in 2008, after learning of the legal problems UBS was experiencing, Peter travelled to Switzerland and closed the UBS account. After closing the UBS account, Peter transferred the account balance to an account that he opened at Finter Bank, another Swiss Bank, in which he designated the account as a “hold mail” account. The Finter bank account was opened solely in Peter’s name because Susan was not present at the time.

Peter was responsible for communicating with the taxpayers’ accountant who prepared their 2007 and 2008 federal income tax returns. Peter never disclosed the foreign financial accounts to the taxpayers’ accountant. In response to the questions that appear on Schedule B, Part III, concerning the existence of foreign financial accounts, the taxpayers always checked the “No” box. In addition, the Horwitz’s failed to file FBAR reports for 2007 and 2008. The taxpayers subsequently entered the Offshore Voluntary Disclosure Program sometime in January of 2010, but later elected to opt out.

The IRS assessed the willful FBAR penalty against each of the taxpayers for both the 2007 and 2008 tax years in the amount of $247,030. The Horwitz’s filed a timely protest letter and the matter was affirmed by IRS Appeals. The Government thereafter brought suit to reduce the assessment to a judgment.

In response to the Government’s Motion for Summary Judgment, the taxpayers filed a Cross Motion for Summary Judgment asserting their conduct did not rise to the level of willfulness. In their Cross Motion, the taxpayers, relying upon Colliot, also asserted that the willful FBAR penalty should be capped at $100,000. They cited 31 C.F.R. § 103.27, which is now 31 C.F.R. § 1010.820(g) (2) in support of their argument.

In granting the Government’s Motion for Summary Judgment, the District Court of Maryland for the Southern District laid to rest any hope of future reliance on Colliot. The Court, citing United States v. Larionoff, 431 U.S. 864, 873, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977 articulated a long standing principle that: “it is settled law that an agency’s regulations “must be consistent with the statute under which they are promulgated.” Furthermore, the Court, quoting from Norman v. United States 138 Fed.Cl. at 196 stated:

“Since the civil penalty amount for a “willful” violation in 31 U.S.C. § 5321(a)(5) (2003) was replaced with 31 U.S.C. § 5321(a)(5)(C)(i) (2004), the April 8, 1987 regulations are “no longer valid.”

The Norman decision is bolstered by Kimble v. United States No. 17-421, 2018 WL 6816546, at *15 (Fed. Cl. Dec. 27, 2018), a recent 2018 decision by the United Court of Claims, wherein the Court rejected the conclusion reached in Colliot that the IRS was bound by the maximum penalty provided for prior to the amendment in 2004. In Kimble, the Court, in sustaining the IRS assessment for willful violations of the FBAR statute, stated that the conclusion reached in Colliot:

“conflicts with the decision of the United State Court of Appeals in Barseback Kraft AB v. United States, 121 F.3d 1475 (Fed. Cir. 1997), where the Federal Circuit concluded that the fact that regulations ‘had not been formally withdrawn from the Code of Federal Regulations [did] not save them from invalidity’ based on a conflicting federal statute.” Id.

Finally, the Court in Horowitz’s case, in rejecting the taxpayers’ arguments, cited I.R.M. § 4.26.16.6.5(3) which provides:

“[f]or violations occurring after October 22 2004, the statutory ceiling is the greater of$100,000 or 50% of the balance in the account at the time of the violation.” I.R.M. § 4.26.16.6.5(3) (Nov. 6, 2015).

Considering the Horowitz, Kimble and Norman decisions as well as I.R.M. § 4.26.16.6.5(3), a successful challenge to the willful FBAR penalty based upon 31 C.F.R. § 1010.820(g) (2) is no longer viable. Congress also created a separate provision for a civil penalty for Non-Willful violations, making a clear distinction between willful and non-willful violations. H.R. Rep 108-755 at 615 (2004) (Conf. Rep.).

United States v. Colliot case analysis.

In Colliot, the IRS filed a lawsuit against Dominque G. Colliot to reduce the assessed penalties to a money judgment. The action filed in the United States District Court for Western Texas related to penalties that were assessed for willful failure to file FBAR’s for 2007-2010. The IRS assessed a $544,773 penalty for the tax year 2007 and $196,082 for the tax year 2008. Smaller penalties were also assessed for the tax years 2009 and 2010. In assessing the penalties, the IRS relied upon the authority contained in § 5321(a) (5) and 31 C.F.R. § 1010.820(g)(2). In response, Colliot filed a motion for summary judgment asserting that IRS incorrectly applied the law in calculating the civil willful FBAR penalties.

In its analysis, the Court discussed the 2004 amendment to § 5321 which increased the maximum civil penalties that could be assessed for the willful failure to file an FBAR, and in doing so, acknowledged the increase in the willful FBAR penalty to a minimum of $100,000 and a maximum of 50% of the balance in the unreported account at the time of the violations. The Court also noted the absence of any change to 31 C.F.R. § 1010.820(g) (2), which caps the maximum willful FBAR penalty at $100,000. In granting Colliot’s motion for summary judgement, the Court wholly ignored United States v. Larionoff, 431 U.S. 864, 873 (1977) and instead focused on the powers delegated by Congress to the Treasury Secretary under § 5321(a)(5) to determine the amount of penalty so long as it did not exceed the ceiling set by § 5321 (a)(5)(C).

In Larionoff, the Supreme Court, citing Bowles v.Seminole Rock Co, 325 U.S. 410,414 (1945) and quoting language from the Bowles decision stated:

“In construing administrative regulations, ‘the ultimate criterion is the administrative interpretation, which becomes of controlling weight, unless it is plainly erroneous or inconsistent with the regulation”. Id. at 873.

The Court, citing Manhattan General Equip Co. v Commissioner, 297 U.S. 129,134(1936) further stated:

“For regulations, in order to be valid, must be consistent with the statute under which they are promulgated.” Id at 873.

In Manhattan General Equip Co., the Supreme Court held that:

“A regulation which does not do this, but operates to create a rule out of harmony with a statute, is a mere nullity” Id at 134.

United States v. Norman case analysis.

In the Norman decision, the IRS assessed a penalty against Mindy P. Norman in the amount of $803,530 for the willful failure to file an FBAR in connection with a Swiss bank account she maintained during the tax year 2007. The taxpayer appealed the assessment with the IRS Office of Appeals, who affirmed the IRS assessment, concluding that Ms. Norman willfully failed to file an FBAR. The Taxpayer then paid the penalty in full and instituted an action In the United States Court of Federal Claims. Following a one day trial and in response to a letter sent by the Norman citing the Colliot decision, the Court of Claims, Ordered the IRS to respond and comment on Colliot. The IRS filed a timely response. However, the Court did not permit the Taxpayer to file a reply. After considering the IRS response and the trial testimony and other documents, the Court ruled in favor of the IRS and concluded that Ms. Norman willfully failed to file an FBAR in 2007 and that the assessed penalty in the amount of 50 percent of the balance of the unreported account was proper.

In arriving at its decision, the Norman Court painstakingly dissected the Colliot decision and properly pointed out the defects in the District Court’s logic in ruling in favor of the Ms. Colliot. The Court of Claims traced the legislative history of the BSA, the relevant statutory and regulatory provisions and the impact of the changes to the FBAR penalty structure as a result of the AJCA. The Court concluded that the District Court in Colliot ignored the mandate created by the amendment in 2004 and instead elected to focus on the language in §5321(a) (5) that vests the Secretary of the Treasury with the discretion to determine the amount of the penalty.

The Court of Claims cited the following language used by Congress in amending the statute as a basis for invalidating C.F.R. § 1010.820:

“Congress used the imperative ‘shall’ rather than the permissive, ‘may,’ thereby raising the ceiling for the penalty, and in doing so, removed the Treasury Secretary’s discretion to regulation any other maximum.” Norman at Pg. 8.

The Norman Court cited Larionoff for the proposition that Congress has the power to supersede regulations by amending a statute. The Court stated that “in order to be valid [,] [regulations] must be consistent with the statute under which they are promulgated.” The Norman Court concluded that § 5321 (a) (5) (C) (i) which sets the maximum penalty to the greater of $100,000 or 50% of the balance of the account, is inconsistent with 31C.F.R. § 1010.820 rendering 31 C.F.R. § 1010.820 invalid.

Conclusion.

The foregoing has particular relevance for those who have failed to take advantage of the Offshore Voluntary Disclosure Program, which is now closed, or otherwise failed to utilize the Streamlined procedures and those who have made quiet disclosure and now found themselves the subject of a grand jury subpoena. The IRS has consistently maintained that offshore financial crimes are a top priority and continues to work with its global partners in unmasking those with unreported foreign financial accounts. FATCA is also producing a steady stream of taxpayer information from which the IRS develops leads. In addition, current prosecutions of facilitators and taxpayers as well as taxpayers who have elected to come forward have yielded a treasure trove of information which the IRS is using to identify other non-compliant taxpayers.

Those who have failed to come forward and report their foreign financial accounts are more likely than not, going to be subject to the willful civil FBAR penalty consistent with Norman decision. Mitigation of the willful FBAR penalty is only possible where the taxpayer comes forward and makes an honest disclosure.

By: Anthony N. Verni, Attorney at Law, CPA

February 1, 2019/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, FATCA, FBAR, Law Office News, OVDP, Tax Returns

Streamline Disclosures- The Art of the Non-Willful Certification.

Offshore disclosure to IRS.

The key to making an offshore disclosure to the IRS using either the Domestic or Foreign Filing Compliance procedures requires a thorough and painstaking analysis of the facts involving an individual’s failure to;

report his or her foreign financial accounts.
report income from foreign sources.
make the necessary disclosures.
report foreign financial assets consistent with FATCA.

Details in a Non-Willful Certification can spell the difference between closure and a subsequent examination by the IRS which leads to assessment of multiple Civil FBAR Non-Willful Penalties over a number of years, or even worse, the assessment of the Willful Civil FBAR Penalty.

Components of offshore disclosure.

The starting point for any case is gathering all facts, including whether the tax return was self-prepared or prepared by a paid preparer, the length of time the foreign financial accounts have been open and the Taxpayer’s status in the United States. It is also necessary to determine whether Schedule B was included with the Taxpayer’s original returns, and if so, whether the Taxpayers checked “no” in response to Question 7(a) and 7 (b) concerning the existence of Foreign Financial Accounts and the acknowledgement of an obligation to file an FBAR.

In addition, detailing the origin of the funds in the Foreign Financial Accounts and whether those funds represent after tax dollars as well as the initial purpose for opening the Foreign Financial Accounts. Closely tied to this inquiry is whether the Foreign Financial Accounts are legacy accounts, which were in existence prior to an Individual’s arrival in the United States.

Since Streamlined Filing Procedures are less costly to a Taxpayer than participating in the Offshore Voluntary Disclosure Program (both in terms of penalties and legal cost), there is a tendency by those considering an offshore disclosure to default to the Streamlined Filing Procedures, without first considering all of the facts. This can have catastrophic consequences especially in light of the recent IRS announcement that OVDP will be closed on September 18, 2018. The IRS has also intimated that it may also scrap the Streamlined Filing Procedures. This means that those who have failed to come forward can expect turbulence in the future.

January 31, 2019/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes

Kenyans to Disclose Offshore Income and Assets or Face Stiff Penalties.

Global Tax Initiatives and Kenya.

Kenya Revenue Authority (KRA) has thrown down the gauntlet, advising Kenyans who are working overseas that failed to take advantage of Kenya’s tax amnesty program that they will now face stiff penalties. This latest move is consistent with global enforcement initiatives including; the Common Reporting Standards (CRS) developed by the Organisation for Economic Development (OECD) to which Kenya is a signatory; and the reporting requirements enacted in the United States with respect to Foreign Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA). These initiatives were designed to create greater cross border transparency, encourage voluntary tax and financial reporting compliance and to punish those who continue to try and game the system.

Failure of Kenyans to report their foreign source of income and assets erodes Kenya’s tax base and flies in the face of the notion that every individual should pay his or her fair share of tax. Accordingly, Kenyans living in the U.S. need to know the rules of engagement both in the United States and in Kenya if they hope to stay on the right side of the law.

Kenya has a right to tax Kenyan residents on the diaspora income earned abroad. The term “residence” is defined under the Tax Act of 2004 as an individual who maintains a permanent home in Kenya or an individual who does not maintain a permanent resident in Kenya but is physically present in Kenya for more than 183 days.

U.S. Tax Residents are taxed on their world-wide income, but are permitted exclusion for foreign earned income and may also be able to take advantage of the foreign tax credit for taxes paid to foreign jurisdictions. Unlike the term “residence” in Kenya, a U.S. Tax Resident includes both U.S. Citizens and Lawful Permanent Residents, irrespective of the amount of time spent in the United States during any given tax year. The terms also include those who are neither citizens nor lawful permanent residents of the United States but who meet the physical presence test in the United States.

Financial Reporting for Kenyan’s living in the U.S.

Kenyans, who are either permanent legal residents of the United States or naturalized citizens, are required to file FinCen Form 114 (FBAR) with respect their interest in or signatory authority over Foreign Financial Accounts where the aggregate balance exceeds $10,000 in any given tax year. In other words, if a Kenyan living in the US holds or is a signatory to any financial account(s) in Kenya and the balance on all those accounts is more than $10,000, then he/she has to file an FBAR (Foreign Bank Account Report). Failure to do so can result in significant civil and criminal penalties, and in certain cases, criminal prosecution. In addition, Kenyans, who are considered U.S. Tax Residents are required to file Form 8938 (Report of Foreign Financial Assets) if they meet certain thresholds, and are also required to report their worldwide income including; interest, dividend income and capital gains derived from Foreign Financial Accounts; income derived from rental property held in Kenya as well as any other income derived from Kenya sources including business income or wages received from Kenyan sources.

Intergovernmental agreement(IGA) between Kenya and the U.S.

Although Kenya is a signatory to the CRS, they do not have an intergovernmental agreement in place yet with the United States; In addition, Kenya has yet to conclude a Multilateral Agreement with the United States.

On January 17, 2013, the U.S. Department of the Treasury issued regulations for the implementation of FATCA (Foreign Account Tax Compliance Act), requiring foreign financial institutions (FFI’s) to search their data bases for records related to U.S. Persons and report their names, account numbers and account balances to the Internal Revenue Service. Failure on the part of an FFI to comply with the FATCA rule results in the imposition of 30% withholding on all U.S. source funds received by the non-compliant FFI.

Kenya’s relationship with the United States, its reliance upon Correspondent Bankers for the settlement of payments in U.S. Dollars currency and the fact that inflows from diaspora remittances from the United States constitute over 40% of the total inflows in to Kenya have placed Kenya on the U.S. Radar. Furthermore, Kenyan Banks are required to register as agents of the I.R.S. and commit to collection of information on U.S. Persons holding foreign financial accounts in Kenya.

In 2014, The Department of the Treasury formed a task force comprised of IRS agents, members of the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) as well as financial sector experts to fast-track the process to the final signing of an IGA (Intergovernmental Agreement). As of this date, Kenya and the United States have yet to conclude an IGA. Despite the absence of an executed IGA between Kenya and the United States, Financial Foreign Institutions in Kenya are compelled to comply with FATCA. Accordingly, if you have unreported Foreign Financial Accounts and assets as well as unreported income from Kenya, there is a substantial likelihood that the IRS will learn of your accounts.

Kenya and the United States have yet to conclude a Double Taxation agreement, which would prevent Kenyans living in the United States from incurring taxation on U.S. Source income in Kenya. The Kenyan tax authorities have intimated that despite the absence of a Double Taxation agreement with the United States, diaspora income will not be subject to double taxation. Nevertheless, Kenyans living in and working in the United State still have a filing obligation in Kenya and may still have a liability to the KRA, depending upon the effective tax rate in each jurisdiction.

The end to Kenya’s amnesty program signals the beginning of a crackdown on Kenyans living in the United States who fail to report their U.S. source income and assets to Kenya. Kenyans living in the United States (permanent residents and Citizens) should be concerned if they have foreign financial accounts (aggregate of $10,000 and above) or income from Kenya that they have failed to report to the United States. These transgressions can result in civil and criminal penalties and in the worst scenario criminal prosecution. Kenyans waiting to become naturalized are particularly vulnerable since a felony conviction in all likelihood will result in deportation. Conversely, Kenyans, who fail to report their U.S. Source income and Assets to the KRA, could find themselves in dire circumstances in the form of stiff penalties and potential criminal prosecution.

May 3, 2018/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, FBAR, IRS Payments, Tax Audit, Tax Returns

The Non-willful FBAR Penalty and the Slow Death of Reasonable Cause.

Non Willful FBAR Penalty Ruling.

A December 2017 decision of the Court of Federal Claims in Jarnagin v. United States begs the question: Whether a Taxpayer can ever have a reasonable cause defense to the assessment of the Non-Willful FBAR Penalty. The Court concluded that a Taxpayer, who failed to read his return and correctly ascertain that a timely FBAR was due could not have a reasonable cause defense. This may have serious implications in light of the recent announcement by the IRS that the Offshore Voluntary Disclosure Program will end on September 18, 2018 and their suggestion that the Streamline Filing Compliance Procedures may also be scrapped in the future.

The Jarnagin decision involved a Taxpayers’ suit to recover $80,000 in Non-Willful FBAR penalties assessed over a four-year period for their failure to file FinCen Form 114 (FBAR). The Taxpayers were successful business people, who maintained Foreign Financial Accounts in Canada. They used a return preparer during the four-year period but did not tell the return preparer about the accounts. They argued that they were unaware of the FBAR filing obligations and that their return preparer should have raised the issue based on the information the Taxpayers furnished the return preparer. The Court disagreed.

The Court relied upon the meaning of reasonable cause found in Title 26 (the Tax Laws) under I.R.C. §§ 6651(a) and 6664(c) (1) in sustaining the penalties. Citing Moore v. Unites States, the Court concluded that “there is no reason to think that Congress intended the meaning of ‘reasonable cause’ in the Bank Secrecy Act to differ from the meaning ascribed to it in the tax statutes.” Consequently, those who have yet to come forward and make a disclosure of their Foreign Financial Accounts could face the assessment of the Non-Willful FBAR penalty for each of their accounts for multiple years. Furthermore, if the Streamlined Filing Compliance Procedures survive, routine rejection of a Taxpayer’s reasonable cause defense may become the order of the day.

April 8, 2018/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, FBAR, News, OVDP

OVDP Coming to an End Soon

Internal Revenue Service plans to close the Offshore Voluntary Disclosure Program (OVDP) on September 18, 2018.

The Internal Revenue Service recently announced that they will be winding down the Offshore Voluntary Disclosure Program (OVDP) and plan to close the program on September 18, 2018. As such, taxpayers who have yet to come forward have a limited amount of time in which to make a disclosure or face the new penalties. This is of particular importance for those taxpayers who may be deemed to have been “willful” in their failure to file FinCen Form 114 (FBAR) and as such would not otherwise qualify for the Streamlined Filing Compliance Procedures. This announcement is intended to give taxpayers who have yet to come forward one last chance to do so.

The Streamlined Filing Compliance Procedures will still continue to be available to eligible taxpayers. However, the IRS has indicated they may also close this method for making an offshore disclosure.

The IRS will continue with its global enforcement initiatives to detect the offshore evasion of income tax, and further, to uncover those who have undeclared foreign assets. These global initiatives include reporting under the Foreign Account Tax Compliance Act (FATCA), Whistleblower leads, civil examination and criminal prosecution. As the Chief of the IRS Criminal investigation recently stated:

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.” “Stopping offshore tax noncompliance remains a top priority of the IRS.”

March 23, 2018/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, FBAR, News

The Liberal Elites: The Real Reason Why They Will Never Leave the USA

Why the Liberal Elites Will Never Leave the USA Despite Claiming Otherwise

With the presidential election in our rear view mirror, we are now able to turn our attention to those in the entertainment industry — and their veiled threats of leaving the United States.

Many of the liberal elite have threatened to leave the United States in the event of a Trump victory.

I say that they are bluffing.

In truth, these entertainers have enlisted the assistance of the liberal media as an excuse for more face time and for them to remain relevant as “celebrities”. Late night talk show hosts have also jumped in, as well as mainstream pundits.

Despite Trump’s resounding victory, liberal elites continue their rants of “racist” “homophobe,”“sexist,” “islamophobe, and “xenophobe” as well as the absurd assertion that Clinton should have been anointed the first woman President since she carried the popular vote. Please see the United States Constitution!

Hilary’s epitaph should now read:

“To me, being a gangster was better than being the president of the United States.” Henry Hill: “Goodfellas” 1990.

If history teaches us anything about entertainers, bombastic statements are rarely, if ever, followed up with any meaningful action. While Rosie, Miley, Amy, Whoopi, Chelsea, Samuel, Brian, Al, and others, publicly excoriated the President Elect throughout his campaign, vowing to leave the United States in the event of a Trump victory, it would appear these declarations were nothing more than veiled threats designed to influence the outcome of the election and enhance the respective entertainer’s stock.

The following examples show just how desperate and disingenuous these pseudo intellectuals are and also demonstrate the liberal elite’s penchant to evasively pivot when responding to a simple question that requires an honest answer.

Whoopi Goldberg recently walked back her threat to leave the United States by stating on the View that I’m not leaving the country I was born and raised in,’ The cryptic statement, however, fails to answer the question: Whoopi, why are you still here?
Likewise, Miley Cyrus recanted her promise to leave the country the morning after the election by treating us to a teary eyed emotional video where she conceded the election results and accepted Trump as her President. Like Whoopi, Miley has offered no explanation why she is still here.
After being called out on her promise to leave, Amy Schumer offered up a lame excuse in an Instagram statement that the threat of leaving was just a ‘joke.’ Despite dubious explanation, Schumer could not resist the “pivot” by attacking Trump supporters with the following rant: ‘Anyone saying pack your bags is just as disgusting as anyone who voted for this racist homophobic openly disrespectful woman abuser.’

My favorite and perhaps the most creative non-responsive answer came from Samuel L. Jackson.

After referring to Trump as a ‘motherf****r’ during a skit on the Jimmy Kimmel show, Jackson threatened to move to South Africa if Trump was elected. However, Jackson later announced via twitter that he is staying, but not without first expressing his indignation for those pressing him for an answer. Jackson said ‘When you learn the difference between My Actual Opinion and A Kimmel Skit….. Maybe we can talk. Till then, I’m Barbed Wire Up Your Asses!! [sic].’ Jackson also seized the moment to Pearl Harbor Trump and his supporters comparing Trump’s victory to the introduction of the Jim Crow laws, which enforced segregation: ‘The Last Time I survived Jim Crow I was Poor.’ He then added: ‘Guess what Motherf*****S.. Not This Time!! Enjoy your newfound win, Bigly!!’
Chelsea Handler offered a more civil, but equally disingenuous explanation on her Netflix Show as to why she will not be leaving the United States by stating: ‘ It’s easy to throw in the towel and say that we’re going to leave, or I’m gonna move to Spain.’ She added: ‘Because I want to move to Spain, I really, really want to move to Spain right now. But everyone in my office is like, “you have a responsibility. You have a voice, you need to use it and you have to be here.”’Chelsea, you still haven’t answered the question. Why are you still here?

There are also others who have threatened to leave in the event of a Trump victory.

Like their colleagues, these entertainers have failed to explain why they are still in the United States, instead electing to pivot.

Singer Cher, who threatened to move to the Planet Jupiter, has yet to address the question of why she is still living in the United States. Instead, Cher, who has not had a lucid thought since her divorce to the late Sonny Bono, provided her flock via social media with the following words of wisdom: ‘The world will never be the same. I feel sad for the young. [Trump] will never be more than the toilet; I’ve used as a symbol 4 Him. U Can’t Polish [a t***].’

The preceding examples illustrate the hypocrisy behind the liberal mantra: “When they go low, we go high.” This list is by no means complete, but just a sampling.

The lame excuses as well as the assault on those who dare disagree with these traitors and other dilatory tactics make one thing clear. The liberal elites will never provide us with an honest answer as to why they will not leave. But do not despair. The real answer may be found in the provisions of the Internal Revenue Code and the application of the Exit Tax.

Here is how it works. For purposes of this discussion we will assume expatriation takes place in the year 2016.

A U.S. citizen who renounces her citizenship or a long term resident who terminates her U.S. resident status may be subject to what is sometimes referred to as an “Exit Tax.” The Exit Tax only applies to “Covered Expatriates.”

For 2016, an individual is considered to be a Covered Expatriate if any of the following apply:

Your average annual net income tax for the preceding 5 tax years ending before the date of expatriation or termination of residency is more than a specified amount adjusted for inflation. (For 2016 the average annual net income tax amount is $161,000);
Your net worth is $2 million or more on the date of expatriation or termination of long term resident status; or
You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the five years preceding the date of your expatriation or termination of your residence.

Based upon the above criteria and Celebrity Net Worth, the celebrities mentioned in this discussion would be considered Covered Expatriates.

If an individual is considered a Covered Expatriate, that individual is subject to income tax on the net unrealized gain from the sale of the individual’s property.

The IRS treats all property owned by a U.S. citizen or long term resident as if the property was sold at its fair market value on the day before expatriation. In other words the individual is taxed on the market to market net gain of all his or her assets.

The total amount of gain is reduced by an exclusion amount which is adjusted for inflation. For 2016 the exclusion is $693,000. The net gain, after allowance for the exclusion,is subject to income tax at the capital gains rate of 20% plus an additional 3.8% surtax. This rate is based upon the assumption that the Covered Expatriate is subject to the top tax bracket of 39.6%.

To illustrate how the Exit Tax is applied, consider the following example:

John, a famous Hollywood actor and producer, is considered a Covered Expatriate. During a radio interview with ABC news on September 12, 2016 John threatens he will leave the country if that “asshole” Trump is elected. John follows through on his threat. On November 13, 2016 John renounces his U.S. citizenship. The fair market value of all property owned by John immediately preceding his expatriation is $75 million. John’s basis in the property is $25 million. The IRS will treat John’s property as if sold on the day before expatriation. The net unrealized gain on the “deemed” sale is $50 million. After allowance for the $693,000 exclusion, the net gain recognized for tax purposes is $49,307,000.Since John is in the top tax bracket of 39.6%, he would be subject to a capital gains rate of 20% and an additional 3.8% surtax. As such, John would owe $11,735,066.At first blush, a tax of 23.8% may seem a small price to pay in order to be free of Trump’s despotic rule, provided the assets are liquid. In this case, however, John’s assets primarily consist of non-liquid assets, such as real estate, luxury automobiles, a personal jet, two yachts, and a collection of antique cars. A “deemed sale” of these assets results in a cash crisis, causing John to “fire sale” his Ferrari, private jet, 2 yachts and his mountain home in Steamboat Springs, Colorado in order to satisfy the Exit Tax.

The above example provides insight as to why U.S. entertainers will never leave the states.

I would be remiss if I did not mention Al Sharpton. No A-List of celebrities would be complete without him. For those of you who are saddened at the prospect of Al Sharpton expatriating, you can relax. Mr. Sharpton is not going anywhere. Al Sharpton, considered by some to be a serial tax evader, would be considered a Covered Expatriate based upon his reported net worth of $5 million. Furthermore, Mr. Sharpton’s unpaid federal income and employment taxes are substantial and well chronicled. There is no indication, at least in the foreseeable future that he will pay up.While Obama has been able to provide cover and insulate Sharpton from IRS Collections for the past eight years, the situation has now changed. “Just Keepen’ It Real.” Now back to Sharpton as a Covered Expatriate.

Since Certification is an integral part of the expatriation process, “Big Al” or Al “Slim Shady” Sharpton as he is affectionately referred to by radio talk show host, Curtis Sliwa, is currently unable to Certify on Form 8854 that he has complied with all U.S. tax obligations for the preceding five years. Slim Shady has two choices. He can pay his back taxes as well as the Exit Tax and Certify on Form 8854 that he is in compliance, at which point he would be free to leave the U.S. The alternative would be for him to falsely Certify on Form 8854 that he is in compliance and move to a non-extradition country. The latter alternative, however, may be foreclosed if Sharpton’s passport is revoked in accordance with Section 7345 of the Internal Revenue Code. To date, no response. Cat got your tongue Al?

Finally, I’m a “little bit” disappointed that De Niro has yet to depart for Italy as rumored. Bob’s October 8, 2016 video rant has many in the public concerned. This Goodfella seems to have come unhinged. Nevertheless, we still do not have an answer. Bob, why are you still here?

The liberal elites would have you think that they are selfless and concerned with championing the causes of those who are less fortunate and converting the masses who voted for Trump. These charlatans would also have you believe that they are concerned with the equitable treatment of all and the redistribution of wealth. Unfortunately, they are not interested in redistributing their wealth nor are they interested in paying the “vig” in order to leave the States.

While it’s unfortunate that we are stuck with these hypocrites, at least for the foreseeable future, the public can take solace in knowing the real reason why we are unable to rid ourselves of these Hollywood elites. It’s the Exit Tax.

Serious about leaving? Put up or shut up!

Wednesday, November 16, 2016

November 17, 2016/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, Tax Audit

Taxation of Professional Athletes & Entertainers – Are You At Risk?

The Risks of Professional Athlete and Entertainer Taxation

Global sports and entertainment have created many new opportunities as well as challenges for those individuals, who are multi-jurisdictional earners. The IRS has taken a keen interest in cross border sports and entertainment in the context of U.S. tax enforcement. This scrutiny has been expanded to include directors, producers, technicians, managers, promoters as well as others.

Recognizing that professional athletes and entertainers are globally mobile and have unlimited earning capacity, the IRS formed a task force charged with the responsibility of improving federal tax compliance among high income athletes and entertainers, through taxpayer awareness and increased enhanced enforcement efforts.

Other countries are likewise interested in professional athletes and entertainers, who earn income while performing services in venues outside of the U.S. Recent global tax enforcement initiatives signal that athletes and entertainers who evade taxes within and without the United States will be vigorously pursued. Specifically, the standards contained in FATCA and the Common Reporting Standards will facilitate the mutual exchange of information, transparency and the detection of those who are determined to evade paying their fair share of income taxes to the United States and its global partners.

In determining whether a professional athlete or entertainer is subject to U.S. income tax, the IRS will always key in on whether the athlete or entertainer is a resident for federal income tax purposes. The IRS will also look at how the income is characterized, whether the athlete or entertainer made use of a shell company or other device to avoid paying U.S. tax and whether the individual unreasonably relied upon a tax treaty or income allocation.

A U.S. tax resident is subject to U.S. income tax on his or her worldwide income.

As such, whether an athlete or entertainer is a resident for U.S. income tax purposes is the critical starting point. Generally, U.S. citizens and permanent resident aliens are considered U.S. tax residents and subject to federal income tax on their worldwide income.

In certain circumstances even a non-resident can be considered a U.S. tax resident if the individual spends the requisite number of days in the United States. A non-resident who is physically present in the United State for 183 days or more during a calendar year is considered a U.S. tax resident. A non-resident can also meet the physical presence test under a formula. If an individual is present in the United States for less than 183 days during a single tax year he or she may nevertheless be considered a U.S. tax resident in that year if the individual spends at least 31 days in the United States in the current year and, by application of a certain carryover formula, where the number of days in the United States in the current year plus the number of days from the prior two years equals 183 days or more.

Finally, a non-resident, who files and signs a joint tax return with a U.S. citizen or legal permanent resident, may also, be subject to federal income tax based upon his or her worldwide income.

Residency for federal tax purposes is significant to the IRS for the following reasons:

Athletes and entertainers, who are considered tax residents of the United States, are subject to U.S. income tax on their worldwide income. As such, the IRS is particularly interested in determining whether the athlete or entertainer received income from foreign sources, and if so, whether that income was properly reflected on the individual’s U.S. tax return.
Foreign athletes and entertainers, who are considered non-residents for U.S. tax purposes, are only subject to U.S. income taxon compensation received for services rendered in the United States, as well as royalties, rents from investments in U.S. real property, dividends, interest, and income derived from U.S. business operations. The IRS will focus on these individuals to determine if the foreign athlete or entertainer is reporting his or her U.S. source income. The IRS will also scrutinize the number of days a foreign athlete or entertainer spends in the United States for purposes of determining whether the individual meets the physical presence test.The unintended consequences of a non-resident athlete or entertainer, who is present for 183 days or otherwise meets the physical presence test under the formula, can be financially devastating.

Many professional athletes and entertainers may not be aware of their U.S. filing and reporting obligations if they are represented by a tax professional that is unfamiliar with cross border tax reporting. Too often, athletes and entertainers rely upon professional agents and management companies for direction in selecting legal, accounting and tax professionals to assist them with their financial affairs. Relying upon a professional agent or management company in the selection of a tax professional is inherently suspect and should be avoided at all costs. The simple reason for this is lack of independence. Moreover, while a recommended tax professional may have a general understanding of U.S. taxation, the individual may not be familiar with the mechanics of taxation in a multi-jurisdictional context.

Similarly, athletes and entertainers who rely upon friends or family in vetting and selecting a tax professional may eventually find themselves at odds with the Internal Revenue Service. An athlete or entertainer may also continue to use his or her existing tax professional out of loyalty, due to a personal relationship or based upon the assumption that the tax professional has the requisite experience, skill and knowledge related to cross border earners. However well intended, these methods for selecting a tax professional can result in adverse tax consequences.

A an athlete or entertainer, who fails to comply with his or her U.S. Tax and filing obligations can be subject to civil and criminal penalties. In cases where the athlete or entertainer has engaged in a systematic pattern of non-compliance, the individual may be subject to criminal prosecution, imprisonment and heavy fines. The IRS is particularly interested in the prosecution of famous athletes and entertainers, since the IRS considers high profile prosecutions a strong deterrent to potential tax cheats.

Running afoul of the U.S. tax laws may also result in loss of work visas and deportation of green card holders and individuals in the United States on visas. In addition, where the IRS has assessed income tax, an athlete or entertainer may not be permitted to leave the United States until federal tax liability is satisfied.

If you are a professional athlete or entertainer, you should speak with a tax attorney. Even athletes or entertainers who are currently in high school or college and anticipate signing a lucrative contract, it would be wise to speak with a tax attorney for purposes of evaluating the tax implications.

A final word of caution unrelated to the topic of taxation. Never permit an agent, accountant, attorney or financial manager to manage your financial affairs or have access to your assets. The investment, reporting and custody functions should always remain segregated as a safeguard against potential misappropriation of assets or making ill-advised investments. Any appearance of a conflict of interest should be a red flag. If a financial advisor, attorney or accountant suggests an investment, you should always get an independent attorney opinion prior to parting with your hard earned money. Just ask Hall of Famer, Scotty Pippen or superstar singer Rihanna.

November 12, 2016

November 12, 2016/by Anthony N Verni, Attorney at Law, CPA