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New Jersey Couple Avoids FBAR Penalty and Instead Receives Warning Letter

The following is an actual FBAR case handled by the Law Office of Anthony N. Verni. My Princeton New Jersey office was successful in securing a waiver of the proposed FBAR penalties for these two taxpayers.

FBAR statute of limitations can incur FBAR penalties by the IRS, here is a prior experience with a New Jersey coupleMr.and Mrs. Beránek (a.k.a. the “taxpayers”) are Czechoslovakia nationals.* The taxpayer as well as his spouse are retired and in their early seventies. The Beránek’s came to the United States in 1997 as Permanent Legal Residents and became naturalized citizens in 2004. Since their immigration to the U.S., Mr. and Mrs. Beránek have lived in Freehold, New Jersey.

The taxpayers maintained an account with UBS in Switzerland (the “UBS Account”), which was established in 1962. The taxpayers would routinely deposit their earnings from their employment as electrical engineers into the UBS Account. In addition to the UBS Account,Mrs. Beránek opened and maintained a joint account with her non-resident alien sister, Catalina in Zvolen Slovakia at Credit Suisse (the “Credit Suisse Account”).

In 1996 the Beránek’s sold their personal residence in Prague and liquidated a number of investments totaling $1,350,000. The proceeds were used to open a Brokerage Account with Raymond James in Newark, New Jersey. The taxpayers also owned a commercial rental property located in Prague until October of 2005, when the property was sold for $700,000. The proceeds from the sale were deposited into the UBS Account and remain there to date.

The taxpayers’ federal income tax returns were prepared by a local CPA near Howell, New Jersey, by the name of Sam Patel.** Each year the taxpayers would meet with Mr. Patel’s assistance and would provide her with copies of the Composite Form 1099 they received from Raymond James.

The CPA was unfamiliar with the FBAR filing requirements, and further, did not understand the concept that U.S. Taxpayers are taxed on their worldwide income. Consequently, Mr. Patel failed to prepare and file FBAR reports, failed to report the interest income earned on those accounts and failed to report the income and expenses from the rental property on the taxpayers’ income tax returns. In addition, Mr. Patel also failed to report the sale of the property in 2005 on the taxpayers 2005 tax returns.

In 2010 the taxpayers were notified that their 2005-2007 federal income tax returns were selected by the IRS for examination. The taxpayers retained an Upper Montclair, New Jersey CPA, who was competent in the area of IRS examinations, but he too was unfamiliar with the reporting requirements for foreign financial accounts.

As part of the examination process the IRS auditor asked the taxpayers about the existence of any foreign financial accounts and whether the taxpayers had any foreign source income.

In response to the IRS agent’s questions, the taxpayers disclosed that they had two foreign financial accounts and that interest income was earned on these two accounts. In addition, the taxpayers told the IRS that they received rental income from the commercial rental property in Prague, but sold the property in 2005. As a result of the taxpayers’ disclosures, the scope of the examination was expanded to include the tax years 2008 and 2009.

At the conclusion of the examination, the IRS advised the taxpayers that an additional income tax in the amount of $2,822 for the years 2005-2009 would be proposed. The agent also told the taxpayers that he was recommending a negligence FBAR penalty in the amount of $100,000, representing a $10,000 penalty for each account for each of the five years.

The taxpayers then retained my office in Princeton NJ for purposes of bringing them into compliance with the IRS and pursuing an abatement of the proposed negligence FBAR penalties.

During my initial meeting with the Beránek’s, I was not able to discern that the taxpayers were unaware of the FBAR reporting requirements nor were they aware of their obligation to report their worldwide income for Federal income tax purposes.

The taxpayers also informed me that neither Mr. Patel nor his assistance ever asked the Beránek’s whether they had any interest in any foreign financial account or whether the taxpayers received any income from foreign sources. Based upon the foregoing, I determined that reasonable cause existed and that an abatement of the proposed FBAR penalties should be pursued.

I contacted Mr. Patel and secured the taxpayers’ complete file. I was also able to secure an affidavit from the Mr. Patel wherein he acknowledged being unfamiliar with the FBAR filing requirements and also admitted that he was not aware that U.S. Taxpayers must report their worldwide income for federal income tax purposes.

I contacted the IRS agent’s supervisor and explained the situation. We agreed that the taxpayers would submit amended income tax returns for 2005-2009 and also prepare and file delinquent FBARS for the same years. We further agreed that we would revisit the FBAR penalties proposed by the agent once the taxpayers brought their filings current.

We amended the taxpayers’2005-2009 Federal Income Tax Returns. We also prepared and filed FBAR reports for 2005-2009.

The amended returns, together with the taxpayers’ remittance in the amount of $2,822 were delivered the IRA agent. We also provided the agent with, copies of the filed FBARS, a letter brief, outlining the relevant facts supporting our abatement request and Mr. Patel’s affidavit.

Following his review of the documents submitted and supervisor review, the examining agent advised me that he would be withdrawing his recommendation for the imposition of the FBAR penalties and would instead recommend that a warning letter be issued to the taxpayers. Several weeks later the taxpayers received a warning letter (Letter 3800) from the IRS and the case was closed.

Anthony N. Verni is an attorney and certified public accountant with over 20 years of experience.His practice is focused on representing expatriates and other U.S. Taxpayers, who have failed to report their worldwide income and/or failed to meet the FBAR reporting and other U.S. financial reporting requirements. Mr. Verni services clients in the Tri-tate area, South Florida, as well as client residing outside of the United States. In addition, Mr. Verni represents clients in domestic tax matters including examinations, appeals as well as taxpayers with un-filed income tax returns.

*The clients’ names have been changed for purposes of preserving the attorney client privilege. The facts of the case, however, are the facts from the actual case.

**The CPA name and location is fictitious, based upon a confidentiality agreement.

©2017 Anthony N. Verni, Attorney at Law, CPA

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New Developments in The Willful Civil FBAR Penalty

Current Developments May Make It Easier For the IRS To Assess Penalties After Willfully Failing to File FBAR’s

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.A taxpayer who willfully fails to file a Report of Foreign Bank and Financial Accounts (FBAR) may be subject to both civil and criminal penalties as well as imprisonment.  In both the criminal and civil context, the government has the burden of proof.

In FBAR criminal prosecutions, the standard of proof is well settled and requires the government to prove its case using the beyond a reasonable doubt standard.  However, in cases involving the assessment of the 31 USC § 5321(a) (5(C) willful civil FBAR penalty, the standard of proof  is unsettled and remains the subject of debate among legal scholars, practitioners and the judiciary. Practitioners have argued that the standard of proof in assessing the willful civil FBAR penalty should be the clear and convincing standard, citing Chief Counsel Advice (CCA) memorandum released January 20, 2006, CCM 200603026 (See discussion below) in support of using the higher standard of proof.

The correct standard of proof to be applied for assessing the willful civil FBAR penalty often arises in the context of an assessment of the willful civil FBAR penalty by IRS Examinations, an Appeal by the taxpayer, or in defense of an action by the U.S. government to enforce the 31 USC § 5321(a) (5(C) penalty. The proper standard of proof to apply in the context of the willful failure to file an FBAR has been the subject of a number of lower federal court decisions and is also reflected in jury instructions submitted by U.S. District Court in the Southern District of Florida. The Courts in all three cases have cited the preponderance of evidence standard as the correct standard to apply when assessing the 31 USC § 5321(a) (5(C) penalty.

Based upon two recent cases, the stage may now set for the U.S. Court of Appeals for the Fifth and Ninth Circuits to ultimately decide the correct standard of proof to be applied when assessing the31 USC § 5321(a) (5(C) penalty.

The first case, Gubser v Comm’r, 2016 WL. 3129530 (S.D. Tex. May 4, 2015) comes out of the U.S. District Court for the Southern District of Texas. In Gubser, the taxpayer filed a complaint in the District Court asking for a declaratory judgment that the proper standard to be applied in a willful civil FBAR penalty case is the clear and convincing standard. The District Court dismissed the taxpayer’s suit based upon lack of standing. The taxpayer subsequently filed an appeal.

Although the question currently before the Fifth Circuit is limited to standing, some observers believe that if the taxpayer prevails and the matter is remanded back to the District Court for further findings, the standard of proof issue to be applied in a willful civil FBAR penalty will find its way back to the Fifth Circuit.

The second case, U.S. V. August Bohanec and Maria Bohanec (Case No. 215-CV-4347 ddp (FFMx) (filed 12/8/16) involves a decision from the United States District Court for the Central District of California. In Bohanec, the Court rejected the taxpayers’ argument that the clear and convincing standard should be applied in a willful civil FBAR penalty case. Instead, the District Court applied the lower preponderance of the evidence standard of proof. The taxpayers’ attorney has indicated the taxpayers will appeal the decision.

The ultimate determination of the standard to be applied when assessing the willful civil FBAR penalty and its importance cannot be overstated; a decision by the Fifth and/or Ninth Circuits citing the preponderance of evidence as the correct standard will certainly have a chilling effect on taxpayers, who are considering opting out of the OVDP, and will also pose a greater risk to those taxpayers who have  or will submit a  Certification of Non-Willfulness as part of the Streamlined Procedures.  If the Appeals Court finds that the correct standard is the preponderance of evidence, taxpayers can also expect the IRS to be more aggressive in scrutinizing taxpayers who opt Out of the OVDP or those who proceed using the Streamlined Procedures.

This article outlines the concept of “willfulness” in light of U.S.C. §5321(a) (5) (C), CCM200603026, JB Williams, McBride and Zwerner and in anticipation of the Gubser and Bohanec cases making their way to the U.S. Court of Appeals.

A taxpayer who “willfully” fails to file an FBAR faces a penalty equal to the greater of $100,000 or 50% of the foreign financial account balance as of the June 30 FBAR due date,31 U.S.C. §5321(a) (5) (C). Neither the FBAR statute nor the regulations promulgated there under provide any guidance on the standard of proof to be applied in the assessment of the willful civil FBAR Penalty. In Chief Counsel Advice (CCA) memorandum released January 20, 2006, analyzing the issue of willfulness in the FBAR civil context, the IRS compared the burden of proof for the willful civil FBAR penalty to the burden of proof for the civil fraud penalty under 26 U.S. Code §. 6663, explaining that it expects the standard of proof will be the same—clear and convincing evidence, not merely a preponderance of the evidence. Proponents for applying the higher standard often cite CCM 200603026 in support. Despite CCM 200603026, the U.S. District Court, in three cases has cited the lower preponderance of the evidence standard as the correct standard when assessing the willful civil FBAR penalty.

The United States District Court in JB Williams applied the preponderance of the evidence standard,United States vs. Williams, 2010 U.S. Dist. LEXIS 90794 (ED VA 2010). In JB Williams, the government brought an action in the US District Court for the Eastern District of Virginia seeking to enforce the civil willful FBAR penalties assessed against the taxpayer for his failure to report his interest in two foreign bank accounts for tax year2000, in violation of 31 U.S.C. § 5314.  The taxpayer previously plead guilty to two count superseding information for Conspiracy to Defraud the IRS and Criminal Tax Evasion.  As part of the plea, Williams agreed to allocute to all of the essential elements of the charged crimes, including that he unlawfully, willfully, and knowingly evaded taxes by filing false and fraudulent tax returns on which he failed to disclose his interest in the Swiss accounts.

Furthermore, the taxpayer checked “no” in response to the question on Schedule B Form 1040, regarding the existence of a foreign financial account, despite having transferred $7M to a Swiss bank account.  In addition, the taxpayer completed a tax organizer, wherein he answered: “no” in response to a question as to whether he had a financial interest in or was a signatory over a foreign financial account. The taxpayer provided the following statement as part of his allocution.

“I also knew that I had the obligation to report to the IRS and/or the Department of the Treasury the existence of the Swiss accounts, but for the calendar year tax returns 1993 through 2000, I chose not to in order to assist in hiding my true income from the IRS and evade taxes thereon, until I filed my 2001 tax return.”

. . . .

The District Court, held without discussion, that the government’s burden to establish a willful violation of 31 U.S.C. § 5314only requires proof by a preponderance of the evidence.The District Court further held that the Taxpayer’s eventual filing of the delinquent FBARS, “negated” willfulness.  In reversing the District Court’s decision, the U.S. Court of Appeals for the Fourth Circuit, dodging the standard of proof question, held that the District Court clearly erred  in finding that the Government failed to prove that Williams willfully violated 31 USC § 5314.

In U.S. v. McBride, [908 F. Supp.2d 1186, 1201 (D. Utah 2012)], the District Court for the District of Utah Central District, relying on Williams held that the correct standard for imposition of the willful civil FBAR penalty is the preponderance of the evidence standard. Likewise, in U.S. v Zwerner, a 2014 Florida Case, the Federal District Court for the Southern District of Florida submitted the issue on willfulness to the jury using a preponderance of evidence standard.The U.S. Court of Appeals has yet to weigh in on the correct standard of proof to be applied in a 31 USC § 5321(a) (5(C) willful FBAR penalty case. However,  two recent lower court cases make clear that the higher court will ultimately be called upon to determine the correct standard of proof question.

In Gubser v. Comm’r, 2016 WL, 3129530 (S.D. Tex. May 4, 2016), the taxpayer, a Swiss citizen by birth and later naturalized asa U.S. Citizen maintained a Swiss account, which he opened when he was a young man. The purpose for opening the account was to enable the taxpayer to accumulate savings for his retirement in Switzerland.  Since its opening, the account was always held in Gubser’s name and the funds in the account represented after tax earnings. Grubser retained the services of a CPA, who prepared the taxpayer’s U.S. tax return for over 20 years. During this time, the CPA never raised the question whether the taxpayer had an interest in any foreign financial account. The matter first came to the taxpayer’s attention in 2010 when someone from the CPA’s office raised the question of the existence of foreign financial accounts. Gubser promptly filed an FBAR report for 2009 and subsequent years.  In addition, the taxpayer entered the OVDP, covering the tax years 2003-2010.   Subsequently, Gubser opted out of the OVDP, which resulted in the IRS sending Gubser a  3709 Letter (the FBAR 30 day letter), proposing the50% willful civil FBAR penalty pursuant to 31 USC § 5321(a)(5(C) for the tax year 2008. The penalty in the amount of $1.3M reflected approximately 50% of the taxpayer’s entire life savings.  Grubser filed a timely protest letter with Appeals.  When the taxpayer discussed the matter with the Appeals officer, the Appeals officer told Gubser that the IRS could prove willfulness by using the preponderance of the evidence standard, but not by the clear and convincing standard. The Appeals officer also asked for guidance on the proper standard.

Grubser thereafter filed a declaratory judgment action with the U.S. District Court for the Southern District of Texas, requesting that the Court declare that the IRS must prove willfulness by clear and convincing evidence. In response the government filed a motion to dismiss based upon lack of standing, arguing that the taxpayer’s injury could not be redressed by a declaratory judgment, since such a judgment would be non-binding on the IRS. The government’s motion was granted and Gruber appealed to the Fifth Circuit.

The second case to watch isU.S. V. August Bohanecand Maria Bohanec (Case No. 215-CV-4347 ddp (FFMx) (filed 12/8/16). In Bohanec, the taxpayers had previously applied for and were denied participation in the Offshore Voluntary Disclosure Program (“OVDP”), in part, due to several misrepresentations made during the OVDP process. The U.S. District Court for the Central District of California rejected the taxpayers’ argument that the government had to show willfulness under the clear and convincing standard of proof, and instead applied the preponderance of evidence standard of proof.  The Court found that the taxpayers’ failure to file FBAR’s for three accounts the taxpayers maintained for over a decade was at least “recklessly indifferent to a statutory duty.” The taxpayers’ attorney has indicated that the taxpayers will appeal the District Court’s decision.

Taxpayers currently participating in the OVDP, who are considering opting out of the Program or those who are thinking of making a disclosure using the Streamlined Procedures certainly need to proceed with caution.  The U.S. Court of Appeals for the Fifth and Ninth Circuits will ultimately address the correct standard to be applied in the assessment of the willful civil FBAR penalty. These decision(s) will undoubtedly have a significant impact on both current and future taxpayers who have made or are considering making a voluntary disclosure.

The takeaway here is that any decision  involving making an offshore voluntary disclosure should not be made based upon an internet search. Instead, those faced with the decision of making an offshore voluntary disclosure should consult with a knowledgeable and experienced tax attorney, who can assess the specific facts of each case and assess the risks associated with choosing one method of disclosure over another. At the Law Office of Anthony Verni, we know that there is no one size solution to fit all, contact us today or leave a comment below.

© 2017 Anthony N. Verni, Attorney at Law, CPA

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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

5th amendment fbar tax for celebrities that want to expatriate now that Donald Trump has been elected President of the United States of America

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:

  1. 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);
  2. Your net worth is $2 million or more on the date of expatriation or termination of long term resident status; or
  3. 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!

© 2016 Anthony N. Verni, Attorney at Law, Certified Public Accountant

Wednesday, November 16, 2016

 

 

 

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Offshore Tax Compliance Prosecutions by the IRS

Offshore Tax Compliance Update fbar penalties for tax evasion can include imprisionment if the IRS seeks to criminally prosecute you

Offshore Tax Compliance Update – Recent IRS Tax Prosecutions

The following convictions represent recent successful prosecutions by the Department of Justice, Tax Division and reinforce the Government’s commitment to ferret out tax cheats, wherever they may be located.

Case 1

On October 7, 2016 a Michigan business man and owner of several mining related businesses, pleaded guilty to concealing $2.6 million held in a Swiss bank account.

According to the facts set forth in the plea agreement, the defendant transferred $2.6 million from his parents trust account to a bank account at Credit Suisse. In order to conceal the account from IRS detection, the defendant set up Hong Kong Company and had the Credit Suisse account held in the company name. The Hong Kong Company’s only business purpose was to act as the named account holder. The defendant falsely states on his 2008-2012 federal income tax returns that he had no interest in a foreign financial account and also failed to report the income from the Credit Suisse account. To exacerbate matters, in 2010 the defendant filed an amended tax return for the tax year 2008. Once again, the defendant failed to report the income generated in 2008 from the Credit Suisse account.https://www.justice.gov/opa/pr/michigan-business-owner-pleads-guilty-concealing-swiss-bank-account

Case 2

On September 28, 2016, a New York City resident pleaded guilty to using a sham foreign entity and numbered accounts in Switzerland and Israel in order to evade taxes.

From 1987 to 2008 the defendant maintained a number of undeclared foreign financial accounts and accounts at UBS held in the name of Contactus Partnership Associated, SA (Contactus) a sham entity organized in the British Virgin Islands.In 2008 the defendant closed the UBS accounts and transferred the assets to a newly opened account at Clariden Leu. The newly opened account was held in the name Contactus.

Shortly thereafter the defendant closed the account at Clariden Leu and transferred the assets to a newly opened Swiss bank account in the name of the same sham entity. The defendant was successful in getting the Swiss Bank to falsely record the defendant’s Belgian cousin as the owner of the assets in the Contactus account. Six months later the defendant closed the Contactus account at the Swiss Bank and transferred the assets to a newly opened bank account in Israel held in the name of a different cousin.From 2005-2011 the defendant also maintained an undeclared account at Bank Leumi in Israel   under the name of a non-resident alien, residing outside of the United States.

In 2010 the defendant was able to obtain an Israeli Identity Card. The defendant then opened an account in his own name at Bank Leumi, claiming that the defendant resided in the United Kingdom. He also signed a document under penalty of perjury affirming that he was not a U.S. Citizen.

Subsequently, the defendant repatriated the funds from his undeclared accounts to the United States.  In order to carry out the scheme, the defendant had his attorney draw up a sham loan agreement between the defendant and Contactus and then caused the funds to be transferred to his attorney escrow account.

The defendant filed fraudulent federal and New York State tax returns by deliberately omitting the income from the foreign financial accounts and by failing to pay income taxes on the omitted income. As a result, the defendant was able to evade paying $653,580 in federal income tax for the tax years 2002-2005 and 2007-2010.

The defendant also failed to report his ownership and control of his foreign financial accounts on FinCen Form 114 despite being advised by an accounting firm that he had an obligation to file FinCen Form 114 and that failure to do so could result in civil and criminal penalties being imposed. https://www.justice.gov/opa/pr/new-york-city-resident-pleads-guilty-using-sham-foreign-entity-and-secret-foreign-accounts

Case 3

On September 21, 2016 a Weston Connecticut man pleaded guilty to concealing over 1.5 million in income from an undeclared foreign financial account.

According to the DOJ press release, the defendant conspired with another individual in the United States and others to conceal his assets and income. The scheme was designed to evade paying income tax derived from the sale of duty free alcohol and tobacco products. The defendant used a sham entity, Centennial Group, a registered Panamanian corporation to buy and sell duty free products. In order to carry out the scheme, the defendant arranged to have alcohol shipped through a custom bonded warehouse in the Foreign Trade zone in Southern Florida. The tobacco products passed through a customs bonded warehouse in North Bergen, New Jersey. In total, the defendant was able to transfer $1,627,832 to his undeclared bank account in Panama. The defendant repatriated some of the proceeds from his Panamanian account for the purchase of a Mercedes and to pay $19,000 in interior design goods. The defendant failed to report the income earned on his Panamanian account and also failed to file an FBAR for the relevant tax years. https://www.justice.gov/opa/pr/connecticut-man-pleads-guilty-concealing-income-undeclared-panamanian-bank-account

Deputy Assistant Attorney General Ciraolo reaffirmed that “the Department of the Treasury will: “continue to vigorously pursue and prosecuted those who conceal their assets and income in offshore accounts in an effort to evade paying their fair share of taxes.”

The above prosecutions have common some common elements including:

  • The establishment of a Foreign Financial Account.
  • The creation of a sham entity for purposes of becoming the named account holder of the Foreign Financial Account.
  • Actions taken by the true account holder to conceal the existence of the Foreign Financial Account as well as the income generated from the account.

©2016 Anthony N. Verni, Attorney at Law, Certified Public Accountant

11/11/2016

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FBAR Collections Ten Billion and Counting

IRS Releases 2016 Offshore Voluntary Compliance Statistics

irs headquarters sign in washington d.c. a place for fbar reporting and becoming Fatca compliant

On October 21, 2016 the IRS released the latest statistics on Taxpayers who have made disclosures under the Offshore Voluntary Disclosure Program (OVDP) or by using the Streamline Procedures.

According to the News Release, a total of 55,800 taxpayers have come into compliance since 2009, resulting in the collection of approximately $9.9 billion in taxes, interest and penalties.

An additional 48,000 Taxpayers have made disclosures using the Streamlined Procedures, paying $450 million in taxes, interest and penalties.

In its News Release, the IRS implies that IRS detection is inevitable for those who fail to come forward.

The foregoing is based upon Taxpayer information received by the IRS through a number of initiatives including:

(i) inter-governmental agreements (IGA’s) executed between the U.S. and its international partners under FATCA providing for the exchange of Taxpayer  financial information;

(ii) Taxpayer information provided by institutions participating in the  Swiss Bank Program;

(iii)  criminal prosecution of Foreign Financial Institutions, institution relationship managers, bank officers, attorneys and other facilitators;

(iv) information gathered in response to the issuance of a John Doe Summons;

(v) Taxpayer information obtained from IRS “Whistleblowers;” and

(vi) Taxpayer information gathered through IRS participation in various international task forces.

For those who elect to proceed under the Streamline Procedures, the bar to establish “non-willfulness” has been raised. The IRS will no longer accept Taxpayer applications under the Streamlined Procedures unless the Taxpayer provides a “narrative statement of facts,” pays the tax due, and submits the required information returns.

This statement must clarify why the particular party failed to disclose offshore assets. Accordingly, a request for relief that fails to contain a detailed explanation, in all likelihood, will result in a denial of relief.  Similarly, a statement that the Taxpayer was unaware of the filing and reporting requirements will not meet the threshold for non-willfulness.

Finally, taxpayers, who self prepared their returns and who answered “no” to questions 7a and 7b on Schedule B pertaining to the existence of an interest in or signatory authority over a foreign financial account, will find it difficult, if not impossible, to establish “non-willfulness.”

© Anthony N. Verni, Attorney At Law, Certified Public Accountant         10/23/2016

A press release from the IRS

https://www.irs.gov/uac/newsroom/offshore-voluntary-compliance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance

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Outrunning the IRS: FBAR Statute of Limitations Guidelines

FBAR statute of limitations can cause a criminal investigation into tax fraud by the IRS

What Happens If Someone Fails to File an FBAR?

A wrinkle in the law for those with interests in or signature authority over foreign financial accounts, including bank accounts, brokerage accounts, mutual funds, trusts, or other type of foreign financial accounts, exceeding certain threshold is the requirement that such persons file an FBAR or “Report of Foreign Bank and Financial Accounts.” This filing obligation was intended to curb the use of foreign accounts to evade U.S. income tax. As a result, FBAR reporting forms are now required by the IRS and enforced through the Bank Secrecy Act, which require that you file reports annually. So what happens if you fail to file an FBAR and how long do you have to wait before you are in the clear? 

The Statute of Limitations is Six Years or longer.

The IRS says 6 years, judged from when the FBAR was due is the tolling time for the statute of limitations. That’s June 30 following the calendar year being reported. For instance, the 2016 FBAR is due June 30, 2017, and the statute runs on June 30, 2023.

Even with the bright line six-year statute of limitations, the IRS can also use another date. According to 31 U.S.C. 5321(b) the statute of limitations is judged as six years from the time of the “transaction.” The problem with this murky language is that the Internal Revenue Manual does not define or interpret when a transaction occurs for the purposes of the FBAR due date.

There is also a question with respect to U.S. Taxpayers who reside outside of the United States and whether the statute is suspended for purposes of FBAR compliance while the Taxpayer is outside of the United States, consistent with treatment under the Internal Revenue Code with respect to income.

While the IRS requires you file an FBAR and sets out the statute of limitations on filing, FBARs are administered by the Department of Treasury and its Financial Crimes Enforcement Network. Despite this administration authority the Financial Crimes Enforcement Network delegated its FBAR authority to the IRS in 2003.

It is important to note, the United States Tax Court, in Williams v. Commissioner determined that it did not have jurisdiction to consider FBAR penalties. As such, Taxpayers do not have the benefit of pre-payment judicial review.

The IRS has tremendous discretion to determine what constitutes a transaction for the purposes of FBAR and assess FBAR penalties and also the circumstances under which the statute of limitations may be tolled.

Additionally, when it comes to the statute of limitations, closing your accounts and waiting the six year period may seem like the best option at first, but quietly closing accounts and disposing of funds could conceivably backfire.

The IRS may view this action as evidence of evasion or consciousness of guilt. Making this move could put you in a worse position than if you had kept the accounts open and started reporting them prospectively.

If you do choose to close your accounts and manage to make it six full years from your last “transaction” before the IRS notices, you may be in the clear. However, with tremendous deference and authority granted to the IRS to determine what constitutes a transaction and when the statute of limitations truly tolls, as well as determine penalties for FBAR violators, this is a high risk proposition. The IRS has, in the past, argued in income tax cases that this type of “close shop and wait” action is a blatant cover up of a continuing and ongoing criminal activity.

Choices in regards to the FBAR filings and statute of limitations can be extremely difficult. The possibility of large penalties and possible criminal implications require that you seek you legal advice based on your particular situation. There is no one-sized fits all response to FBAR filing and the statute of limitations. Consult your tax attorney before making any decisions regarding FBAR and the statute of limitations.

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FBAR Enforcement:
How and When the IRS Will Act?

The Financial Crimes Enforcement Network, FBAR enforcement and FinCen form. The Report of Foreign Bank and Financial Accounts, (FBAR), is required

How Does the IRS Enforce the FBAR?

The Report of Foreign Bank and Financial Accounts, (FBAR), is required when a U.S. Person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

Under U.S. law, a “U.S. person” is required to annually file an FBAR and report his or her ownership of or signature authority over certain “foreign financial accounts.”  In general, FBAR reporting is required if the maximum aggregate value of the US person’s foreign financial account(s) exceeded US$10,000 at any time during the calendar year.

FBARs must be e-filed on FinCEN Form 1144 with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on or before June 30th for the preceding calendar year.

Starting for the tax year 2015, the FBAR will have to be filed by April 15. No extension of time to file is available. Civil penalties for failing to properly file an FBAR range from up to US$10,000 per unreported account for non-willful violations, to the greater of US$100,000 or 50 percent of the account balance per year for a “willful” failure to properly report a foreign account.

Regulatory authority for the FBAR is 31 C.F.R. §§ 103.24 and 103.27. Section 103.32 provides for FBAR records and Section 103.56 tasks the IRS with FBAR enforcement. Section 103.24 states that each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) who has a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country must report that relationship to the Commissioner of the Internal Revenue for each year in which the relationship exists. The U.S. person must provide information as specified in the required reporting form.

The authority to enforce the provisions of 31 U.S.C. § 5314 and 31 C.F.R. §§103.24 and 103.32 has been re-delegated from FinCEN to the Commissioner of the Internal Revenue Service by a Memorandum of Understanding (MOU) between FinCEN and IRS. This includes authority to:

  1. Investigate possible civil violations of these provisions;
  2. Assess and collect civil FBAR penalties;
  3. Employ the summons power;
  4. Issue administrative rulings; and,
  5. Take any other action reasonably necessary for the enforcement of these and related provisions, including pursuit of injunctions.

The IRS may waive penalties if the failure to file FBAR was due to reasonable cause.  However, “willful” reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

U.S. persons, as defined by the statute, with unreported foreign bank accounts are increasingly at risk of the IRS and Department of Justice identifying those accounts since the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any US account holders or US beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.

Once that information is disclosed and the IRS learns of a failure to file, the IRS may act to enforce civil and sometimes criminal penalties against the U.S. Person with legal authority or ownership of the foreign financial account.

It is vitally important you seek counsel in dealing with FBAR filing and related issues. Once a U.S. person is under IRS audit or whose non-compliance has been identified by the government, there are no corrective remedies available for FBAR compliance. A US person concerned that the government may view any FBAR errors or omissions as “willful” should engage legal counsel to fully evaluate the facts and circumstances and assess the potential civil and criminal exposure in order to resolve the matter before the IRS gets involved.

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Finding an FBAR Lawyer to Help Avoid Criminal Charges

How to Find a Good Tax Attorney

FBAR Lawyer to help clients avoid Criminal Charges by the IRSYou’ve discovered you have to file the Foreign Bank Account Report but are having trouble finding an FBAR attorney. As you search across the web, it may seem as though there are attorneys for any number of issues, except this specific one.

If you’re looking for an FBAR lawyer, but having trouble finding the right person for your case, you aren’t alone. In fact, there is actually no such thing as an “FBAR lawyer”. FBAR is simply shorthand for a Foreign Bank Account Report which must be filed with the IRS.

The Report of Foreign Bank and Financial Accounts (FBAR) requires taxpayers with accounts totaling more than $10,000 to file an annual report with the U.S. Treasury. For taxpayers with offshore accounts totaling more than $50,000 during 2011, a brand new requirement came into effect – Form 8938 (Statement of Foreign Financial Assets).

With the full enforcement of the Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, all foreign banks began requiring their U.S. account holders to disclose their social security numbers and other information. Banks do this to both protect themselves, and to report U.S. account holders who have foreign accounts to the IRS. But the IRS knows that most people aren’t willfully evading taxes. The creation of the Offshore Voluntary Disclosure Initiative, offers reduced civil penalties for taxpayers who come forward with unreported accounts and can ensure that you don’t face FBAR criminal penalties.

Given the recent publicity surrounding FBARs, and the civil and criminal penalties associated with the failure to file an FBAR, individuals with offshore accounts and tax issues are on the hunt for an FBAR attorney. Stop searching for an “FBAR attorney” and focus your search on a premier tax attorney.

If you don’t come forward and disclose your foreign assets, you could face a civil FBAR penalty of $10,000 per account, per year. You read that right. That means if you have 5 years and 20 accounts in each year, you could face a $1M FBAR penalty, even if all those accounts combined only held $11,000. Tack on the potential criminal penalties, and you’ll wish you had spent a little time and money up-front talking to a tax professional.

You don’t need just any tax attorney, though. With the aggressive nature of the IRS audit process and the possibility that criminal charges can be brought for failure to file FBAR, you should seek out a tax attorney with both tax litigation and criminal tax skills to help you navigate the murky waters of IRS disclosure.

This is not an area of the law you want to try to go it alone. Seek out a qualified tax attorney with experience litigating and handling the IRS. If you choose to go alone, or choose to ignore the filing requirement altogether you could face thousands in civil penalties and jail time.

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No 5th Amendment Privilege in Submission of Foreign Bank Accounts Records

5th amendment privilegeThe US District Court for the District of New Jersey has applied the required records doctrine to documents required to be maintained under the US Bank Secrecy Act (BSA), and thus rejected taxpayers’ argument that they can refuse to produce such documents by invoking their privilege against self-incrimination under the Fifth Amendment to the US Constitution (United States of America vs. Eli Chabot and Renee Chabot, Civ. No. 14-3055 (FL W), 3 October 2014).

On May 12, 2012, Eli and Renee Chabot, appeared in front of the IRS to testify. The Chabots, on the advice of counsel, asserted their Fifth Amendment privilege and refused to answer any IRS questions about foreign bank accounts.

On June 20, 2012, the IRS issued another summons, requesting the parties to give testimony and produce extensive documents about foreign bank accounts. On July 13, 2012, the Chabots’ counsel advised the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege, and declined to produce the requested documents.

The US District Court stated that the required records doctrine applies if the following requirements are met:

-The purposes of the government inquiry must be essentially regulatory

-Information is to be obtained by requiring the preservation of records of a kind that the regulated party has customarily kept

-The records must have assumed public aspects that render the records at least analogous to public documents

In the case of the Chabots, the Court determined that the required records doctrine prevented the taxpayers from asserting their Fifth Amendment privilege, and the court granted the IRS’s petition to enforce its summons served on the taxpayers.