Tagoffshore accounts

Understanding Offshore Disclosure by Vivian Hoard

The Offshore Voluntary Disclosure Program (OVDP) and the Streamlined OVDP procedures are two programs that the IRS maintains to bring taxpayers that have undisclosed foreign accounts into accordance with the tax laws. Instead of multiple compounded penalties for failure to disclose the offshore account, the taxpayer is given one penalty of 27 and a half percent of the biggest outstanding balance of the undisclosed money. Fines in the Streamlined OVDP for U.S. resident taxpayers are five percent of the highest balance. The advantages and stipulations of each program are different. Before choosing which program to apply to, the taxpayer should understand these the differences.

The OVDP Program is targeted to those taxpayers who are unable to fulfill the non-willfulness standard outlined below. On one hand, the penalty is higher. On the other hand, this program promises taxpayers that are welcomed into the program that they will not be prosecuted for any tax crime if they make full disclosure.

Persons choosing the Streamlined Program are required to certify under penalties of perjury that their failure to comply was not willful and they must also provide a detailed explanation for their non-compliance. In accordance with the Streamlined Procedures, the returns are liable to audit and if the IRS decides that the taxpayer’s actions were willful, the IRS is free to pursue criminal penalties or civil penalties in the amount of the 27 and a half percent fine under OVDP.

Determining the meaning of willfulness is crucial in understanding which program to choose. Willfulness necessitates a facts and circumstances inquiry into the taxpayer’s behavior and state of mind. This being said, only the taxpayer in question can truly determine whether or not their non-disclosure was non-willful. Customarily the meaning of willfulness in a criminal tax case meant, “[A] voluntary, intentional violation of a known legal duty,” U.S. v. Pomponio, 429 U.S. 10(1976). This called for more than negligence or thoughtless disregard. U.S. v. Bishop, 412 U.S. 346 (1973). Willfulness was meant that the taxpayer expressly intended to violate the law. Cheek v. U.S., 498 U.S. 192 (1991).

Additionally, as stated in the Internal Revenue Manual (IRM), the meaning of willfulness in the context of offshore compliance is a “voluntary, intentional violation of a known legal duty.” IRM 4.26.16.4.5.3. The IRM stipulates that the person’s knowledge of the reporting requirement and conscious decision not to comply with the requirement demonstrates willfulness without reasonable cause. The taxpayer can show a lack of willfulness by confirming that the failure to report was due to neglect, oversight, mistake, or behavior that is a result of a good faith misunderstanding of the law. The taxpayer may also show a lack of willfulness by demonstrating reasonable cause for the non-compliance. Reasonable cause may be found in situations where the taxpayer had entrusted their affairs with tax professionals or was not able to comply because of personal illness or illnesses in the taxpayer’s family, casualties, natural disasters, or the inability to acquire records. Read more…

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Credit Suisse and Declaration of Offshore Funds by Vivian Hoard

The IRS is cracking down on individuals with offshore accounts who have continued to withhold the declaration of the offshore funds. This is evidenced by the jury’s verdict in the case of Carl R. Zwerner on May 28, 2014. The IRS is not exclusively focusing on Swiss accounts. They are interested in information about the accounts of US Citizens and residents in financial institutions around the globe. So far more than 60 countries have complied and provided information. IRS investigations are underway in previously protected countries like Isle of Mann, Israel, Lichtenstein, and Singapore.

In Zwerner’s case, the jury established that the taxpayer consciously failed to file the Report of Foreign Bank and Financial Accounts forms for three out of the four years charged. Additionally, the Jury found that Mr. Zwerner was not fit for the IRS’s 2009 Offshore Voluntary Disclosure Program and its limited penalty structure. In this case, the IRS is seeking penalties of 50 percent of the account for all of the involved years. Even though the Judge will ultimately decide the penalties, the taxpayer’s exposure is in excess of 100 percent of the undisclosed account.

Previous to Zwerner’s case, the IRS has restricted penalty requests to one year or 50 percent of the account. However, it can be expected that FBAR penalties in excess of 100 percent will become standard. As the identities of Credit Suisse customers become known to the IRS, we expect IRS audits and projected penalties to increase rapidly.

In conclusion, it should be noted that Mr. Zwerner may have been able to benefit from the Offshore Voluntary Disclosure program if he had he taken more timely action. Therefore, it is still possible for all taxpayers with undisclosed foreign accounts to act rapidly before their names are disclosed to the IRS. Read more…

Learn more about the author, Vivian Hoard

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