September 2009 Archives

IRS FBAR Tax Amnesty is a Good Gamble

September 30, 2009,

Why 70% of a Foreign Bank Account Is Better Than 100% of No Foreign Bank Account (Part I)


Clients sometimes ask why they should take advantage of the IRS Offshore Voluntary Disclosure Program. In it’s frequently asked questions regarding offshore financial accounts the IRS provided an example of what could happen to someone with a foreign bank account of $1million in 2003 that earns $50,000 per year who hasn’t filed Foreign Bank Account Reports, TD F 90-22.1 (FBAR). That person could, if they didn’t apply for tax amnesty, could incur taxes, penalties and interest of well in excess of $2.3 million. If the IRS determined that the non-reporting was due to tax fraud, the amount would be much higher. Under the tax amnesty, the amount due would be $386,000 plus interest. Nevertheless some people don’t want to file for tax amnesty. If the IRS example doesn’t convince you here are six more reasons.

1. Avoid Going to Jail

The failure to file an FBAR can result in criminal penalties of five years in jail and a fine of $250,000 or both for each year the FBAR is not filed. It is the policy of the Department of Justice to ask the court to impose actual prison time; probation is very rare in tax cases. If you are a CPA, a lawyer, or a doctor in addition to going to jail you will lose your license to practice so when you get out you will have difficulty finding a job. If you are not yet a citizen of the United States as a convicted felon you could be deported, or your ability to become a citizen could be impacted.

2. It’s Cheaper Than You Think.

The person in the IRS example pays about $386,000 on $ 1,300,000 of income if he participates in the tax amnesty. In the IRS example the first million dollars was earned prior to 2003, as a result that one million dollars is never taxed. Had the amount been properly reported tax of $455,000 would have been paid (assuming a 35% tax rate). If the unreported income prior to 2003 was greater the savings are greater. For example, assume $3,000,000 of unreported income prior to 2003, and the same amount of interest earnings between 2003 and 2008. The amount paid pursuant to the tax amnesty will increase to $786,000. However, had the income been properly reported the tax that should have been paid would have been $1,155,000. Not a bad deal when you think about it.

3. Avoid Committing Perjury in 2010

Every year when you file your income tax return you are required to answer whether or not you have a foreign bank account. If you answer no you have committed the felony of filing a false tax return punishable by 3 years in jail, and a fine of $100,000. Up until now some people could reasonably say that they didn’t understand the requirement, or that their accountant hadn’t asked them about it. When the time comes to file your 2009 tax return in 2010 you can be sure that your accountant will be asking about your offshore accounts. Some accountants may require you to sign a statement that you don’t have a foreign bank account in order to protect themselves. After this year it will be much more difficult to argue that you were ignorant of the law—even if it is true.

Closing the offshore account now won’t help. If an offshore financial account has more than $10,000 in it at ANY TIME during 2009 it must be reported in 2010.

Three more reasons tomorrow.

In the meantime if you have tax problems including an offshore financial account call the tax attorneys at Brager Tax Law Group, A P.C. for a consultation.

Tax Amnesty Offshore Voluntary Disclosure FBAR Deadline Extended

September 21, 2009,

The IRS announced that the Offshore Voluntary Disclosure program granting tax amnesty to those who failed to file Foreign Bank Account Reports, Form TD-F 90-22.1 (FBAR) has been extended. The new deadline for filing a request to participate in the Offshore Voluntary Disclosure program is Oct. 15th. The prior deadline for participating in the Offshore Voluntary Disclosure program was Sept. 23rd.

The IRS had previous announced in March of this year that individuals and entities who had an interest in offshore bank accounts, and who had failed to file FBARs who voluntarily came forward, and notified the IRS of the existence of their offshore financial accounts would qualify for a reduced penalty regime. Normally the penalty for failing to file an FBAR on Form TD-F 90-22.1 can result in a penalty equal to the greater of $100,000 or 50% of the balance in the offshore account. In addition, non-filers of FBARs could be subject to criminal tax penalties, as well as a civil tax fraud penalty of 75% of any taxes that were owed. For more details on potential penalties please review our earlier post.

The IRS has said it extended the deadline in response to the requests of numerous tax attorneys and other tax professionals who requested additional time. The IRS stated that there would be no further extensions of the deadline for the Offshore Voluntary Disclosure program.

We here at Brager Tax Law Group, A P.C. were happy to see the IRS extend the deadline for this tax amnesty program since we are still hearing from clients who have only recently become aware of the FBAR filing requirements.

If you would like to consult with one of the tax lawyers at Brager Tax Law Group, A P.C. please call our office for a consultation.

Foreign Bank Account Report (FBAR) Frequently Asked Questions (FAQ)

September 14, 2009,

Having spoken to hundreds of individuals who have offshore bank accounts, or who have clients with offshore bank accounts, or relatives with offshore bank accounts, or even a “friend” with an offshore bank account there are certain questions which continue to recur. I thought it would be helpful to answer a few of them today, and a few more over the next week.

Q: If I don’t apply for tax amnesty how will the IRS find out about my Swiss bank account.

A: The short answer is: Maybe they will, maybe they won’t, but the consequences of the Internal Revenue Service (IRS) finding out are very severe, and you have to decide whether you can live with that. Non-reporting of foreign bank or foreign financial accounts can result in criminal prosecution resulting in 5 years in jail, and a $250,000 fine.

Q: Can’t you tell me anything more about how the IRS will find out about my secret Swiss bank account if I don’t enter the IRS offshore voluntary disclosure program?

A: Many people engaged in tax evasion get caught when their ex-spouse, or a disgruntled employee turns them in. It never ceases to amaze me how two people who once loved each other have absolutely no qualms of seeing their ex go to jail. Others get caught by random tax audits. Then of course there was the case of LGT bank where the German government bribed a Liechtenstein bank official to turn over the names of hundreds of its clients. The names of a number of U.S. citizens on that list made its way to the IRS; and who would have guessed even two years ago that UBS in cooperation with the Swiss government would have been handing over almost 5,000 names of supposedly secret Swiss bank accounts?

Q: Does the IRS really put people in jail for not filing Foreign Bank Account Reports TD F 90-22.1 (FBARs)?

A: Up until recently there have been very few prosecutions related to offshore bank accounts. In the last few months the IRS has stepped up the number of cases with four guilty pleas. The IRS says it has about 150 cases of offshore tax evasion involving UBS Swiss bank accounts being looked into by its Criminal Investigation Division. I expect that many of those cases will end with criminal tax prosecutions.

If you would like more answers to your FBAR questions you can seek advice from the former IRS tax attorneys at Brager Tax Law Group, A P.C.

FBAR Tax Amnesty Deadline Looms

September 14, 2009,

Less than 10 shopping days before the Internal Revenue Service (IRS) Foreign Bank Account Report Tax Amnesty ends. September 23rd is the last day that owners of Swiss Bank Accounts, and other foreign financial accounts have to disclose their offshore holdings to the IRS Criminal Investigation Division in order to escape criminal tax prosecution, and take advantage of the lower civil tax penalties being offered by the IRS as part of its Offshore Voluntary Disclosure Program a/k/a offshore tax amnesty.

Those who fess up before that date will not only be spared the possibility of jail time, but will also be eligible for reduced penalties. The normal civil penalties for failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR) is the greater of $100,000 or 50% of the balance in the account. The FBAR penalty can be imposed for each year there is a balance in the combined accounts greater than $10,000. The civil tax fraud penalty is 75% of the amount owed. For a more detailed list of possible penalties I have them listed here.

Our tax litigation attorneys are consulting with dozens of clients with offshore bank accounts. If you would like our advice contact Brager Tax Law Group, A P.C.