Crackdown on Offshore Tax Evasion

Posted on November 26, 2013 by Kursti Nakagawa

Offshore Tax Evasion?

Although the requirement for filing an annual Report of Foreign Bank and Financial Accounts (FBAR) has technically been on the books since 1970, the compliance rate was less that 20% until 2001. Since that time, the United States government has stepped up its efforts to identify and punish those individuals who are guilty of concealing foreign assets and income as well as the foreign banks who have participated in the cover up.

Beginning in 2008, the IRS and the United States Department of Justice stepped up their game in the area of offshore tax evasion. In June of that year, the IRS issued a statement reminding taxpayers of their reporting obligations and the consequences of not meeting them. John DiCicco of the Justice Department’s Tax Division issued a similar statement saying that they would “work hand-in-hand with the IRS to vigorously enforce the tax laws against those taxpayers who use offshore accounts to evade taxes.” Following that, the United States Department of Justice began actively prosecuting criminal cases related to foreign bank accounts.

The actions of 2008 produced some immediate results. Before the end of the year, Bradley Birkenfeld, a UBS banker who was charged with helping United States taxpayers evade income taxes by ignoring FBAR reporting requirements, had entered a guilty plea. Birkenfeld disclosed that UBS was managing assets of over $20 billing for United States citizens trying to avoid taxes. Shortly thereafter, the IRS was granted the authority to request information from UBS about those individuals. This was the beginning of the end of the flagrant use of foreign banks to hide assets for the purpose of avoiding taxes. Since that time:

Over $5.5 billion in back taxes and penalties has been collected from taxpayers trying to avoid prosecution.
More than 38,000 taxpayers have joined the government’s amnesty program.
Fourteen Swiss banks have been placed under investigation.
A total of 103 taxpayers have been prosecuted with 62 guilty pleas and five trial convictions.
Of those prosecuted, 49 have been sentenced with most of those receiving either probation or home confinement. Only 18 of those sentenced have received prison time with only two receiving a sentence of longer than a year and a day.

We are currently in a holding pattern, awaiting the official enforcement of the Foreign Account Tax Compliance Act (FATCA). This legislation, passed in March of 2010, requires individuals who have more than $50,000 in foreign assets to report those asserts on Form 8038 while, at the same time, requiring foreign banks to disclose information about account holders who are United States citizens. Although the enforcement of FATCA has been postponed until July, 2014, recent headlines announcing the prosecution of some fairly prominent individuals have resulted in the majority of taxpayers being acutely aware of the consequences of offshore tax evasion.

The CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution are up to date on the current requirements for FATCA compliance and have extensive experience in the area of FBAR reporting. Contact us today if you are concerned about whether you meet the current reporting requirements for foreign assets and income. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 to receive a free, no obligation consultation.

The Consequences of FBAR Noncompliance

Posted on November 19, 2013 by Kursti Nakagawa

FBAR Changes…

Things are changing as the consequences of the FBAR Noncompliance are becoming stricter. Up to this point, the sentencing of offshore tax evaders has been fairly lenient. Although judges must attempt to follow sentencing guidelines written to ensure consistent punishment for defendants convicted of similar crimes, they have been given considerable leeway. Within these guidelines, the judges in these cases have been weighing such factors as the amount of financial loss or gain involved, whether the tax evader has assumed responsibility for the crime and whether they have provided information that has helped to build a case against others. They have also taken into account the defendant’s age, health and previous contributions to society. The following high profile cases shed some light on what type of sentences have recently been handed out to individuals who have been found guilty of concealing foreign income and assets:

Richard Werdiger – Seller of Diamonds and Jewelry

The offense: Richard Werdiger concealed more that $7 million in various offshore accounts between 2000 and 2008. During this time, the accounts earned more than . (https://www.leankitchenco.com/) 3 million which left him with a back tax balance of $400,000 by the time he was prosecuted.

The sentence: Because Werdiger failed to qualify for the Limited Amnesty Program offered by the IRS, the judge rejected his leniency plea and sentenced him to a year and a day in prison. He was also assessed a $3.8 million dollar civil penalty and a $50,000 fine.

Michael Canale – Army Surgeon

The offense: Michael Canale inherited a UBS bank account in 2000. By subsequently filing false tax returns and taking unreported cash withdrawals with the assistance of a Swiss financial advisor, he avoided paying over $200,000 in taxes.

The sentence: In April of this year, a judge sentenced Canale to 6 months in prison although he could have been given as much as 30 months.

Michael Reiss – Breast Cancer Researcher

The offense: Michael Reiss failed to declare offshore bank accounts in addition to changing banks and filing false FBAR reprots to hide more than $2.6 million in offshore assets.

The sentence: Although Reiss could have been sentenced to up to 37 months in prison according to sentencing guidelines, he was only required to serve one day. In addition, he was given three years of probation and required to perform 30 hours per week of community service during this time.

At the time of this writing, Ty Warner, Creator of Beanie Babies, is awaiting sentencing on charges similar to those described above. On October 2^nd, Mr. Warner pleaded guilty to offshore tax evasion. The extent of his wrongdoing includes unlawfully sheltering over $100 million in various Swiss bank accounts, filing a false tax return in 2002, underreporting his income by over $24 million between 1999 and 2007 and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). He currently owes over $5.6 million in back taxes together with a civil penalty of $53.6 million. Based on precedent, it will be interesting to see what sentence the judge hands down.

If you need FBAR services, including help with current FBAR reporting or the filing of delinquent FBAR reports, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the help you are looking for. Contact us today to ensure that you meet the current requirements for the reporting of your foreign assets and income. For more information about this or other tax settlement services, visit us at www.professionaltaxresolution.com or call us at 877.889.6527 or to receive a free, no obligation consultation.

IRS Tax Phone Scam

Posted on November 7, 2013 by Kursti Nakagawa

IRS Tax Phone Scam

Beware… IRS Tax Phone Scam: The IRS has identified a widespread phone scam that has popped up in nearly every state. Taxpayers who are victims of this scam receive phone calls from individuals impersonating IRS agents. During these calls, they are often told that they have a back tax balance which needs to be paid instantly either by charging the amount on a prepaid credit card or transferring the funds by wire. If the taxpayer disputes the request for payment, the scammers will often threaten to confiscate their business or their driver’s license or have them arrested or deported.

These bogus IRS calls can be convincing due to the fact that the scammers use caller ID spoofing, which makes the toll-free phone number of the IRS show up on the taxpayer’s caller ID. In addition, the scammers frequently make up counterfeit badge numbers and may know the last four digits of a victim’s social security number. Some victims even claim to hear background noise that sounds like the call is being made from a call center. If the taxpayer hangs up, they will often get a second call from the same, or another scammer saying they are with the police department or the DMV.

To protect against this type of scam, taxpayers should not believe anyone who claims to be an IRS agent. In the first place, the IRS has announced that they will never request that payment for back taxes be made by a wire transfer or a prepaid debit card. Secondly, they have made it clear that they will usually make their first interaction with a delinquent taxpayer by mail. IRS Acting Commissioner Danny Werfel recently said that, “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.”

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances

Family Finances: Tax Settlement, Innocent Spouse Relief, and Injured Spouse Relief

Posted on October 24, 2013 by Kursti Nakagawa

Family Finances

A recent study by Fidelity Investments revealed that individuals often lack adequate knowledge of family finances. The results of the study showed that a surprising number of marriage partners have insufficient information about important financial matters such as insurance policies, investment accounts, physical assets, beneficiary designations and income taxes, among other things. While this lack of awareness may not be a problem when life is going smoothly, it can have unforeseen consequences there is a bump in the road. In the face of a death, a divorce or a sudden disability, a spouse who does not have a satisfactory understanding of family finances can find themselves at a serious disadvantage.

The results of the recent Fidelity study showed that, while most couples reported that they communicated effectively about financial matters, a much smaller percentage said that they shared daily financial decisions. Less than half of the retired couples surveyed agreed on what type of lifestyle they expected to lead in retirement and only a slightly larger percentage had an acceptable level of information about retirement planning. Moreover, only 28 % of the couples surveyed said that either spouse could single-handedly manage the retirement finances.

Although it is natural to postpone a discussion of family finances when there is no immediate problem, it is important to be prepared for the uncertainty of the future. An unforeseen event can leave either partner with complete financial responsibility. With this in mind, financially responsible couples would be well advised to take the following steps:

Inventory Investment Accounts
Inventory Physical Assets
Prioritize Investments to be Tapped for Retirement
Discuss Income Tax Returns and Related Tax Issues
Prepare Wills with Agreed Upon Financial Conditions

Although the discussion of topics such as those outlined above can be stressful and uncomfortable, not doing so may well leave either spouse in an unfortunate situation. Consider, for example, the spouse who is left with a very aggressive investment portfolio upon his or her mate’s death. If the surviving spouse has no knowledge of the type of investments in the portfolio, they could very well suffer a significant loss if the market suddenly takes a sharp downward turn. Similarly, consider the predicament of a spouse who has no knowledge of his or her mate’s tax obligations. Faced with an unexpected death or divorce, the surviving spouse could be left with a tax debt about which they have no knowledge. Although tax this situation can be handled with a tax settlement agreement in the form of Injured Spouse Relief or Innocent Spouse Relief, it certainly not a situation anyone would chose to face.

If you have questions about Injured Spouse Relief or Innocent Spouse Relief, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the answers you are looking for. Visit us today at www.professionaltaxresolution.com for more information about these and other tax settlement options. Complete our online request form or call us at 877.889.6527 to receive a free, no obligation consultation.

Expatriates Renouncing Citizenship

Posted on October 10, 2013 by Kursti Nakagawa

In the face of increasingly strict asset disclosure legislation, more and more United States citizens are renouncing their citizenship in order to avoid potential tax consequences. In the second quarter of this year, the number of expatriates turning in their passports to United States embassies abroad was up almost 500% from that same time period the previous year. Compared to the first half of 2008, the number of renunciations in the first half of 2013 was up over 15 times!

The United States is the only county of the 34 members of the Organization for Economic Development that taxes its citizens no matter where they reside. Although this has been the case for quite some time, the government’s fairly recent crackdown on the reporting of foreign assets and income has made more and more Americans aware of their tax reporting responsibilities. As a result, an increasing number of the 6 million plus individuals residing aboard are apparently deciding that holding their United States citizenship is not worth the financial consequences that come with it.

The campaign to identify and tax the foreign income of United States citizens has slowly gathered force since the terrorist attacks in 2001. Foreign income reporting legislation has been on the books since 1970 when the Bank Secrecy Act of 1970 was passed, requiring the filing if an annual Report of Foreign Bank and Financial Accounts (FBAR). However, the reporting rate has historically been very low and, until recently, little was done to force compliance. All this is has change over the past few years. The government has not only stepped up its efforts to enforce the existing tax laws but has passed new legislation to supplement what was already there.

The most significant development in the area of foreign tax compliance has been the passage of the Foreign Account Tax Compliance Act (FATCA) in March of 2010. This legislation increases the disclosure requirements for United States citizens who have money in overseas accounts and for the banks that hold those accounts. Basically, FATCA requires individuals who have more than $50,000 in foreign assets to report those asserts on Form 8038. It also requires foreign banks to disclose information about their U.S. account holders or face stiff penalties for not doing so. Although the enforcement of FATCA has been postponed until July of 2014, apparently the hassle of increased compliance requirements together with the threat of steeper consequences for noncompliance has caused more and more individuals to think twice about the value of their United States citizenship.

If you have questions about the taxation and reporting of foreign assets or income, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the answers you are looking for. Our tax specialists have extensive experience in the area of FBAR reporting and are up to date on the current requirements for FATCA compliance. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 to receive a free, no obligation consultation.