Yearly Archives: 2017

On May 26, 2017 we posted Last Chance To Come Clean ... Automatic Exchange of Information Reporting Is Imminent! where we discussed that CRS participating jurisdictions began to exchange information in 2017 and returns where required to be submitted by May 31, 2017, including Crown Dependencies and Overseas Territories.

We also provided a List of countries who have agreed to share information.  Financial institutions, for example, banks, building societies, insurance companies, investment companies, will provide information on non-UK residents with financial accounts and investments in the UK to HM Revenue & Customs (HMRC). HMRC will share this information with the relevant countries. Information for financial institutions.

Hovever, the U.S. has not signed on to CRS, so the US does not receive information pursuant to CRS! 
 

Instead, the U.S. receives information pursuant to the IGAs executed under FATCA, another form of automatic exchange of information.   

Under FATCA, foreign jurisdictions generally report:

1. Name,
2. Address,
3. Taxpayer identification number (TIN),
4. Account number,
5. Account balance or value,
6. Gross amounts paid to the account in the year and
7. Total gross proceeds paid or credited to the account. 

Under CRS, the signatories receive similar information, as well as, date and place of birth of the individual account holders. 

For entity accounts where one or more controlling persons are reportable persons, CRS require the institution to report the:

1. Name,
2. Address,
3. Country(s) of residence, and
4. TIN of the entity.

as well as the: 

1. Name,
2. Address,
3. Country(s) of residence,
4. TIN and
5. The date and place of birth of each reportable person. 

Other options include:

1. Specific requests for information (requests pursuant to tax treaties, TIEAs, MLATs, etc.),
2. Simultaneous exchanges,
3. Spontaneous exchanges, and
4. Informal exchanges, etc.

So what is the impact of CRS on US Taxpayer's Foreign Investments?

1. Unless and until the US signs on to the OCED CRS reporting regime, the is no automatic reporting of information to the IRS from treaty partners who have received information from 3^rd countries pursuant to CRS .
2. The US will get its automatic information solely from FATCA and IGAs with each individual country and
3. During actual tax audits or criminal prosecutions , the IRS can use specific requests for information (requests pursuant to tax treaties, TIEAs, MLATs, etc.), simultaneous exchanges, spontaneous exchanges, informal exchanges, etc.

Deciding which tool to use often depends on the nature of the IRS investigation and the particular facts and circumstances of the case.  For example, MLATs are generally used to gather and exchange information in Criminal Investigations.

So while things have changed a lot in the past several years (FATCA, CRS, BEPS, etc.), unless and until the US signs on to CRS, which currently appears unlikely, it will have to look exclusively to FATCA and their IGAs with each separate country, which should be more than sufficient, to obtain information regarding foreign holdings of US taxpayers.

Despite the fact that the US does not participate in CRS and that US companies are not in scope of CRS, US companies and their subsidiaries, certainly the ones that are based in or have accounts or investments in countries which participate in CRS, will have to be classified and documented for CRS purpose. So CRS does impact US companies who have subsidiaries or branches in tax favorable countries.

US companies should reevaluate their current structures to determine whether they will be able to defend their royalty stripped out to Luxembourg from others CRS member nations, their interest, strip out to Ireland from other CRS member nations and other tax favorable payments from CRS member nations , which were prior to CRS, unknown by the country where the payments were being made and deducted.

 

Since there is no CRS equivalent of W-9/W-8-Ben-E documentation, US companies will have to deal with a variety of forms in various foreign languages and processes to make their subsidiaries CRS compliant. 

Whether the US will ever join CRS is doubtful but what is certain is that promoting tax transparency and new international standards is a global priority and finding ‘somewhere to hide’ is becoming increasingly difficult for those who continue to try to outwit the authorities! 

Need FATCA or CRS Help?

 

 

  Want to Know if the OVDP Program is Right for You?

 

 

Contact the Tax Lawyers at 

Marini& Associates, P.A.  

 

 

for a FREE Tax Consultation

at: www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

 

 

 

 

 

 

 

 

 

 

 

 

A current case in the United States Court of Federal Claims, Jarnagin v United States, Docket No. 15-1534-T, shows what can happen when an unsuspecting taxpayer fails to file FBAR forms after providing all the requisite information regarding the foreign account to their accountant/CPA.

The Jarnagin were a married couple. Mr. Jarnagin owns and operates a farm and ranch in British Columbia. He became a Canadian Citizen in 1989 and spent a significant portion of each year in the country. Because of his business there, the Jarnagins maintained bank accounts with the Canadian bank CIBC, which had balances of $4 million on December 31, 2006, $3,500,000 in 2007, and $3,860,000 in 2008. Mr. Jarnagin employed a Canadian accounting firm to handle all his Canadian tax preparation.

Mrs. Jarnagin is a real estate broker and property owner in Oklahoma. She relied heavily on her bookkeeper, Misty Fairchild. Every year, Fairchild would turn over the couple’s financial statements, including the CIBC accounts and their balances to Mrs. Jarnagin’s CPA. During the years that Ms. Fairchild represented the Jarnagins, she went back to school to become an accountant, and eventually a CPA. Mrs. Jarnagin eventually transferred her business to Fairchild and her brother Kyle Zybach, who was also a licensed CPA.

However, neither Zybach nor Fairchild were aware of the Jarnagins’ FBAR reporting requirements, until 2010 when Zybach attended continuing education to maintain his CPA license. Even though the Jarnagin’s financial statements had included the foreign bank account, and their tax returns had disclosed the interest, no FBARs were ever filed. In addition, Schedule B, which asks whether the taxpayer has control over foreign accounts was incorrectly marked “No.”

In 2011, the IRS conducted an audit of the Jarnagins’ 2008 & 2009 tax returns. The audit revealed two wire transfers from the CIBC account. While the tax amounts were confirmed by the audit, the transfers triggered an investigation into the couple’s FBAR violations. Because of the audit, the couple were advised not to participate in a voluntary disclosure program or file the missing FBAR forms. The IRS issued non-willful FBAR penalties against both Mr. & Mrs. Jarnagin for four years totaling $80,000.00.

The non-willful FBAR penalties may not be levied if the taxpayer properly reported the “amount of the transaction or the balance of the account” and had “reasonable cause” for failing to file the FBAR on time.

The Jarnagins argued that they did have reasonable cause: the advice (or lack thereof) of their CPA. This argument is based on three tests described in Neonatology Assocs., P.A. v Commissioner, for reasonable cause:

1. The taxpayer hired a competent professional adviser with sufficient expertise to justify reliance
2. The taxpayer gave that adviser accurate and complete information, and
3. The taxpayer relied in good faith on the adviser’s judgment.

The Jarnagins claim that by providing complete financial statements to their licensed CPAs every year, which included the CIBC account, and relying on those professionals to complete their tax returns, they meet the Neonatology requirements.

The IRS however takes the position that a CPA’s advice isn’t automatically enough to raise a reasonable cause defense. The IRS’s lawyers point to several facts to argue the Jarnagins were willfully negligent in their tax reporting duties:

• Zybach and Fairchild had no experience with foreign accounts
• The Jarnagins didn’t inquire into their CPAs’ experience before hiring them
• The Jarnagins didn’t specifically ask about FBAR reporting requirements or how the international accounts would affect their tax returns
• The Jarnagins did not carefully review the tax returns before signing them.

The IRS argues that other cases provide that a taxpayer is assumed to have read and understood their tax return when they sign it, citing his authority non-FBAR cases, which stand for the proposition that hiring a CPA does not absolve a taxpayer for misstatements or errors in their tax returns.

It remains to be seen if these same arguments hold true for FBAR reporting requirements.Weather the court will distinguish FBAR penalties from the IRS cited case law remains to be seen. If the government wins its claim, it could impose strict liability on taxpayers who don’t even know they have done anything wrong.

Have an FBAR Problem?

 

 

 

 

Want to Know if the OVDP Program

is Right for You?

 

Contact the Tax Lawyers at 

Marini& Associates, P.A.  

 

 

for a FREE Tax Consultation

at: www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

 

 

 



 

On September 7, 2012, we posted IRS’s Voluntary Disclosure Data-Mining Program where we discussed that the use of data-mining technology is widespread and the Internal Revenue Service has adopted it to find taxpayers with undisclosed offshore bank accounts. U.S. taxpayers who are still considering whether to disclose their accounts need to understand that IRS’s data-mining software increases their risk of being detected. They should act accordingly and seek legal advice immediately." We also discussed that the phasing in over the coming year of the Foreign Account Tax Compliance Act (FATCA) will only increase the breadth and depth of the data available to IRS and E-Trak.

and "Data Mining" has Come to Fruition!
 

The IRS Criminal Investigation unit announced on August 2, 2017 that it is launching two groups that would centralize the unit’s national and international workloads and rely on data analysis to prioritize cases. The data initiative will tie together the information uncovered by IRS’s field offices around the country with headquarters in Washington, D.C.

Data Investigations Unit.”

The International Group will comprise around 10-12 Special Agents who will be dedicated to working on significant projects, such as the UBS tax evasion controversy, starting in October. Fort said “there’s still a lot of work that still has to be done in this international arena.” 

“We also envision when this group stands up and is operational, it will have a very heavy data analytics component that will allow us not only to support and send great cases out from this unit, but to also look around the corner to see what the next areas of noncompliance are. There will be a lot of interaction with this group with research components of main IRS and other civil components of IRS to help determine future areas of noncompliance and get priority investigations out to the field offices.”

This particular unit is going to report directly to our front-line executives here in Washington, D.C. The goal of the unit is to really use all of the data that we have available to us to help identify and develop areas of noncompliance.” 

“We’ve got great case development initiatives in our field offices, but this allows us to see things at a national level and supplement the great case development efforts that are going on in the field, with other very significant projects that have a nationwide impact. This will help us nationally coordinate investigations on data.”

The new data program will also help the IRS deal with the perennial cutbacks in its budget and workforce. “One of the ways we combat the reduction in resources is better use of data to help identify areas of noncompliance and really to help with case selection and future cases that we’re rolling out nationwide,” said Fort. “This unit is going to stand up in several months. It’s already semi-operational now. We’ve been doing some training and putting the manpower in place.”

The first projects that this unit is going to focus on are:

1. International Tax Enforcement,
2. Employment Tax, and
3. SEC Microcap Fraud. 

The new international tax enforcement program will leverage the expertise of IRS Criminal Investigation in previous cases involving UBS and other Swiss banks, as well as other cases involving offshore tax evasion.

In addition to the Washington, D.C., field office, members of the elite team will also be strategically located in other parts of the country. The IRS will also get support from the Department of Justice’s Tax Division.

“We’ll have a lot of involvement with the Department of Justice, as well as we’ll be leveraging the great relationships we have internationally with our international partners, as well as our constant involvement with our civil counterparts,” said Fort. “By consolidating these efforts in the Washington field office, it’s really going to allow us to better control the cases and work more efficiently as an organization in the international tax area.”

As in the data investigation program, the international enforcement program will also make heavy use of data. “You look at this particular effort with the international tax enforcement group, it’s very heavy on the use of data and data analytics,” said Fort.

IRS Criminal Investigation plans to leverage not only tax data, but also information gleaned from the Bank Secrecy Act, whistleblowers, the Offshore Voluntary Disclosure Program, Panama Papers, and the Foreign Account Tax Compliance Act, or FATCA.

1. other Countries,
2. other Jurisdictions and
3. other Individuals

Sources:

AccountingTODAY

Blumberg BNA