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• Nearly 1 in 4 American expatriates say they are “seriously considering” or “planning” to ditch their U.S. citizenship, a survey from Greenback Expat Tax Services finds.  
• About 9 million U.S. citizens are living abroad, the U.S. Department of State estimates.
• More than 4 in 10 who would renounce citizenship say it’s due to the burden of filing U.S. taxes, the Greenback poll shows.

In one case, an individual had used money owed to the government to buy a Maserati and a Bentley, and roughly 100 high-income people tried to get favorable tax treatment through Puerto Rico without meeting certain tax requirements. Many of those cases are now facing criminal investigation.

The Internal Revenue Service announced its plan to pursue as many as 100 criminal investigations into potential abuses of Puerto Rico’s Act 20/22/60 tax incentive programs. 

In a July 14, 2023, release the IRS revealed that thanks to Inflation Reduction Act resources:

It Recently Identified About 100 High-Income Individuals Claiming Benefits In Puerto Rico Without Meeting The Residence And Source Rules Involving U.S. Possessions.

"These wealthy individuals are attempting to avoid U.S. taxation on U.S. source income, and we expect many of these cases to proceed to criminal investigation."

In addition to targeting high-income taxpayers improperly claiming benefits under Act 20/22/60, the IRS will investigate the professionals who assisted the taxpayers at issue. 

The IRS will attempt to contact and interview accountants, attorneys, financial advisors, and other individuals who promoted the Puerto Rico residency programs.

Taxpayers And Professional Advisors Contacted By The
IRS As Part Of This Enforcement Effort Should Engage Experienced Tax Counsel Before Speaking To The IRS!

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

Sources

AP
Kostelanetz
Bloomberg

According to Law360, the Internal Revenue Service will no longer reduce the penalty for taxpayers who non-willfully fail to file Reports of Foreign Bank and Financial Accounts, according to an agency memorandum. 

The IRS has eliminated mitigation provisions for calculating non-willful FBAR penalties following the U.S. Supreme Court's judgment earlier this year in Bittner v. U.S limiting those fines to $10,000 for each year an FBAR isn't properly filed instead of $10,000 for each account undisclosed, according to the memo, published Tuesday and dated July 6.

The memo sets the nonwillful FBAR penalty at $10,000 but notes that the IRS' internal guidance for calculating willful FBAR penalties is unaffected by the change stating:

"While the Court’s holding pertained only to the calculation of penalties for non-willful reporting violations, the Court noted: 

The statute then adds an even more specific rule for a subclass of willful violations-those that involve “a failure to report the existence of an account or any identifying information required to be provided with respect to an account.” In cases like that, the law authorizes the Secretary to impose a maximum penalty of either $100,000 or 50% of the “balance in the account at time of the violation”-whichever is greater. So here, at last, the law does tailor penalties to accounts.” 

Penalties for willful reporting violations apply per-account and guidance in IRM 4.26.16 regarding the calculation of penalties for willful reporting violations remains unchanged. The Court’s decision does not address FBAR recordkeeping violations"

“Violation” for purposes of 31 USC 5321(a)(5) is not defined in the statute. The IRS has historically interpreted “violation” to mean the failure to report a given account properly. The Supreme Court, however, held that the failure to file a legally compliant FBAR constitutes a single violation, regardless of the number of unreported or improperly reported accounts."  

We personally don't see how the penalty for willful failure to file an FBAR, which Statutorily allows for penalty of up to 50% of the "balance in the account at the time of the violation, can be used as an analogy for non-willful penalty which is per year and does not Statutorily provide for $10,000 penalty per account. 

We Think That Taxpayers Should Challenge Subsequent
Non-willful Penalties, Based On This Memo, As It's Not Statutorily Supported by the Nonwillful Penalty
Provisions of 31 USC 5321(a)(5)!

This decision is also inconsistent as it comes at a time that the US is currently dropping many of its lawsuits for non-willful penalties based upon number of accounts - see: 

• Yes Yet Another FBAR Penalty Being Dropped Based Upon Bittner 
• Another In a Series of Taxpayer FBAR Penalty Being Reduced Based on Bittner

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