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Opting Out Of IRS Voluntary Disclosure?

November 4, 2011

OVCI #2 was announced February 8, 2011, to allow taxpayers to come clean with foreign accounts and get into compliance with the IRS. The program runs through August 31, 2011, but in some cases can be extended until November 29, 2011.
Some find the system inflexible and fear they may be paying more than necessary given their facts.

There’s been discussion of “opting out” of the program to take your chances in audit, but it’s a topic fraught with fear. Now, however, there is guidance about opting out of the program that makes much of it transparent.

Program Basics. Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010. If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent. See FAQ 53. Moreover, in limited inheritance situations, a penalty of only 5 percent may be imposed. See FAQ 52.

These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties. Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report. Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.
Opting Out. Opting out of the program can make sense for some, though it involves taking your chances with an IRS examination. The IRS has published a separate guide detailing the rules and procedures for opting out. The IRS illustrates pros and cons of opting out with examples.  See FAQ 51.
Here are some of the rules.

1.     Program Status Report. Before you can opt out, the IRS sends a letter reporting on the status of your disclosure and what you still must submit. If you’ve given enough data, the IRS will calculate what you would owe under the OVDI. You should provide any missing items within 30 days.
2.     Written Warning. The IRS sends another letter explaining that opting out must be in writing and is irrevocable. You have 20 days thereafter to opt out in writing.
3.     Taxpayer Submission. Within 20 days, the taxpayer opts out in writing and makes a written case what penalties should apply and why.
4.     IRS Summary. The IRS employee who has been handling your case summarizes it, agreeing or disagreeing with your view of penalties, and listing how extensive an audit he or she recommends.
5.     Central Committee. A Committee of IRS Managers reviews the summary and decides how extensive an audit to conduct. The IRS says “the taxpayer is not to be punished (or rewarded) for opting out.” The Committee also decides whether to assign your case for a normal civil audit or to assign it for a Criminal exam.
6.     Interview? Some audits will include taxpayer interviews.

Bottom Line? The opt out procedure is helpful but still a bit daunting.

If you are considering it, make sure you get some solid advice from an experienced tax lawyer about the nature of your facts. See FAQ 51.

Read more at: Tax Times blog

Tax Court Finds Use of Offshore Account Extends Assessment Period for Transaction

November 4, 2011

While the Internal Revenue Service determined that the president and chief executive officer of a company used an offshore leasing arrangement to conceal income after the limitations period had run, the U.S. Tax Court found he was still liable for deficiencies for several of the years at issue due to his fraudulent concealment of a related offshore bank account during those years (Browning v. Commissioner, T.C., No. 3531-08, T.C. Memo. 2011-261, 11/3/11).

According to the Tax Court, Perry W. Browning was the principal shareholder, president, and CEO of S B Electronics (SBE). It said that, during the 1995 through 2000 tax years, Browning received compensation for his services on behalf of SBE that were greater than what he reported as wages by the offshore employee leasing (OEL) company.

Judge James S. Halpern noted that the three- and six-year limitations periods for assessment had expired before the Internal Revenue Service issued Browning notices of deficiency. Because of this, Halpern said that the returns filed for the 1995 through 1997 tax years were not fraudulent and the related notices of deficiency were barred. However, because Browning concealed a Bahamas bank account and associated credit cards for the 1998 through 2000 tax years, Halpern said the fraud exception applies and upheld the associated notices of deficiency. Halpern also upheld the fraud penalties for those years

Read more at: Tax Times blog

Tax probe widened to 17 Swiss banks.

October 31, 2011

U.S. authorities have widened their investigation to 17 Swiss banks under scrutiny for possibly helping wealthy Americans dodge taxes, a Swiss newspaper reported, citing several financial sector sources.

Strict secrecy has helped Switzerland build up a $2 trillion offshore financial sector, and in recent years the country has faced an international campaign against tax evasion as cash-strapped governments seek to boost revenue.

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Credit Suisse is the formal target of an investigation in the United States and Julius Baer is also being probed. UBS, Switzerland's biggest bank, has already paid a big fine and was forced to reveal the names of some 4000 clients to U.S. authorities.

The German-language Handelszeitung said in a preview of its Thursday edition that 17 banks were under scrutiny, up from the previous figure of 11.

The Handelszeitung gave no further details.

For more information go to: http://www.reuters.com/article/2011/10/26/us-swiss-tax-investigation-idUSTRE79P6II20111026

Read more at: Tax Times blog

FATCA Guidance to Focus on Helping Banks & Withholding Agents Comply

October 31, 2011

The next round of guidance under the Foreign Account Tax Compliance Act expected in coming months will focus on giving banks and withholding agents the information they need to begin reporting U.S.-owned accounts to U.S. tax authorities, a senior Treasury Department official recently said.

“We are on track to issue proposed rules by the end of the year,” said Michael Plowgian, an attorney-adviser in Treasury's Office of International Tax Counsel.

Speaking at the 2011 fall meeting of the American Bar Association Section of Taxation on Oct. 21, Plowgian said the proposed rules will focus on critical issues for immediate answers as the government begins phased implementation of FATCA.

One key area is to give foreign financial institutions (FFIs) the information they need to begin entering into withholding agreements with the United States, the Treasury official said. Another is providing guidance for withholding agents.

Plowgian said while FATCA is in part a response to a number of financial scandals involving overseas banks, “it is generally consistent with a trend toward increased transparency of tax information.”

Speaking to the tax section's Investment Management Committee, Plowgian acknowledged that the withholding provisions under the legislation get “a lot of attention.”

However, he said, the government's aim is to achieve the reporting by foreign banks, not to take a punitive stance.

“If this worked out perfectly, there would be no withholding under FATCA and that's ultimately our goal,” he told practitioners.

Read more at: Tax Times blog

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