Category Archives: From Live Blog

The penalty for violating the FBAR requirement depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC § 5321(a)(5)(B)(i)) The maximum penalty amount for a willful violation "shall be increased to the greater of" $100,000 or 50% of the balance in the account at the time of the violation. (31 USC § 5321(a)(5)(C), 31 USC § 5321(a)(5)(D))

The district court points out that neither 31 USC § 5321 nor its corresponding regs define "reasonable cause" in the FBAR reporting context, but the regs implementing Code Sec. 6651 equate the reasonable cause standard with a standard of "ordinary business care and prudence." (Reg. § 301.6651-1(c)(1)) The regs interpreting Code Sec. 6664(c)(1) state that the determination whether a taxpayer acted with reasonable cause "is made on a case-by-case basis, taking into account all pertinent facts and circumstances," and further that "generally the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper liability." (Reg. § 1.6664-4(b)(1))

Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.

Mr. Agrawal testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.

The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.

 

Hire More Than 5,000 Additional Workers. 
 

That Means That In 2020 Expect The IRS To Issue More
Wage And Bank Levies, More Liens, And

More Lawsuits To Reduce Outstanding Debt
To 20 Year Judgments.
 

 

 

 

These IRS ending the OVDP program and now the proposed ending of the Streamlined Offshore Procedures, reflect an ongoing efforts by the U.S. government to make
offshore tax compliance a priority.

Have an Unreported Foreign Income?

Want To Know Which OVDP Program
Is Right For You?

 

As we previously discussed in Ten Facts About Tax Expatriation - Part I & Part II, whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off and there are 10 things you need to know about Expatriation:

 

1. Uncle Sam taxes income worldwide.
2. Expatriating means really leaving.
3. The old 10-year window is closed.
4. Big changes came in 1996.
5. Tax avoidance is now irrelevant.
6. There are special rules for long-term residents.
7. There's an exit tax for expatriations on or after June 17, 2008.

 8. Some expatriates can escape the exit tax.

In general the exit tax is unforgiving and has broad application. Yet if you have less than $600,000 of income from the deemed sale of your assets on expatriation, you pay no tax. This exemption amount is adjusted for inflation and is $627,000 for 2010. If your gain exceeds this amount, you must allocate the gain pro rata among all appreciated property.

However, this exclusion amount must be allocated to each item of property with built-in gain on a proportional basis. This involves a complicated process of multiplying the exclusion amount by the ratio of the built-in gain for each gain asset over the total built-in gain of all gain assets. The exclusion amount allocated to each gain asset may not exceed the amount of that asset's built-in gain. Moreover, if the total allowable gain of all gain assets is less than the exclusion amount, the exclusion amount that can be allocated to the gain assets will be limited to that amount of gain. For example, in 2010, if the total allowable gain in an expatriate's assets was $500,000, then that $500,000 would be the limit instead of $627,000.

Fortunately not all expatriates face the exit tax; only "covered expatriates" do. Under prior law, you generally had to give notice you were expatriating to trigger the rules. Now if you relinquish your passport or green card, it's generally automatic. But some expatriates, even under the new law, can escape the exit tax. The financial thresholds (see point five above) can still exempt you. Some people born with dual citizenship who haven't had a substantial presence in the U.S. and certain minors who expatriated before the age of 18-and-a-half are also exempt. However, those people must still file an IRS Form 8854 Expatriation Information Statement.

9. You can elect to defer the exit tax.
If you do face the exit tax, you can make an irrevocable election (on a property-by-property basis) to defer it until you actually sell the property. This election allows people to leave the U.S. and expatriate without triggering immediate tax as long as the IRS is assured it will collect the tax in the future. To qualify, a covered expatriate must provide a bond or other adequate security for the tax liability. There are specific requirements for these security bonds. Plus, there is an updating and monitoring of the bond in case it becomes inadequate to cover the tax. The IRS scrutinizes these elections on a case-by-case basis, so hire an expert. There are detailed requirements for filing the deferral election, including documentation, and copies of various documents.

One of these requirements is appointing a U.S. agent for the limited purpose of accepting communications with the IRS. Plus, the taxpayer must waive any tax treaty benefits that might otherwise impact the IRS getting its money. It doesn't appear that many of these deferral elections have been made so far.

There's another reason, other than the bond, not to defer. When you do sell, you'll pay taxes at the rate then in effect, which will likely be higher. If the Obama Administration has its way, when the Bush tax cuts expire at the end of this year, the top rate on long-term capital gains will rise from 15% to 20%. Plus, the just-passed House reconciliation package to the Senate's health care bill (if also approved by the Senate) is supposed to impose an additional 3.8% tax on net investment income for taxpayers with threshold income amounts of $200,000 for individuals and $250,000 for joint filers. This could raise the top capital gains rate to 23.8% for those taxpayers.

10. You'll need professional help.
As you might expect, there are forms to file and procedures to follow if you expatriate. In fact, if you are wavering, the paperwork alone may keep you stateside! You must file IRS Form 8854 (in some cases for 10 years). Additional special forms (Form W-8CE if you have any deferred compensation items, a specified tax deferred account, certain non-grantor trusts, etc.) are also required. A good source is IRS Notice 2009-85.

Still, get some professional help. As this mere scratching of the surface suggests, the tax rules regarding expatriation for citizens and long-term residents are complex, even dizzying. Gone are the days when one could renounce U.S. citizenship and stand a good chance of avoiding U.S. tax. If you're facing these issues, or even if you are a beneficiary of someone else who is facing them, get some professional help. Bon voyage!