Soft Disclosure: The IRS gives its warning

Never mind that the IRS OVDI FAQ explicitly warns against soft disclosures.  (“Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”)

That unambiguous statement aside for a moment, how would soft disclosure actually work in the real world?  Let’s use a hypothetical.

Burt Burton was an American expatriate working for a European beverage conglomerate until he moved back to New Jersey in 2010.  In 1998, he received a bonus of $350,000. He paid US taxes on the money, but he squirreled it away in a Credit Suisse bank account, never reporting the existence of the account nor any money it made over the years.   The account rose in value to a high of $900,000 in 2007 until it dropped to its present value of $750,000.

Burt asks his brother-in-law, Rodney, a CPA, what to do. Burt doesn’t want to pay the high FBAR penalties and associated interest as he thinks it will reduce his account back to its 1997 level. Rodney tells Burt just to amend his last six years of returns, and file an FBAR form for the upcoming year. Rodney tells Burt that this will make it very difficult for the IRS or Department of Justice to bring criminal charges. And if he is audited, the auditor will be frustrated from assessing any additional penalties because all unreported income has been properly reported and properly paid, albeit it late.

Kind of makes sense, doesn’t it? Seems like a pretty reasonable course of action. The IRS must be bluffing about warning people not to do this “soft disclosure,” right? Cause, this is pretty low-risk, isn’t it?

It’s a trap.

Well, there is a trap–and it’s a big one.

So let’s think about this first FBAR that Burt is going to file to get into present and future compliance. This FBAR will list the following information:

• the bank
• the account number
• the value of the account.

Seems harmless enough. But the truth is that this information tells the IRS a lot more than that.

For instance, let’s suppose that the IRS knew, through intense data collection, that any Credit Suisse bank account that starts with “240,” for example, was opened around 1997-1999.

So what is Burt’s  2012 FBAR really saying?

To me it is saying “Hey IRS, here is a foreign bank account that I opened around 1997-1999. I never had an FBAR filing obligation before, because the account must have been under $10,000.00 But now, out of the blue, this account that is over has blossomed from n ext nothing to $750,000.00 magically overnight.”

So then what would the IRS do with that information?  Look back at our post about how FBAR investigations work.  It would begin a civil audit or criminal investigation. Now, let us suppose a criminal investigation could be defeated. The problem is that the IRS civil division has the ability to assess FBAR penalties, and the penalty is 50% of that account’s value for the year. Armed with a John Doe summons, the IRS could assess FBAR penalties for each of the years.

So even if the FBAR penalties were successfully negotiated down by 50%, then the amount due would exceed the value of the accounts. Meaning Burt could wind up with nothing, the accounts totally wiped out, or even a tax bill.

Not only that, but the person who actually has the most to worry about it his brother-in-law, Rodney. By advising Burt to NOT fully comply, the IRS could charge Burt with a criminal conspiracy to commit tax evasion or to defraud the United States government.

Our advice for those wondering what to do.  Make a decision that you can live with. Choose the rock or the hard place. Choosing neither means you could wind up crushed with both. And for CPA’s or any other tax professional: never under any circumstances advise anyone to make a quiet disclosure (that’s not to say a disclosure is required for every instance of FBAR non-filing). You could be setting up your client, family member or friend for a hidden trap, and you could be putting your own license and freedom in jeopardy. Advise them to come clean or give no advice at all.

 UPDATE: My friend Steven Mospick, Esq. tax attorney Sacramento, additionally points this out to me:

Anthony: excellent post. There is another angle to your example. If Burt failed to include the interest earnings on his Credit Suisse account and most likely checked the box “no” on schedule B which asks about the existence of foreign accounts, he has also filed false and fraudulent income tax returns for which he has exposure to the 75% civil fraud penalty. Unlike the normal six year statute of limitations for tax evasion, there is no statute of limitations for the civil fraud penalty. Do the math on that one and you have the FBAR penalties you mentioned plus the tax, interest and civil fraud penalty for multiple years from 1999. That said, Burt has now placed not only his nest egg in Switzerland at risk for collection of the FBAR penalties but all his domestic assets as well for the collection of the tax, fraud penalty and interest.

So you see, a soft (or quiet) disclosure places ALL of Burt’s wealth at risk. Not just his offshore accounts. So a quiet disclosure may, and I repeat may, make it difficult for  the IRS to get a criminal conviction. However, that will not stop them from (1) bringing criminal charges (the criminal process is a punishment in of itself) and (2) completely wiping out a taxpayers entire net worth.

This is hardly a surprise to those familiar with the IRS’ new powerful collection tools. One of those tools was the previous 2009 Offshore Voluntary Disclosure Program (OVDI), along with the 2011 OVDI and current 2012 OVDI. In every disclosure submitted by a taxpayer, they MUST disclose anyone connected to their offshore banking. So, the IRS is sitting on a treasure trove of information; scary, powerful information on those who have allegedly hidden money in offshore accounts.

This case is unique because:

The indictment of Swiss private bank Wegelin & Co., founded in 1741, marks the first time U.S. authorities have charged a bank rather than individuals with helping Americans evade taxes.

Of course, these are only allegations (yet the IRS still has the power to seize assets without a court order- far before any legal adjudication on the matter, or even a pre-judgment remedy). Even if criminal charges against the company are dropped, criminal charges against individuals are certainly still possible, and these will require substantial payments to the US Treasury before they can be forgotten.

There may still be time for those with undisclosed assets to come clean. However, the bad new comes if there was an intent to defraud the United States Treasury, as 27.5% FBAR penalty (calculated by multiplying .275 times the highest account value in the last 8 years) will apply, along with unpaid taxes, interest and a few additional penalties. But the good news is if you are accepted into the program, you will not need to worry about headlines like this involving your name.

The truth is  there are very few decent alternatives to the the 2012 OVDI. Leaving the country won’t work as proper renunciation requires complete compliance with the tax code, nor does it negate the Universal Tax Jurisdiction of the IRS.

The other option often discussed is that of “soft,” or “quiet,” disclosures. (We blogged about quiet disclosures here.)  This simply means filing old returns with unreported income, paying it and hoping no one is notices. The IRS has made it known to us offshore tax attorneys that this technique will only anger them more. If caught, the IRS will certainly make headlines out of someone who tries to sneak under the radar by quietly amended returns and paying back taxes (and the CPA or attorney who advised them).

So essentially, the only real option is to utilize the Voluntary Disclosure Program under the OVDI 2012 terms. If getting sleep at night and not worrying about going to prison is your chief concern, then there is no question that this is the best option.  And, there are only two  requirements. First, the taxpayer can not be under examination. Second, the source of the funds in the foreign bank accounts can not be from an illegal source, like drug trafficking or money laundering.  The possibility for lower FBAR penalties is possible based on facts of your case.

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Find out more information on Offshore Voluntary Disclosure Initiatives by visiting our main OVDI page or by reading articles from our OVDI blog category.

Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

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Back municipal property taxes:

Typically, there is a limited amount of time in which a taxpayer can content the assessment of a property tax. But by the time a debt is owed, extended time to negotiate down the amount owed gets more and more unlikely. The one exception is if the amount in back property taxes owed is greater than what the property would be received for at a forced tax foreclosure sale. Otherwise, states grant municipalities large powers to make back taxes a super-priority lien.

For instance, consider a taxpayer who buys a house in 2011 for $100,000, takes a loan out from First American National bank for $100,000, and a mortgage in the amount of $100,000.00 on the property. Well, what happens if in 2014, the taxpayer runs up a back property tax of $20,000 and still owes $90,000 to First American National Bank? Can the town foreclose? If the town foreclosures, don’t they have to pay off First American National Bank?

Yes, the town can foreclose. But here’s the thing, the town can get out of all of the back property taxes; it is really first American National Bank that has to worry. Suppose that at foreclosure sale, the property only gets $40,000. This means that the town would get its entire $20,000 and the bank would only get the remaining $20,000 (less costs). Because of this risk, almost every bank requires real estate taxes to be escrowed so that they can ensure that they won’t lose their collateral if taxpayer stops paying property taxes.

Federal Tax liens:

Federal tax liens interfere with the sale, purchase, or loan re-modification of real estate in several different ways. Since this area of law is so complicated, we have created a free special report so that it is easy to understand everything that can be done involving Federal Tax Liens. You can get your copy here.

Capital gains:

A Real Estate Tax Attorney can help you figure out whether the sale of property will be exempt from capital gains. If you do happen to run up a debt you can’t afford to pay, a tax attorney can help you negotiate this cost down to something that you can afford to pay.

Like-kind exchange:

A great way to avoid capital gains on the sale of real estate is to have your tax attorney perform what is known as a Sec. 1031 like-kind exchange. Suppose you own a strip mall in New Jersey, but you are moving to Florida and want to find something closer to your new home to invest in. If done incorrectly, you would have to pay capital gains on the sale of your new Jersey property so that you are paying for your Florida strip mall with post-tax dollars. This means you won’t have a property as valuable and your income stream will be diminished. A 1031 like-kind exchange will allow you to sell your property in New Jersey and buy your property in Florida without having to pay capital gains rates.  However, 1031 exchanges are very particular. Our firm has helped out a number of taxpayers who wound up with whopping tax bills after not carefully paying attention to the requirements of the 1031 exchange.

Conclusion

These are the most common tax problems we see and deal with everyday. If you have another real estate tax issue, please free free to comment.

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The first option available is to do nothing and pray you’ll be able to live with the uncertainly.  The benefit is that it costs zero to do, and there is certainly a possibility that the taxpayer can get away with the non-disclosure. The disadvantages are that if discovered, the penalties are harsh. In both monetary cost and in emotional drain of being charged with a federal crime. Even if found not guilty, a criminal trial is still incredibly costly.

The second option is to renounce citizenship and depart the country — as this is the only way to escape the taxing jurisdiction of the IRS. But be warned — this only will dodge future tax debts and conformity problems. The only technique to properly relinquish is to fundamentally come clean about all overseas bank assets and actually forfeit an expatriation tax (many commenters have noted that it was easier to leave cold war USSR with your wealth intact than the modern day USA. .)

The third option is Soft (or quiet) disclosure. One option is to file amended returns, this time including previously unreported income – simply filing the returns as if it were simply forgotten income. Sounds think a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?

There may be serious problems with this alternative. One major drawback is that the Department of Justice states that it has begun criminal proceeding against people who attempted to utilize the “soft” disclosure process.

The “soft” disclosure option is incredibly risky for several reasons.  One reason is that they do  not remedy the issue of the taxpayer’s non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So simply filing a quiet disclosure does not go far enough to eradicate any possibility of criminal investigations. In fact, the 1040X may — well here’s the massive problem with this option — it does nothing concerning the failure to the FBAR. There are still criminal and civil charges that may be pending for failing to file an FBAR, but simply give the IRS a roadmap to find you.

Option 4: Utilize the Voluntary Disclosure Program under the OVDI 2012 terms. If getting sleep at night and not worrying about going to prison is chief concern, there can be no question that this is the best option.  There are only 2  requirements. First, the taxpayer can not be under examination. Also, the source of the funds in the foreign bank accounts can not be from an illegal source. Like drug trafficking or money laundering.  The possibility for lower FBAR penalties is possible based on facts of your case.

Such pre-emptive off-shore disclosures and negotiations must be handled by a qualified OVDI attorneys, experienced in foreign compliance and delicate Internal Revenue Service negotiations.

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Find out more information on Offshore Voluntary Disclosure Initiatives by visiting our main OVDI page or by reading articles from our OVDI blog category.

Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

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But this attempt to connect with the “common man” by mocking particular speech patterns and accents of those from distant lands is far less insulting than the other latest fad of the US government:  OVDI India (Offshore Voluntary Disclosure Initiatives).

The Common OVDI India Fact Pattern

Since the 2012 OVDI program was announced, nearly every day I speak with an Indian-American wondering what to do, with facts that go something like this:

Hard-working, bright, energetic  Indian leaves his or her mother and father in Delhi for a fantastic job in America on a visa, a green card, or perhaps even dual citizenship. Hard-working, bright energetic Indian is doing great at his or her career and has received promotions. Hard-working, bright, energetic Indian is also generous, and sends money back to India for parents and perhaps siblings as well.  Hard-working, bright, energetic Indian is proud of what he or she has accomplished in America but is also homesick and wants to move back to India at some point to take care of mother and father.  And so sends more money back to India. Not once thinking he or she could possibly be breaking any law.

Everything is going great. Until, just a few weeks ago, hard-working, bright energetic Indian looks at tax organizer the CPA has just sent out. It says to report all your foreign accounts or you will be subjected to harsh penalties.

Hard-working bright, energetic child then goes on the internet and learns that according to the IRS, he or she is a criminal — by simply making a honest mistake in not reporting Indian bank accounts and interest income. He or she further learns that if they don’t pay outrageous penalties, they risk going to jail…and be assessed even bigger penalties.

 

This is the insult I find more dangerous to America. Instead of getting a ‘thank you’ from our country for leaving the familiarity of their home and adding so much value to our economy, Indian-Americans are treated as third-class citizens.

Consider if the shoe was on the other foot. Suppose Johnny America left for a job in Delhi, and things were going just fine–until he realizes he’s  in big trouble because he never told the Indian taxing authorities that he had $50,000 in a Kansas bank.

Think about that. How would we Americans look at the Indian government? Kind of backwards and overreaching, no?

The problem is not reserved to those of Indian ancestry, of course, but those with green cards, dual citizenship, and visa holders from all over the globe. And for what?

The last two OVDI programs brought in enough revenue to fund… a whopping 11 hours of government spending.

For 11 hours of government spending we are rude, insulting, and ungrateful hosts. Maybe we should stop for the day at noon and celebrate diversity by not threatening our invited guests with prison for making an honest mistake.

OVDI is otherwise a great program

If someone actually has a criminal intent to evade taxes by opening accounts to hide income from the IRS, the OVDI program makes a lot of sense — for both the taxpayer and the IRS. And it is generally a good program administered by competent people that has marshaled along a great deal of compliance that would not have occurred otherwise.

However, for so many unsuspecting foreign account holders, there was simply no intent or desire to defraud the United States.  Even the lower penalty structure, and uncertainty of the opt-out 2012 OVDI program is too punitive.  My suggestion is that the IRS grant amnesty to any foreign account holder who happens to have dual citizenship and funded accounts with post-tax dollars. Let’s just say going forward, everyone needs to be in compliance. And for the past, these purported sins need to be forgiven.

Keep America Open and Welcoming

In order to remain exceptional, this country needs a constant influx of highly capable immigrants and guest workers. I am afraid that this OVDI stance has sent a chilling message. Come to America. Work hard.  Be threatened with prison.

You can go here for more info about OVDI & OVDI India.

UPDATE: A client of mine mentioned she saw a online petition. She is unable to find a link. If anyone has it please share.

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Find out more information on Offshore Voluntary Disclosure Initiatives by visiting our main OVDI page or by reading articles from our OVDI blog category.

Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

Stay connected. Follow us on twitter or like us on facebook.

Option One: Stick your head in the sand and hope that the IRS never catches you.  Perhaps your foreign bank account is at a bank that you think to be “off the radar” or is in a quiet jurisdiction, or under a friend’s name, or opened with a non-US passport. Well, it used to be that a foreign bank account’s true owner could be kept fairly secret. However, now, the Internal Revenue Service has vastly many more weapon at its disposal than it ever did previously to find unreported accounts.

Here’s the thing -  every global banking and financial organization must be in the US marketplace or it would become such a small time player that the foreign bank’s  shareholders would revolt.  Despite everything you may have heard, the American is still by far the largest economy in the world and every global foreign bank must be on the good side of the Internal Revenue Service – otherwise that foreign bank will be shut out of getting US capital or customers! Part of being on the good side of the IRS is to cough up what the IRS says to cough up. So the foreign bank is really at the mercy of the Internal Revenue Service….meaning so are the banks’ foreign account holders. So you see, hiding becomes riskier and riskier. And once the IRS starts seeking a criminal indictment, there are no option left except…pay outrageous taxes and the highest penalties and face the significant possibility of real jail time.

Option 2: Renounce citizenship; Leave the country. There is only way to escape the jurisdiction of the Internal Revenue Service taxing authority.  That is, to renounce one’s citizenship and  no longer be a US citizen. The process is complicated. Furthermore, a requirement of proper expatriation is that a citizen has to be in compliance with all tax laws and pay an expatriation tax in order to make it official. If the expatriation is handled improperly, the IRS treats it as a non-event, meaning you are still subject to the jurisdiction  of the Internal Revenue Service — indefinitely . Renouncing your citizenship only gets rid of future tax liabilities, but you have to inform the IRS about the existence of undisclosed financial accounts first.

Option 3: Soft (or quiet) disclosure. An option that some taxpayers tried is to file amended tax forms 1040X’s and mail them to the IRS just think “regular” 1040X’s, pay the taxes, and hope the IRS won’t figure out what was going on.  Sounds like a good strategy, right? Perhaps one could avoid all those excessive penalties of the OVDI programs?

The Internal revenue service says that these amended returns are “red flags.” Even though the tax returns are amended and back taxes paid, the Internal revenue service tells says that account holders will still face penalties and criminal charges. In addition to charging and prosecuting people with undeclared foreign income, the Department of Justice claims that it has also begun prosecution of taxpayers whose “Quiet Disclosures” were discovered by the Internal revenue service.

The “soft” disclosure option is incredibly risky for several reasons.  One reason is that a soft disclosure does not address the matter of the taxpayer’s non-compliance in FBAR filing; failing to filing an FBAR can be a criminal charge just by itself. So simply filing a quiet disclosure does not go far enough to eliminate any likelihood of criminal investigations. In fact, the 1040X might — well here’s the problem with this alternative — it does nothing about the failure to the FBAR. There are still criminal and civil investigations that may be pending for failing to file an FBAR, but simply give the Internal revenue service a very handy to find you.

As you can see, taxpayers in non-compliance are between a rock and a hard place. It is either come clean using Voluntary Disclosure 2012 or attempt a Presidential pardon.

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Find out more information on Offshore Voluntary Disclosure Initiatives by visiting our main OVDI page or by reading articles from our OVDI blog category.

Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

Stay connected. Follow us on twitter or like us on facebook.

Your IRSmedic Income Tax Attorney handles everything from unfiled tax returns, levies, liens, tax examinations, tax penalties, and all other Internal Revenue Service or State tax enforcement procedures. Your Income Tax Attorney is admitted to U.S. Tax Court which enable them to advocate for us taxpayers all across the United States and all over globe. Your knowledgeable Income Tax Attorney has just one objective at heart: to remove your tax difficulties with the best possible result for you. A Income Tax Attorney can handle any particular collection battle of the Internal Revenue Service in addition to State Tax revenue agencies. For instance, tax debt negotiations tax audits, foreign bank account initiatives, tax garnishments, liens, tax penalties, and unfiled forms. You need the very best possible outcome. Only your Income Tax Attorney has the familiarity, skill and special legal training to get you the very best outcome.

Income Tax Attorney must specialize on Income taxes!

Be careful of some lawyers who practice additional areas of legal practice besides tax law. The fact is the tax code is so complicated, some one must concentrate on it completely so as to be effective. And make sure not to pay for an hourly fee. If you do, that law firm wants someone to pay them for their time so he or she learn the tax code. An experienced Income Tax Attorney should nearly always be able to give you a flat fee quote.

Did you realize that the IRS actually allows non-attorneys to represent you before them? Do you ever speculate why this is? Well think about it, if you were a district attorney, wouldn’t you rather have a Defendent you need the jury to judge guilty be represented by someone other than an experienced criminal attorney? Not surprisingly you would your opposition to be represented by the least competent person. You would like every advantage allowable. You would love it if the Defendant hired instead a ‘criminal resolution specialist,’ instead of Matlock, wouldn’t you? So by giving you a false choice of who can represent you, the Internal Revenue Service isn’t doing you any special favors, is in reality, stacking the jury in their favor. And worse, the internet is littered with non-lawyer companies who claim that they are just as good as lawyers. So does the Internal Revenue Service stop them? No. Why would we expect them to?

Here’s the facts. When you seek the advice of anyone except a attorney or someone who works at that attorney’s firm about your confidential tax problem, the Department of Justice can subpoena that person and force them to give evidence against your direct interests. That is not a danger worth risking. Innocent people are convicted of crimes every day. That is a fact. Don’t fall for the trap thinking that you could afford second- or third-. Your property and freedom is simply too valuable. If you have a tax trouble, you absolutely need a Income Tax Attorney .

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Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

Free Tax Reports available at our home page. Request yours today.

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Enrolled Agent

We start off explaining what an Enrolled Agent is because it is the least known. Essentially an Enrolled agent requires no particular schooling or credentialing. An Enrolled Agent is someone who simply passed a test that the IRS administers. And then that’s it! That Enrolled Agent can represent any taxpayer before the IRS, no matter how complicated the case is.

But here’s the thing, the Enrolled Agent test the IRS gives is tough! There are three different sections, individuals, business and IRS representation. Each section is full of very particular, very practical questions. If someone can pass the Enrolled Agent exam, trust me that is a great indication that they know which tax forms are what, and are expert tax preparers.

Certified Public Accountants

But an Enrolled Agent Exam does not ask how those numbers tat went onto a tax return were generated in the first place. For that, a Certified Public Accountant (CPA) is going to be most helpful. A CPA goes to college for accounting, and then must pass 4 parts of the CPA exam. The parts are (1) auditing (2) economics (3) regulation (1/2 of which is compliance and the other 1/2 is tax) and (4) financial accounting. So you can see, only 1/8 of the CPA exam is related to tax, whereas 100% of the Enrolled Agent Exam is tax.

That is why, you may know a CPA who knows very little about the IRS. Many CPA’s have found more lucrative careers accounting and auditing for regulatory agencies like the Securities and Exchange Commission. If a CPA friend of your can not answer a simple tax question, that does not mean they are unqualified — for many CPAs the closest they ever get to a tax return is their own 1040.

Were CPAs excel is creating spreadsheets of a companies books, and auditing records and generating meaningful reports. So even though a CPA may not be a tax expert (note: many are), the IRS still allows them to represent taxpayers before the IRS.

IRS Lawyers

There is no special test you have to take to become a tax attorney, besides passing a bar in any state. You don’t need to take any tax courses. The IRS allows any licensed attorney to represent a tax payer before them. Many law school do require every graduate to tax law courses (my alma mater Quinnipiac Universtiy School of Law has such a requirement).

Note: there are two general types of tax attorneys, those involve in compliance and planning, and others like my tax law firm which specialize in tax resolution.

So then, what makes a great tax attorney? I think the answer is practice. We have one solitary objective at heart: to remove one’s tax problems with the best potential result for you..

And certain attorneys include tax law as just one of many legal practices, as a result they may or may not be conscious of recent variations to the tax laws. Any law firm that focuses in tax law should be ready to give you a flat fee for the work needed. If they can not they do not do enough specialization in tax law or have adequate knowledge and experience. They need you to pay them a huge hourly rate while they study the tax law on your dime..

What is you best course of action?

Well many tax law firms like mine incorporate all three professionals into our practice. We believe that tax attorneys are best a quarterbacking the toughest tax problems, and handing off particular parts of a problem to an attorney, CPA, or Enrolled Agent as the facts warrant. The other added bonus, is that with this structure, the Attorney-Client privilege stays intact.

So if you are thinking you may need some expert help, please call my office toll free at 888 477- 4258.

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A Tax Problem Attorney solves issues from unfiled tax returns, garnishments, tax liens, tax examinations, and tax penalties, in addition to other IRS or State tax actions. They are admitted to U.S. Tax Court which enables them to advocate for people across the United States and around the world. An experienced Tax Problem Attorney must have one single purpose in mind: to solve one’s tax troubles with the best achievable result for you. A Tax Problem Attorney must be able to solve any form of collection battle by the IRS and various state revenue agencies, including tax debt negotiations for the least potential sum of money, tax audits, foreign bank account initiatives, tax garnishments, liens, tax penalties, and unfiled tax forms. Only a Tax Problem Attorney has the understanding, competence and particular legal training to get you the best result.

Some attorneys incorporate tax law as one of their numerous legal practices. As a result, they may or may not be aware of recent changes to the tax laws. Any law firm that focuses on tax controversy dispute should to be ready to give you a flat fee for the work needed. If they cannot do so, they do not specialize in tax law or possess adequate experience. They need someone to pay them a huge hourly rate while they discover the tax law on your dime.

What is you best course of action? Only a Tax Problem Attorney can give you actual legal advice. While the IRS lets non-attorneys advocate for taxpayers, this law works in the favor of the Internal Revenue Service. Give it some thought; if you happened to work for the police, would you want someone you were interrogating to hire a criminal lawyer or a ‘crime resolution firm’ instead? Of course the cop wants the accused to have the least quality of protection possible. Same thing goes for the Internal Revenue Service. However, the Bill of Rights guarantees taxpayers the right to be represented by a Tax Problem Attorney. By allowing second-rate assistance, the Internal Revenue Service isn’t doing taxpayers any favors.

The truth is that the majority of national tax  “resolution” firms aren’t law firms at all. They do not give you representation by licensed Tax Problem Attorneys, so their options, and yours, are restricted. Many firms are fly-by-night syndicates that have filed for bankruptcy protection. These outfits have taken their customers money and never did any work. The FTC promised a clean-up on these shady practices, but the Internet offers too much opportunity for fraud. So, anyone looking for help should verify that they are hiring a genuine Tax Problem Attorney that is an affiliate of the Better Business Bureau, and who will listen to their client’s unique situation.

When you talk to anyone except a lawyer, or someone who works at that attorney’s firm, about your confidential tax trouble, the Internal Revenue Service can issue a subpoena against that individual and compel them to testify against your direct interests. That isn’t a hazard worth risking. Naive individuals are convicted of crimes every day. Don’t fall for that trap thinking that you could afford second- or third-. Your life is simply too valuable. If you are unfortunate enough to have a tax trouble, you need a Tax Problem Attorney.

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Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

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Step 1: Failure to File

You have a foreign bank account and fail to file a FBAR even though you are required to do so by law.  (We’ll get into the why later.)

Step 2:  An Examiner Gets Involved

An IRS examiner performs an examination on your account—a tax examination, Form 8300 (Report of Cash Payments Over $10000 Received in a Trade or Business), Bank Secrecy Act or other special examination (such as Offshore Voluntary Disclosure Initative or Last Chance Compliance).  In the course of evaluating your records, the examiner suspects you should have filed an FBAR.  He or she begins a special FBAR file for you to determine whether this is the case.

As we’ve mentioned before, even though the FBAR is not a tax form, the IRS has authority over its administration, and anytime the IRS is examining you they can start a FBAR file if they feel like it’s needed.

Step 3:  The Investigation and the IRS’s Two Hats

The IRS wears two hats when it comes to FBAR assessments —Title 26, or tax, authority, and Title 31, or Bank Secrecy Act, authority.  Can they use information from both functions against you?

There are some complicated requirements involving Title 26 vs. Title 31 powers and whether the IRS can use information gathered from your tax return and other tax information in their FBAR violation investigation.  There are some hoops for the Service to jump through, but it is definitely possible in most cases for tax return information to be used as part of the investigation.

The FBAR penalties related to a single foreign account can be applied to multiple people.  Anyone with authority over the bank account in question may have civil penalties assessed due to FBAR filing requirement violations.

Step 4:  At the Examiner’s Discretion

If you’re in violation, you’re at the mercy of your examiner, who has an incredible amount of discretion in the matter.  Penalties are available for negligence, pattern of negligence, willful, and non-willful violations.  No matter what you were thinking or why you thought it when you failed to file, you may be liable.  The examiner can decide whether to send a warning letter or assess a penalty.  They get to decide what alternative they think will be promote compliance, based on the facts of your case.  Administrative appeals are available.

Step 5:  The Dollar Amount of the Penalty

The amount of money you’re on the hook for in the case of penalties is almost totally in the hands of the examiner.  There are upper limits on the penalty you can be assessed, but otherwise, the examiner reviewing your file can decide what amount they feel is appropriate for your violation.

Step 6:  Demand for Payment

So your examiner has decided on a number and sends you a demand for payment.  For the next two years after the penalty is assessed, the Secretary, that is, the IRS, can also commence a civil action against you to recover the amount that they have decided you owe.

Step 7:  Criminal Investigation?

Depending on your state of mind—i.e. whether the violation was “willful,” among other facts—the examiner and IRS Counsel may refer the case to Criminal Investigation.  Some intentional FBAR violations are crimes—and criminal penalties are in addition to whatever civil penalties you may already have been assessed.

 
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Find out more information on Offshore Voluntary Disclosure Initiatives by visiting our main OVDI page or by reading articles from our OVDI blog category.

Looking for a little lighter fare? Check out the Strangest State Tax Write-Offs.

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