Despite the taxpayer’s persistent challenges, the Supreme Court has refused to review a Ninth Circuit Court of Appeals’ decision affirming a lower court’s decision in favor of the IRS, which assessed a giant $1.2 million penalty for failing to disclose financial interests in an overseas account.
The April 30th decision, which is now final, is noteworthy for two reasons. First, it shows the magnitude of penalty that can be reached, even with respect to an individual and a single foreign account and tax year (in this case, the relevant tax year was 2006). Second, it shows the type of taxpayer arguments that courts will likely reject when reviewing an FBAR penalty case.
One of the key pieces of legislation used by the U.S. government in its effort to combat tax evasion abroad is the Foreign Account Tax Compliance Act (FATCA). To the surprise of many, FATCA remained completely untouched by Trump’s sweeping tax reform passed late last year.
A recent decision by the Supreme Court further evidences that FATCA likely will not be repealed or amended any time soon. Last month, a legal challenge to FATCA was thwarted when the United States Supreme Court refused to review the Sixth Circuit Court’s decision affirming a lower court ruling which dismissed the case brought against FATCA.
A new U.S. District court case has added to the recent upswing in cases tackling the issue of defining “willful” for purposes of applying the more severe penalties for failure to file the FBAR.
In U.S. v. Garrity, 2018 U.S. Dist. LEXIS 56888 (D. Conn. 2018), a United States District Court of Connecticut judge ordered that in moving to the next phase of trial, the IRS must prove the elements of its FBAR penalty claim only by a preponderance of the evidence, and the IRS can satisfy its burden to prove willfulness by evidencing reckless conduct by the taxpayer. Read More
The IRS has published the 2017 version of its annual IRS Data Book, which contains statistical information about the IRS and taxpayer activities during the previous year. The IRS Data Book helps illustrate the breadth and complexity of the U.S. tax system. According to the Data Book, during fiscal year 2017 (Oct. 1, 2016 to Sept. 30, 2017), the IRS collected overall more than US$ 3.4 trillion from taxpayers, processed more than 245 million tax returns and other forms, and issued more than $436 billion in tax refunds.
The IRS also audited almost 1.1 million tax returns during fiscal year 2017. Almost 90% of the audited returns were individual income tax returns. While the percentage of overall returns audited was relatively low at 0.5% overall, the percentages were significantly higher for two types of taxpayers – wealthy individuals and individuals filing international returns. Read More
Of all the income tax provisions in Trump’s major tax reform legislation, the so-called “transition tax” is perhaps the most unusual in its scope and breadth. For many U.S. persons owning foreign companies that trigger the transition tax, a certain degree of panic set in at the beginning of this year, because the transition tax statute (IRC Section 965), if read strictly, seems to give a hard deadline of April 15 for paying the first portion of the tax under the statute’s payment installment plan. Read More
As with many numbers in the U.S. tax code (for example, the foreign earned income exclusion maximum amount), FBAR penalties increase periodically due to inflation.
Recently, the IRS announced that FBAR penalties for noncompliance would be increased for penalties assessed after January 15, 2017. A brief summary of the FBAR requirement and the new penalty amounts are the subjects of this blog.
The FBAR Requirement – A Quick Background Read More
In today’s age of “digital nomads,” the idea of working remotely overseas continues to grow in popularity. New programs, such as Remote Year, have further facilitated overseas commuting by organizing year-long trips for employees and freelancers to live in multiple cities abroad. Participants, for example, travel in groups to live in multiple cities throughout Europe, Asia and South America, for one month each over a year period.
Working abroad presents a number of unique U.S. income tax issues and opportunities for the digital nomad. One main issue is qualification for the Foreign Earned Income Exclusion (“FEIE”), which allows U.S. citizens living abroad to exclude their foreign earned income from U.S. federal taxation. Another important issue is a digital nomad’s potential liability for state and local taxation even during their time living and working abroad. Read More
This past week, the IRS offered guidance on its website on the new restrictions placed by the Tax Cuts and Jobs Act (“TCJA”) on the home mortgage interest deduction.
The guidance is noteworthy for the U.S. expat community, because when it comes to the home mortgage interest deduction, the tax code does not distinguish between a home in the U.S. and a home abroad. In appropriate circumstances, the mortgage interest deduction can be an important tax saving method for citizens living abroad.
The Home Mortgage Interest Deduction Read More
In a scathing blog published this past week, National Taxpayer Advocate Nina Olson criticized the significant roadblocks that meet nonresident aliens (“NRAs”) trying to rightfully obtain refunds of withheld tax from the IRS. The roadblocks stem from a recent general freeze by the IRS on credits claimed on Forms 1040NR, U.S. Nonresident Alien Income Tax Return, which do not match with the information provided on Forms 1042-S filed by withholding agents.
The Taxpayer Advocate is an independent office within the IRS tasked with helping people resolve tax issues with the IRS and recommending changes that will prevent future problems. It’s always interesting to hear the point of view of the office responsible for taking the IRS to task for its missteps in handling taxpayer issues. Read More
We’ve written previously about the newly-enacted Code Section 7345 of the Internal Revenue Code, which authorizes the denial, revocation, or limiting of a delinquent taxpayer’s U.S. passport. We’ve noted that the statutory language contained in the new law offers few details about how exactly the penalty will be administered and to what extent exceptions would apply.
The IRS has since provided some additional details relating to the passport revocation rule on its website, but more formal guidance was expected to further flesh out the revocation penalty. Read More
For a unique group of foreign individuals (i.e., non-US citizens referred to in the tax world as “aliens”), living in the U.S. does not trigger “resident” status for tax purposes. These so-called “exempt” individuals include foreign students, foreign scholars, and alien employees of foreign governments and of international organizations in the United States. U.S. tax law considers this lucky bunch to be exempt from counting days of presence in the United States for the purposes of determining whether they are resident aliens of the United States. Read More
In a rather swift and harsh judgment, the Ninth Circuit Court of Appeals affirmed a lower court’s decision in favor of the IRS, which assessed an approximately $1.2 million penalty against a taxpayer for failing to disclose her financial interests in an overseas account.
The decision, U.S. v. Bussell, is noteworthy for two reasons. First, it shows the magnitude of penalty that can be reached, even with respect to an individual and a single foreign account and tax year (in this case, the relevant tax year was 2006). Second, it shows the type of taxpayer arguments that courts will likely reject when reviewing an FBAR penalty case. Read More