Given all the press surrounding “Report of Foreign Bank and Financial Accounts” or so-called FBARs, by now we all know about what should be reported on an FBAR, right? Well, given the Internal Revenue Service’s latest assertion in United States, v. John C. Hom, maybe we had better start studying once again.

Online Gambling Accounts

In the Hom case, the taxpayer was an avid and professional internet gambler with online gambling accounts maintained with overseas entities: FirePay.com (based in London), PokerStars.com (based in Isle of Man), and Partypoker.com (based in Gibraltar). Overseas gambling accounts were necessary because of US laws that prohibit the interstate operation of betting businesses in the United States, making online gambling technically illegal. The Read More

FATCA and the Nominee –

Part I of this post can be found here.

By brief background, under FATCA, foreign financial institutions (FFIs) must agree to verification and due diligence procedures – meaning they must be on the look-out for customers, owners or beneficiaries evidencing any “US indicia”. They must identify and report information on US account holders/owners directly to the Internal Revenue Service or to their own government via an intergovernmental agreement (IGA). They must look through their customers and counterparties’ ownership to find “substantial US owners” (generally, more than 10% ownership) of any entities holding accounts at the financial institution. Read More

In my tax practice in the Middle East, it is very common for family members to have legal title to assets they do not own. For example, it is common for a parent to have the eldest son hold legal title to property in which the child has no beneficial interest whatsoever; sometimes the nominee relationship is entered into in an attempt to circumvent forced inheritance shares of Sharia law, or to avoid probate.

What is a Nominee and How Does a Nominee Relationship work?

A nominee is a person or entity named by another party (called a “nominator”) to hold title to a certain property. The nominee is the registered owner of the property but he is not the beneficial owner. All rights and incidents of true ownership belong to the beneficial owner and essentially, the nominee stands in a position of trust to follow the orders of the Read More

The Swiss continue to cave in and erode any bastion of bank secrecy within its picture perfect borders. The Swiss Parliament voted on March 6, 2014 to turn over information to foreign governments on certain account holders with undeclared accounts in Swiss financial institutions without providing the holders any advance notice of the disclosure. The move was in reaction to the 2011 admonishment to Switzerland by the Global Forum on Transparency and Exchange of Information for Tax Purposes to take measures to increase its tax transparency. If Switzerland took no action, it risked being placed on a global blacklist. The Global Forum is a division of the Organization of Economic Co-operation and Development (commonly referred to as “OECD”). We understand that the amendment must be finally approved at the end of the current Swiss legislative Read More

The Report, OFFSHORE TAX EVASION: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts, by the Senate Permanent Subcommittee on Investigations was released at the end of last month. Senator Carl Levin chairs the Panel and the Report covers lots of ground.

Bashing the Swiss

Looking at the Swiss banking industry it lambasts the Swiss Government for obstructing United States efforts to identify US persons with undisclosed accounts. The Swiss authorities stand accused of lots of wrongdoing – among them: intervening with United States criminal investigations by restricting document production by Swiss banks; pressuring the US to design a non-prosecution program so hundreds of Swiss banks Read More

“High” Risk or “Low” Risk Classifications

The intensity of Internal Revenue Service review for “low” risk taxpayers will be low. For these taxpayers, the IRS will NOT assert any penalties nor will the agency pursue any follow-up actions. The skeletal information provided by IRS indicates that in order to be “low risk”, the taxpayer will have tax owing of $1500 or less for each year and his tax returns will be simple ones. To date, we do not know exactly what the IRS means by “simple” returns, but high levels of income or assets, or significant amounts of income from US-sources will render a return not “simple”. I believe that the taxpayer’s involvement in foreign entities (e.g., CFC, foreign partnership or trust) will do the same thing. Read More

“Streamlined” Procedure

Perceiving the various problems with the aforementioned options, the Internal Revenue Service announced the “Streamlined Procedure” – a friendlier and less costly approach to bring non-compliant Americans living overseas back into the tax filing system.

Here are the major points:

• Taxpayers will be required to file only 3 years of back tax returns and 6 years of FBARs, and if IRS agrees that the taxpayer is eligible for the Streamlined Procedure, no penalties will be assessed for the late filings. Read More

“Quiet” or “Soft” Disclosure

The “quiet” six year approach, while less burdensome, can still be quite expensive. Under this approach, taxpayers basically take the position that they will not go into the offshore voluntary disclosure program and instead, they “quietly” file all the late tax returns paying amounts due and interest; many also file the late FBARs. They hope the IRS will not pull any of their returns for examination. With such a “quiet” disclosure, a taxpayer runs the risk of being audited and faces the potential for criminal prosecution.

Some taxpayers have attempted to follow the IRS guidance from its December 2011 “Fact Sheet” and submitted explanatory letters with their late filings hoping to abate penalties by Read More

Continued from Part I

Voluntary Disclosure Program

Each of the IRS Offshore Voluntary Disclosure programs has required the filing of 8 years’ of back tax returns and FBARs. In addition, volumes of supporting documentation are required. Choosing this option is very time-consuming and generally is very expensive, both in terms of professional fees and penalties. These programs, however, are a welcome relief for taxpayers who face a real likelihood of criminal penalty sanctions. More information on the most recent program, the 2012 OVDP, can be accessed here. Here is a broad overview of the OVDP terms: Read More

Before you know it, tax returns will be due. Many Americans living overseas have not filed tax returns or so-called FBARs for many years, even though they were required to do so. The Internal Revenue Service’s crackdown on tax evasion through the use of foreign accounts and entities has understandably frightened many of these Americans. Many did not knowingly avoid or evade US tax, nor did they intentionally disregard their tax filing duties. They simply did not understand the tax filing requirements when living and working abroad, or they obtained incorrect tax advice. In fact, in many instances, the typical client I assist owes little, or no tax after taking into account foreign tax credits and foreign earned income and housing exclusion amounts. The problem is that when a taxpayer has a duty to file tax returns, accompanying information returns or FBARs, but does not do so, he is Read More

It’s that time of year when we all worry about getting material ready for preparation of United States tax returns and related information return filings. During the course of this information gathering a taxpayer may discover that some forms were completed incorrectly in the past and should be amended or, perhaps the taxpayer discovers a filing should have been done, but was not. Two very important forms for US persons having overseas accounts or assets are the so-called “FBAR” short for “Report of Foreign Bank and Financial Accounts” (FinCen Form 114) and the “Statement of Specified Foreign Financial Assets” (IRS Form 8938). International tax practitioners know how severe the penalties can be for non-filings or improper filings of these two forms.

Below is some very basic information about these forms to get you ready for tax filing time: Read More

What is a PFIC?

A PFIC is a so-called “Passive Foreign Investment Company” which is defined to include any foreign (non-US) corporation if 75% or more of its gross income for the year consists of “passive income” (“income test”), or (2) at least 50% of the average fair market value of its assets during the year are assets that produce or are held for the production of passive income (“asset test”). Passive income generally includes dividends, interest, rents, royalties, most foreign currency and commodity gains, and capital gains from assets that produce such income. As pointed out in my earlier tax blog post just about all of the income of a foreign fund will usually qualify as passive and so, nearly all foreign funds will qualify as PFICs. Read More