Brotman Law, Author at Brotman Law - All Rights Reserved | 12636 High Bluff Drive, Suite 300 • San Diego, California 92130

FBAR Penalties and Criminal Penalties

August 12, 2024August 24, 2014 by Brotman Law

FBAR Penalties – Failure to file FinCEN form 114 (the FBAR)

Failure to file FinCEN form 114 (the FBAR) can be far more severe if the failure to file is found to be willful. A finding of a willful failure to file carries a penalty of up to the greater of $100,000 or 50% of the account balance. This penalty is in addition to the tax, interest, and an accuracy penalty of between 20% and 40%. The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty. The IRS has the burden of proof, but in a FBAR case, the only thing the prosecution must show is that the person knew they had obligation to report.[1] If there is a finding of willfulness, there is a strong potential criminal prosecution of the case. If the failure to file is found to be non-willful, the penalty is potentially $10,000. Prison time is still possible for the non-willful taxpayer, but unlikely.

Streamlined OVDP – Penalties for Not Participating

August 12, 2024August 24, 2014 by Brotman Law

The Departments of Justice and Treasury have joined forces to crack down on the failure to report foreign accounts and income. They are utilizing the Internal Revenue Service, FinCEN, and the United States Attorney General’s office in a collaborative effort to target individuals, banks, foreign financial institutions, and countries who don’t comply with FATCA and the U.S. tax laws. As their effort has proved profitable with $6.5 billion dollars of collected revenue, more assets have been allocated to allow Justice and Treasury to expand upon their success. In addition, FATCA and other new laws with enhanced penalties have come into play giving the noncompliant taxpayer, financial institution or country greater incentive to come forward before they become the target of an investigation which very well could lead to criminal prosecution or greater civil penalties. Each delinquent filing or noncompliance is considered separately under the law, and carries its own repercussions. There are several consequences for not participating in streamlined OVDP that taxpayers need to be aware of. Here are the highlights.

FATCA – The Foreign Account Tax Compliance Act

August 12, 2024August 24, 2014 by Brotman Law

The Foreign Account Tax Compliance Act (FATCA) mandates that required U.S. taxpayers, including those living outside of the United States report their financial accounts held outside of the United States. It also requires foreign financial institutions report information to the IRS about their U.S. clients. The U.S. is also in pursuit of Intergovernmental Agreements with other countries to make sure that the requirements of FATCA are carried out by foreign financial institutions. FATCA was passed on March 18, 2010 as an amendment to an appropriations bill known as the HIRE Act.

Foreign Asset Reporting Requirements

August 12, 2024August 24, 2014 by Brotman Law

The following is a summary of some of the foreign asset reporting requirements:

FBAR Requirements

August 12, 2024August 24, 2014 by Brotman Law

FBAR Requirements – FinCEN form 114, Report of Foreign Bank and Financial Accounts (FBAR)

Individuals who are required to file FinCEN form 114 are U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold.[1] This includes residents and resident aliens of U.S. territories and U.S. territory entities. The threshold is a value of $10,000 or more during the calendar year. If you are required to report, you must report the maximum value of the financial account. To make this determination you must determine the maximum value using periodic account statements. Then you must covert this figure to U.S. dollars using the end of the year exchange rates and report the figure in U.S. dollars. As of 2014 the report must be electronically filed through FinCEN’s website by June 30, and no extensions are given. The FBAR does not get filed with the federal income tax return.

Reporting Requirements for Foreign Assets – Part One

August 12, 2024August 24, 2014 by Brotman Law

Individual Reporting Requirements for Foreign Assets – Your Tax Return

Here is a summary of the Reporting Requirements for Foreign Assets. Under the law, U.S. citizens, resident aliens, and certain nonresident aliens are required to report worldwide income from all sources including foreign bank and financial accounts. Required reporters must pay taxes on income from these accounts at their individual tax rates. The IRS recognizes that there are many legitimate reasons for U.S. taxpayers to have offshore accounts such as convenience, investing, and to facilitate international banking transactions. However, U.S. taxpayers are prohibited under law from using offshore accounts, including foreign banks, security accounts, and trusts, to avoid paying tax. [1] To fully understand the problem, it is necessary to understand what the reporting requirements for foreign assets are.

Offshore Voluntary Disclosure Introduction – Part Two

August 12, 2024August 24, 2014 by Brotman Law

The IRS used much of the information it accumulated under the 2009 OVDP to continue investigations into individuals and financial institutions that facilitated the non-compliance with U.S. tax laws. With the investigations ongoing, many tax practitioners pressed the IRS on behalf of concerned non-complaint clients to continue the voluntary disclosure program. In February of 2011 the IRS responded. It announced the 2011 Offshore Voluntary Disclosure Initiative (OVDI.) The program lasted from February 2011 until September 9, 2011. The terms of the 2011 OVDI differed from that of the 2009 OVDP. Participants in the 2011 program paid a 25% miscellaneous offshore penalty on the highest aggregate value of the unreported offshore accounts from 2003 until 2010. In addition, depending on the severity of their noncompliance, they were also exposed to a 5% or 12.5% penalty. The IRS was able to close 70% of the voluntary disclosed cases that year which resulted in 15,000 additional disclosures the collection of $1.6 billion dollars in back taxes, penalties, and interest.

Offshore Voluntary Disclosure Introduction – Part One

August 12, 2024August 24, 2014 by Brotman Law

The Department of Treasury and the Department of Justice have a new mandate – stop offshore tax cheating and bring in billions of dollars of additional tax revenue from non-disclosed foreign accounts. The Internal Revenue Services’ Offshore Voluntary Tax Disclosure Program is designed to encourage non-compliant taxpayers to come clean and bring their tax liabilities current. The IRS began this initiative in 2009 with the Offshore Voluntary Disclosure Program. The Service has now sponsored three voluntary programs. The IRS reports that the efforts have yielded $6.5 billion in back taxes and brought 45,000 tax payers back into the law abiding fold.[1] It is estimated that this represents only a fraction of funds held offshore by U.S. citizens and other required U.S. income tax filers. [2]

California Department of Tax and Fee Administration – Out of State Retailers

August 12, 2024August 24, 2014 by Brotman Law

An out of state retailer “engaged in business in this state” (California) are required to register, collect use tax on taxable sales made to consumers in California, and remit this tax to the California Department of Tax and Fee Administration. Revenue and Taxation Code section 6203 provides that “retailer engaged in business in this state” specifically includes, but is not limited to, any of the following:

Specific Issues in California Use Tax Audits

August 12, 2024August 24, 2014 by Brotman Law

California Use Tax Audits – Use Tax on Leases

In general, during California use tax audits, use tax will only be asserted against the lessor since it is difficult to determine from the lessee’s records whether the lease is a “sale” under the Sales and Use Tax Law. Therefore, a review of the lessor’s records will be made to determine if any tax liability exists. Whenever the audit of a lessee reveals that tax has not been collected by the lessor, and the auditor cannot determine that tax was properly due, an audit memorandum (Form BOE–1164) will be prepared and sent to the lessor’s district. During use tax audits, he auditor will not assert tax against the lessee. An exception to the above general policy is that tax may be assessed against the lessee if the lessor is located out-of-state, and the property being leased is not mobile transportation equipment (MTE). If tax is assessed, Form BOE–1164 will be sent to the lessor’s current district showing the amount of tax assessed and the applicable periods.