Streamline Offshore Submission Turned Criminal!

According to DoJ, a former CPA Indicted for Failing to Report Foreign Bank Accounts and Filing False Documents with the IRS A federal grand jury returned a superseding indictment charging Brian Booker, a former resident of Fort Lauderdale, Florida, whose business specialized in international trade, with failing to file Reports of Foreign Bank and Financial Accounts (FBARs) and filing false documents with the Internal Revenue Service (IRS).

According to the superseding indictment, Booker, a former Certified Public Accountant, owned a cocoa trading company that was organized under the laws of the Republic of Panama. Booker allegedly operated that company from Venezuela, Panama, and his former residence in Fort Lauderdale, Florida. The superseding indictment further alleges that, for calendar years 2011 through 2013, Booker failed to disclose his interest in financial accounts located in Switzerland, Singapore, and Panama on annual Reports of Foreign Bank and Financial Accounts (FBARs) as required by law. Booker also allegedly filed false individual income tax returns for tax years 2010 through 2012 that failed to report to the IRS all of Booker’s foreign bank accounts.

Booker is also charged with filing a false “Streamlined Submission” in conjunction with the Streamlined Domestic Offshore Procedures. The IRS Streamlined procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS. The superseding indictment alleges that Booker’s Streamlined submission falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was due to non-willful conduct.

If convicted, Booker faces a maximum sentence of five (5) years in prison for each count (15 years in total) relating to his failure to file an FBAR. He also faces a maximum sentence of three (3) years in prison for each of the counts related to filing false tax documents (another 9 years in total). An indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.
 

Streamlined Domestic Offshore Filings Are No Longer

Cookie-Cutter Filings, To Be Prepared Without The

Advice of an Experienced Tax Attorney.

The linchpin for qualification for the Streamlined Domestic Offshore Filingis that the taxpayer must certify that their failure to report the income and/or file a correct FBAR report resulted from non-willful conduct. 

Am I “non-willful”?
For purposes of the streamlined procedures, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are “non-willful.” However, the real issue is whether the IRS will agree. 

Be cautious when certifying non-willful status to the government.
The government may have or subsequently receive information that does not support such status. All relevant facts and circumstances must be carefully analyzed before making a determination regarding the submission of a “non-willful” certification requesting participation in the Streamlined Filing Compliance Procedures.

Will They Actually Inquire Regarding the “Non-Willful” Certification? 
The IRS has indicated it will review each certification of non-willful status seeking participation in the streamlined procedures.

Will the IRS Interview the Taxpayer?
Further questions often lay within the responses to each of the foregoing questions. An interview by an IRS examiner (in person or by phone) should be anticipated in most cases and are more likely with respect to resident taxpayers.

Those directly involved in creating and maintaining the foreign account and assets are the only ones capable of determining non-willful status. If such status is not supported by sufficient objective facts, consider other methods of coming into compliance, including the OVDP.

 

Have Undeclared Income from an Offshore Bank Account?

 

 

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IRS Warns of New IRS Impersonation Email Scam

The IRS and its Security Summit partners warned tax professionals this week about a new IRS impersonation scam campaign spreading nationally on email.  

The new scam illustrates the growing sophistication of cybercriminal organizations. The scam now relies on dozens of compromised websites and web addresses that pose as IRS.gov, making it a challenge to shut down. By infecting computers with malware, these impersonators can get control of a taxpayer’s computer or secretly download software that tracks every keystroke, eventually giving them access to passwords to sensitive accounts, such as financial accounts.

“The IRS does not send emails about your tax refund or sensitive financial information,” said Commissioner Chuck Rettig. 

 

“This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be

on-guard at all times.”

The IRS, state tax authorities and the tax industry that are part of the Security Summit effort noted that they have made progress in fighting stolen identity tax refund fraud, but victims remain vulnerable to scams by IRS imposters who send them bogus emails or make harassing phone calls.

The IRS emphasized that it doesn't initiate contact with taxpayers via email, text message or social media to ask for personal or financial information. That includes requests for PIN numbers, passwords or other access information for credit cards, banks or other financial accounts.

The IRS also doesn’t call taxpayers to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS typically will first mail a bill to a taxpayer who owes taxes.

The IRS does not initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.

Have an IRS Tax Problem?

 

 

Contact the Tax Lawyers at 
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A Taxpayer's Limited Education Not Sufficient to Prove Reasonable Cause for Failure to File FBAR

A district court has held in Ott, DC MI 8/7/2019, that the failure-to-file FBAR penalty applied to a taxpayer because she failed to establish reasonable cause for her failure to file.

Pursuant to 31 USC § 5314(a), every U.S. person that has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the account to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

The penalty for violating the FBAR requirement is set forth in 31 USC § 5321(a)(5), which provides that the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation, of 31 USC § 5314(a).

1. The maximum amount of the penalty 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)) and
2. 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 IRS may not impose a penalty if the taxpayer meets several requirements, one of which is that the violation was due to reasonable cause. (31 USC § 5321(a)(5)(B)(ii))

Circumstances that may indicate reasonable cause include an honest misunderstanding of fact or law that is reasonable in light of the facts and circumstances, including the experience, knowledge, and education of the taxpayer.

In addition, reliance on an information return or on the advice of a professional tax advisor or an appraiser does not necessarily demonstrate reasonable cause. Rather, the taxpayer must show that, under all the circumstances, such reliance was reasonable and that the taxpayer acted in good faith, e.g., where the taxpayer engages a professional tax advisor, provides him or her with "full details," and then relies upon his or her advice. (Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683).

Ms. Ott, a US citizen, had foreign bank accounts for which she was required to file FBARs for three tax years. She failed to file the FBARs and the IRS assessed non-willful failure-to-file FBAR penalties for those years. She had hired an advisor to prepare her tax returns.

Ms. Ott did not dispute that she violated 31 USC § 5314's reporting requirements but maintained that assessing penalties under 31 USC § 5321 would be inappropriate because she had reasonable cause for her omission. She argued that she had reasonable cause because her education was limited, she had no tax experience, and she had hired an advisor to prepare her tax returns. 

The district court found that Ms. Ott did not meet her burden of showing she had reasonable cause for failing to timely file the FBARs. The District Court went on to state: 

"Between 2005 and 2010, Otts withdrew $392,000 from the Canadian accounts. Otts use some of the money they withdrew from the Canadian accounts to invest in
real estate and other business opportunities." 

"Despite having Canadian accounts since 1993, the Otts did not report their interest in, or authority over, these farm financial counsel Schedule B on the personal income tax returns (Forms 1040), at any time before 2010." 

"It is not clear from the complaint if the tax preparer ever asked the about the foreign accounts or if the tax preparer utilized a "tax organizer" … (however) the Otts signed federal income tax returns under penalty of perjury, that included a schedule B, which they reported that they did not have an interesting, or authority over, a financial account in the foreign country."   

Citing Jarnagin, the court said that she did not show that she took any steps to learn whether she was required to file FBARs. While she hired an advisor to complete her tax returns, she did not act in good faith since she did not provide any evidence that she informed the advisor of her foreign accounts. In addition, the court found that Ms. Ott's limited education and experience did not excuse her failure to file the FBARs.

Have Undeclared Income from an Offshore Bank Account?

 

 

Been Assessed an FBAR Penalty?

 

  

Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

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at: www.TaxAid.com or www.OVDPLaw.com or

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DC Magistrate Ruled That Willful FBAR Regulations are Invalid

On August 7, 2018 we posted Court of Claims Rejects Colliot & Wadhan: Willful FBAR Penalty Not Limited to $100,000, where we discussed that July 31, 2018 in Norman v. United States, Ct. Fed. Cl. Dkt 15-872, the Court held that the taxpayer Norman was liable for the FBAR willful penalty and this Court rejected the Colliot holding that the FBAR willful penalty was limited to a maximum of $100,000, because the regulations had not been changed to reflect the statutory amendment increasing the maximum FBAR willful penalty. 

Now another DC court has also rejected Colliot & Wadhan and concluded that the Willful FBAR Penalty Not Limited to $100,000 in Rum, (DC FL 8/2/2019) 124 AFTR 2d ¶2019-5113

A federal magistrate has recommended that a reg,which imposes a lower penalty for willful failure to file an FBAR than a more recent statute, be found invalid.

Under 31 USC 5314(a), every U.S. person that has a financial interest in, or signature or other authority over, a financial account in a foreign country must report the account to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR).

The penalty for violating the FBAR requirement is set forth in 31 USC 5321(a)(5). 31 USC 5321(a)(5)(A) provides that the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation, of 31 USC 5314(a). The maximum amount of the penalty 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 penalty amounts described above reflect a 2004 law change that increased the maximum civil penalties that can be assessed for willful failure to file an FBAR. Before that change, the maximum willful penalty was $100,000. Regs that were promulgated before the statutory increase continue to reflect the former $100,000 maximum (as opposed to the "greater of $100,000 or 50%..."), even though these regs have since been renumbered and amended to account for inflation. (31 C.F.R. 1010.820(g); "the reg")

The Treasury Department has delegated the authority to enforce the assessment of civil FBAR penalties to the IRS. (31 CFR 1010.810(g); IR 2003-48)

A Texas district court held that 31 CFR 1010.820(g) can be applied consistently with 31 USC 5321(a)(5), and thus the reg has not been implicitly invalidated or superseded. The court therefore limited the penalty to the $100,000 limit in the reg. (Colliot, (DC TX 2018) 121 AFTR 2d 2018-1834) and a Colorado district court came to the same conclusion. (Wadhan, (DC CO 7/18/2018) 122 AFTR 2d 2018-5208)

The Court of Federal Claims, said that Colliot was wrongly decided and that the reg was invalid. (Norman, (Ct Fed Cl 7/31/2018) 122 AFTR 2d 2018-5089)

Crucially, the court said, the amended statute dictates that the usual maximum penalty "shall be increased" to the greater of $100,000 or 50% of the account. (31 USC 5321(a)(5)(C)(i)) Congress used the imperative, "shall," rather than the permissive, "may." Therefore, the amendment did not merely allow for a higher "ceiling" on penalties while allowing the Treasury Secretary to regulate under that ceiling at his discretion. Rather, Congress raised the new ceiling itself, and in so doing, removed the Treasury Secretary's discretion to regulate any other maximum.

The court said that "in order to be valid, regs must be consistent with the statute under which they are promulgated." Because 31 USC 5321(a)(5)(C)(i) mandates that the maximum penalty be set to the greater of $100,000 or 50% of the balance of the account, the reg is no longer consistent with the amended statute.

The IRS had found that Said Rum failed to file an FBAR for the 2007 tax year, and that the failure was willful. The account balance in question was over $1 million and the IRS assessed a 50% penalty under 31 USC 5321.

Rum argued that the maximum penalty should only be $100,000 as per 31 CFR §1010.820(g).

A federal magistrate, looking at Colliot, Wadhan, and Norman, found that 31 USC § 5321 has superseded 31 CFR §1010.820(g)(2). The magistrate found the reasoning of Norman persuasive and recommended that the reg be found to be no longer valid.

 

Have Undeclared Income from an Offshore Bank Account?

 

 

Been Assessed a 50% Willful FBAR Penalty?

 

 

Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

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at: www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243