International Tax ServicesOffshore and Foreign Account Legal and Tax Compliance
Do you have interest or ownership of foreign financial accounts? Not sure if or what you should be reporting? – Freeman Tax Law attorneys can help. Our attorneys have decades of experience dealing directly with the IRS, the Department of Treasury, and the United States government. We will remove any stress or worries you may have about reporting your foreign financial accounts.
For many people, the mere mention of “foreign bank accounts” conjures up ideas of covert transactions and illegal acts. What many people are completely unaware of is the fact that under existing U.S. law, it is entirely legal for U.S. citizens and/or residents (U.S. person) to have ownership interest in, or signatory authority on, offshore “holdings,” be they financial accounts, properties, art, etc. The illegality arises not from the mere ownership of these foreign financial “holdings”/assets, but from the failure to properly disclose those holdings to the U.S. government, and the failure to include any income earned from those foreign holdings on one’s U.S. tax return.
Serious problems can arise for a U.S. citizen or resident if the proper forms are not correctly completed under the current U.S. Bank Secrecy and Tax Laws. Furthermore, problems can arise if all worldwide income earned is not correctly reported on a U.S. tax return. Severe criminal and civil penalties can be asserted against any U.S. person who “willfully” fails to disclose foreign accounts and who “willfully” fails to include foreign income earned on one’s tax return. Large civil and criminal penalties exist for violation of these laws. These penalties can serve to invoke great fear in U.S. persons who have offshore foreign bank and financial accounts and who have in the past not been compliant with the laws and the filing requirements; whether the reason for non-compliance is ignorance of the law or a deliberate choice to hide assets.
Learn how we can help you submit an FBAR disclosure to safely and legally disclose accounts to the U.S. government.
Learn about the Offshore Voluntary Disclosure Program and how it can help you avoid massive penalties.
See what the Foreign Account Tax Compliance Act is all about, and what it means for your foreign financial accounts.
FOREIGN GIFTS & INHERITANCES
Have you received, or entitled to cash or property overseas? Learn what you need to do to stay in compliance with the IRS.
See our guide on the basic expatriate tax rules you are required to follow while living abroad to comply with US tax laws.
RENOUNCING U.S. CITIZENSHIP
Get our free eBook to guide you through the difficult process of renouncing your U.S. citizenship.
Need to Discuss Your Foreign Tax Situation?
If you are reviewing this website, odds are you are in some way “connected” to a foreign account. You may have just received a letter from a foreign financial institution stating that the U.S. government requires the disclosure of certain personal information. Or you may have recently received a letter from a foreign financial institution stating that they do not feel comfortable “holding” assets of U.S. persons and request that you move your funds. Even more serious, you may have already received a notice from the IRS that you are under investigation for your failure to file required forms, or to report foreign income earned. In any event, now more than ever is the time to come forward to the U.S. government and voluntarily disclose your errors.
Foreign Account Reporting History
The Bank Secrecy Act
In 1970, Congress passed the Bank Secrecy Act (BSA). This was one of the U.S. government’s first laws instituted to fight money laundering in the United States. The BSA requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters. These documents, which are required to be filed by businesses under the BSA, are consistently relied upon by law enforcement agencies, both domestic and international to identify, detect and deter money laundering, whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.
The BSA gives the Department of Treasury authority to establish record keeping and filing requirements for United States persons with financial interests in/signature authority/authority over financial accounts maintained with financial institutions in foreign countries.
Foreign Account Tax Compliance Act (FATCA)
If you think you can keep your foreign accounts hidden from the U.S. government, you must take into account the Foreign Account Tax Compliance Act.
The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts, and certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return. This form must be filed with any 2012 tax return and tax returns going forward.
In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Many foreign countries have entered into multi-lateral and bi-lateral agreements with the United States, and more are coming on board every day. These agreements put the pieces in place for countries to easily comply with FATCA and the U.S. bank account disclosure rules. Those foreign financial institutions that do not want to comply with FATCA are beginning to turn away U.S. “customers” and demand that they move their money.
The existence of whistleblowers must be taken into account as well. Employees of foreign financial institutions are now persuaded by the U.S. government to turn in U.S. citizens. Once again, never assume your foreign accounts will be kept secret.
The anti-money laundering provisions of the Patriot Act affect everyone who opens a bank account. The Patriot Act was enacted in response to the Sept. 11 attacks, and covers many areas of anti-terrorism. Financial institutions are affected, in part, because the terrorists seemingly had no problem opening bank accounts in the U.S. with false Social Security numbers.
Banks are now being held more accountable for verifying the identity of any person seeking to open an account. The institutions must maintain detailed records of the information used to verify an identity. U.S. banks are further required to check your name against a list of known or suspected terrorists, or terrorist organizations provided by the government. If the institution deems it necessary, more intrusive questions may be asked. Under the Patriot Act, a banker has every right to ask you the nature of your business or occupation, the name and address of your employer, questions about your wealth and the source of your income, and the source of the money you’re using to open the account.
Although the Patriot Act applies to U.S. banks, the writing is on the wall. The U.S. government is ramping up efforts, within and outside of the U.S, requiring absolute transparency on the part of any bank or other financial institution that has U.S. persons as its customers. To achieve this goal, the U.S. government has an arsenal of weapons at its disposal, in the Bank Secrecy Act, FATCA, and the Patriot Act.
Foreign Bank Account Reporting Misconceptions
You Can Rely on an Accountant to Represent You through this Process
Typically, an attorney is the best suited to help analyze the specific facts of each taxpayer’s case. Existing statutory, regulatory, and case law must be taken into account. Complex legal issues such as “willful intent” and “reasonable cause” should not be left up to an accountant to analyze. Further, no “accountant/client Privilege” exists, whereas an attorney/client privilege does. Your accountant can be questioned, deposed, and called to testify against you if the government so desires. Any failure to file FBAR case and/or any potential tax evasion case can have criminal implications; and therefore an attorney, not an accountant, must be consulted. Further, from our experience handling these types of cases, in situations where taxpayers have retained accountants in the past to advise them as to their tax filing requirements, it is usually the taxpayer’s accountant’s lack of knowledge regarding the intricacies and complexities of the reporting requirements for Foreign Financial Accounts/Holdings and foreign earned income, that led to the failure to report in the first place.
When choosing an attorney, an important consideration to take into account is that not all attorneys are created equal. An attorney experienced and knowledgeable in the field of international tax and banking laws, along with being experienced in dealing with the IRS for civil and criminal matters, is the only type of attorney that has the unique set of skills required in dealing with these complex and serious cases.
Income from Abroad is Not Taxable in the United States
Many U.S. persons are unaware that as a U.S. citizen or resident alien, whether living in the U.S. or abroad, you are taxed on your worldwide income, not just income earned in the U.S. Under the existing law, if you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents.
Additionally, if you are a U.S. citizen or resident alien, the rules for filing income, estate, gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad.
It is a fact that many United States citizens and resident aliens receive income from foreign sources. It is also a fact that many U.S. citizens and resident aliens with assets and financial accounts in foreign countries are not correctly reporting the existence of these accounts and/or correctly preparing and filing their U.S. tax returns, in regard to foreign earned income and foreign held assets.
Recent published reports discuss the overwhelming interest the Internal Revenue Service (IRS) has in taxpayers with accounts in Switzerland, India, Israel, and Liechtenstein. The interest of the IRS, however, extends well beyond taxpayers with accounts in these countries to taxpayers with accounts anywhere in the world.
The U.S. government, realizing that a large source of revenue is not being captured, due to the failure of U.S. citizens or residents to report their foreign income earned to the U.S. government, and to pay the appropriate amount of tax to the U.S. government, has within the last several years made it an overriding mission to find those “hiding” assets offshore and “evading” paying tax.
The IRS is not stopping with individual Taxpayers. The Foreign Account Tax Compliance Act (FATCA), which took effect in 2014, grants the IRS the power to dictate to any Foreign Financial Institutions that desires to “do business with the U.S.,” the requirement that all U.S. citizens or resident aliens with accounts held in these institutions must be reported to the U.S. by the Foreign Financial Institution, otherwise the Foreign Financial Institution will suffer a harsh 30% withholding penalty.
Further, under the guise of combating terrorism, the U.S. government has broadened powers under the Patriot Act to subpoena bank records and issue John Doe summonses to foreign banks.
In light of the above Acts, now more than ever is the time to voluntarily come forward to the U.S. government, before they come to you and disclose any reporting/filing errors you may have made in the past regards to foreign financial assets/holdings.
If you have foreign financial accounts worth, in total, more than $10,000.00 in any given year, their existence MUST be reported to the U.S. government under the Bank Secrecy Act. Furthermore, if you are earning any income from foreign financial accounts or other foreign assets, you MUST report that income on a U.S. tax return, independent of whether or not tax was paid in a foreign country.
Foreign Bank Accounts and the IRS
Doug Shulman, the former IRS Commissioner has over the years repeatedly stated that the IRS is looking for people “hiding” money offshore and “evading” paying tax. Legally, “hiding” and “evading” both require a level of intent. The mere fact that a taxpayer did not report the existence of an offshore account or did not include offshore income earned on a U.S. tax return, does not mean they are committing tax evasion. In order to prove tax evasion exists, the government must prove that a taxpayer “willfully” chose to violate the law.
In Cheeks v. United States the U.S. Supreme Court sets forth the overriding standard for establishing willfulness:
Willfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.
Further, unlike most criminal offenses, ignorance or a good faith misunderstanding of the law constitutes a defense to a criminal tax offense. According to the holding in U.S. v. Abboud, “a defendant may attempt to establish a good faith misunderstanding of the law or a good faith belief that he did not violate the law to negate willfulness, even if his belief or misunderstanding is objectively unreasonable”.
Due to the fact that the government’s burden is very high when it comes to proving “willful” conduct, which could result in jail time, taxpayers should not be intimidated by the U.S. government based on a fear of being criminally prosecuted for their inadvertent errors or omissions while entering a Formal Disclosure Program. However, despite the fact that proving “willfulness” or tax evasion may be difficult, and jail time may not be a concern, there are numerous other civil penalties, including but not limited to a Negligence Penalty and/or a non-willful penalty, that the U.S. government can assess against a taxpayer for having undisclosed foreign accounts and/or unreported foreign income.
Disclosure to the government prior to the commencement of a formal investigation is essential to getting the best result for a taxpayer. Due to FATCA, the Patriot Act, and the U.S. government’s overwhelming pursuit of finding “hidden” foreign assets, now is the time to disclose your errors and come back into compliance with the U.S. government. Please contact Freeman Tax Law if you would like to discuss the appropriate actions that need to be taken concerning the proper reporting of your foreign bank and financial accounts.