Foreign Bank Account Reporting

Transcription

1 Foreign Bank Account Reporting and denforcement tupdate: The Internal Revenue Service s 2011 Offshore Voluntary Disclosure Initiative and the New FBAR Regulations Presented by Matthew Lee, Jennifer Bell, and David Gannaway March 22, Blank Rome LLP

2 Speakers e Matthew D. Lee, Partner, White Collar Defense and Investigations practice group, Blank Rome LLP Jennifer Bell, Associate, Business Tax practice group, Blank Rome LLP David Gannaway, Principal, Valuation and Forensic Services, Citrin Cooperman 1

3 Matthew D. Lee Matthew D. Lee Partner Blank Rome LLP Matthew D. Lee is a former U.S. Department t of Justice trial attorney who concentrates t his practice on all aspects of white collar criminal defense and federal tax controversies. He has extensive experience in advising clients on issues regarding foreign bank account reporting (FBAR) obligations and the Internal Revenue Service s 2009 Offshore Voluntary Disclosure Program and 2011 Offshore Voluntary Disclosure Initiative. Mr. Lee has published numerous articles regarding the IRS voluntary disclosure programs and FBAR reporting obligations. He has also represented clients in all stages of proceedings before the Internal Revenue Service, including audits, appeals, and collections, and Tax Court litigation. Mr. Lee also has experience in conducting corporate internal investigations and advising clients as to corporate compliance issues involving the Bank Secrecy Act, the USA Patriot Act, and anti-money laundering laws and regulations. Mr. Lee has represented both corporations and individuals in criminal investigations involving tax, money laundering, health care, securities, public corruption, and fraud offenses, and has significant experience in handling all stages of federal litigation including trials and appeals. Mr. Lee also serves as a Lecturer of Law at the Villanova University School of Law. 2

4 Jennifer Bell Jennifer Bell Associate Blank Rome LLP Jennifer Bell concentrates her practice in the area of business tax law. She counsels corporate clients and individuals regarding undeclared foreign bank accounts, including FBAR reporting obligations, and has represented numerous clients in the Internal Revenue Service s Voluntary Disclosure Program. She also counsels public and private corporations, partnerships, tax-exempt organizations, and individuals in aspects of United States and international tax law, including: mergers and acquisitions bankruptcy reorganizations, workouts, and restructurings financing arrangements real estate transactions tax-free reorganizations joint ventures formation, operation and acquisition of Subchapter S Corporations and limited liability companies federal, state, and local criminal and civil tax controversies, including audits, administrative appeals, and litigation tax consequences regarding matrimonial matters tax issues related to maritime matters Ms. Bell graduated from Columbia Law School, where she was a Harlan Fiske Stone scholar. While attending law school, she was a member of the Columbia Business Law Review. Ms. Bell is currently enrolled in the Tax LLM program at New York University School of Law. 3

5 David Gannaway David idgannaway, a principal i lin the firm s Valuation &Forensic Services group, is responsible for providing litigation consulting services in the areas of internal investigations involving embezzlement and misappropriation of assets, forensic accounting, shareholder disputes, civil tax controversies and criminal defense. Mr. Gannaway joined Citrin Cooperman in March 2011 and is based in the firm snewyork City office. A former special agent with the IRS Criminal Investigation Division, Mr. Gannaway is a financial fraud investigative specialist with experience in conducting and supervising white-collar crime investigations. He has extensive experience in representing clients before the IRS in the Offshore Voluntary Compliance Program involving international taxation and the disclosing of Foreign Bank Accounts under the Bank Secrecy Act. He also provided fraud and anti-money laundering training to corporations and government David Gannaway Principal Citrin Cooperman agencies. Prior to joining Citrin Cooperman, Mr. Gannaway was a director in the dgannaway@citrincooperman.com Litigation and Corporate Financial Advisory Services group at regional accounting firms and was a Director, Forensic and Litigation Support at a Big Four accounting firm. He served 20 years with the IRS, and left in 2007 as an Assistant Special Agent in Charge of New York. Mr. Gannaway is certified as a fraud examiner, anti-money laundering specialist, and an enrolled agent to practice before the IRS. Mr. Gannaway is a member of the Association of Certified Fraud Examiners, the American Bar Association s Tax Committee and Criminal Justice Section, and the New York Society of Certified Public Accountants Anti-Money Laundering and Counter Terrorist Financing Committee. He recently served as an adjunct professor at John Jay College of Criminal Justice, teaching a graduate level fraud examination class. 4

6 Introduction Topics to be covered Supplemental materials Report of Foreign Bank and Financial Accounts TD F90-221( FBAR ) 22.1 FBAR) 2011 IRS Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers Final FBAR regulations issued February 24,

7 Foreign Account Reporting in General Required as part of Bank Secrecy Act Form TD F , Report of Foreign Bank and Financial Accounts ( FBAR ) (June 30) Form 1040, Schedule B, Part III (April 15) Penalties Criminal Civil Statute of limitations 6

8 IRS/DOJ Enforcement e Efforts The IRS has been steadily increasing the pressure on offshore financial institutions that facilitate concealment of taxable income by US citizens. That pressure will only increase under my watch. Those who are unlawfully hiding assets should come and get right with their government through our voluntary disclosure process. IRS Commissioner Douglas H. Shulman Testimony before Congress, March 17,

9 IRS/DOJ Enforcement e Efforts Bradley Birkenfeld UBS whistleblower February 2009: UBS and United States enter into Deferred Prosecution Agreement Original estimate of 52,000 accounts at UBS held by U.S. citizens Initial round of UBS account holder information turned over to IRS February 2009 Nearly 5,000 accounts are turned over subsequently 8

10 Criminal Prosecutions to Date Over twenty t criminal i cases filed against tus U.S. accountholders, Swiss bankers, and advisors Mostly recently, criminal charges filed against bankers and accountholders at Credit Suisse What does the future hold other foreign banks in the crosshairs? Other Swiss banks with U.S. presence? Israel? Hong Kong? Singapore? India? 9

11 2009 Offshore Voluntary Disclosure Program ( OVDP ) IRS Commissioner Douglas H. Shulman (March 26, 2009): My goal has always been clear to get those taxpayers hiding assets offshore back into the system. In the guidance to our people, we draw a clear line between those individual du taxpayers with offshore o accounts who voluntarily come forward to get right with the government and those who continue to fail to meet their tax obligations. People who come in voluntarily will get a fair settlement. t For taxpayers who continue to hide their head in the sand, the situation will only become more dire. They should come forward now under our voluntary disclosure practice and get right with the government. 10

12 2009 OVDP Overview Designed to encourage taxpayers with undisclosed foreign bank accounts to come into compliance with U.S. tax laws and avoid possible criminal prosecution OVDP ended d on October 15, 2009 Participants were required to amend returns and submit FBARs for a six-year period ( ), other reporting requirements (e.g., Forms 3520, 5471, etc.) Penalties: 20% accuracy-related penalty 20% offshore penalty, may be reduced to 5% Approximately 15,000 taxpayers made voluntary disclosures involving bank accounts in more than 60 countries Since the 2009 program closed, more than 3,000 additional individuals have made voluntary disclosures to the IRS regarding foreign bank accounts 11

13 Lessons s Learned ed From the 2009 OVDP Participation largely driven by UBS Deferred Prosecution Agreement and threat of turnover of account information through Swiss-U.S. treaty process Perception that many individuals choose not to come forward Exceedingly slow process through civil IRS Generally, one size fits all penalty structure 12

14 2011 IRS Offshore Voluntary Disclosure Initiative ( OVDI ) IRS Commissioner Douglas H. Shulman (Feb. 8, 2011): Combating international tax evasion is a top priority for the IRS. We have additional i cases and banks under review. The situation i will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system. Tax secrecy continues to erode.... We are not letting up on international tax issues, and more is in the works. For those hiding cash or assets offshore, the time to come in is now. The risk of being caught will only increase. 13

15 2011 OVDI Overview v ew OVDI was announced on February 8, 2011 and will only be available through August 31, The framework for the 2011 amnesty program includes the following: Participants generally must pay a penalty of 25% of the highest aggregate balance in their foreign bank accounts during the 2003 to 2010 time period. Under limited it circumstances, this penalty may be reduced d to either 12.5 or 5%. Participants must pay back taxes and interest for the period 2003 through 2010, as well as accuracy-related and/or delinquency penalties of 20% of the taxes due. Participants must also file all original and amended tax returns, and pay all taxes, interest, and penalties by the August 31 deadline. 14

16 2011 OVDI Overview v ew (Cont.) Includible assets (e.g., tangible assets such as real estate or art; intangible assets such as patents or stock or interests in a business; FAQ 35) Possibility of opting out FAQs 51 Other options FAQs 17, 18, 38 FAQ 47 provides [a] practitioner whose client declines to make full disclosure of the existence of, or any taxable income from, a foreign financial account, may not prepare a current or future income tax return for that taxpayer without being in violation of Circular

17 What about individuals who choose not to come forward under 2011 OVDI? Subject to possible criminal prosecution Civil penalties, including for years prior to 2003 (FAQ 11) Voluntary disclosure practice remains available 16

18 New FBAR Rules Announced New, final regulations governing foreign bank account reporting requirements were announced by the Treasury Department on February 24, 2011 Effective for FBARs which are due to be filed by June 30, 2011, and for all subsequent calendar years Many significant changes Expected that Treasury will issue a new FBAR form with instructions to reflect these changes prior to the June 30 filing deadline e Changes are incorporated in the remaining slides 17

19 Who is required to file an FBAR? An FBAR must be filed if all of the following requirements are satisfied: The filer is a U.S. Person; The U.S. Person has a financial account; The financial account is in a foreign country; The U.S. Person has a financial interest in, or signature or other authority over, the financial account; and The aggregate account balance of all such foreign accounts exceed $10, (in U.S. dollars) at any time during the calendar year 18

20 Who is a U.S. Person? A U.S. Person includes: A citizen of the U.S., A resident alien of the U.S., and A U.S. corporation, partnership, trust, limited liability company, or other type of business entity Generally includes: expatriates, U.S. citizens and residents residing abroad, certain foreign citizens who are working and paying taxes in the U.S., and individuals that are required to file FBARs annually even if they maintain joint accounts with a non-u.s. spouse Final regulations exclude the in and doing business in the U.S. terminology 19

21 What is a reportable financial account? Account is broadly defined d to include any foreign bank, securities, i or other financial i accounts Bank accounts include savings deposits, demand deposits, checking accounts, and any other accounts maintained i with a person engaged in the business of banking Securities accounts include accounts maintained with a person in the business of buying, selling, holding, or trading stock or other securities Other financial accounts include: An account with a person that is in the business of accepting deposits as a financial agency; An account that is an insurance policy with a cash value or an annuity policy; An account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or An account with a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions (does NOT include hedge funds) 20

22 What is a financial interest? es An individual has a financial interest in a foreign account if he or she is the owner of record of, or has legal title to, the account, regardless of whether the account is maintained for his or her own benefit or for the benefit of others. A U.S. person also has a reportable financial interest in a foreign bank account if the account is held by: An agent, nominee, or attorney on behalf of the U.S. Person; A corporation in which the U.S. Person owns more than 50% of the voting power or the total value of the shares; A partnership in which the U.S. Person owns directly or indirectly more than 50% of the interest in profits or capital; 21

23 What is a financial interest? Any other entity in which the U.S. Person owns directly or indirectly more than 50% of the voting power, total value of the equity interests or assets, or interest in profits; A trust, if the U.S. Person is the trust grantor and has an ownership interest in the trust for U.S. tax purposes; and A trust in which the U.S. Person either has a present beneficial interest in more than 50% of the assets or from which such person receives more than 50% of the current income. Exempts participants/beneficiaries in certain types of retirement plans Requires joint account holders to each file an FBAR 22

24 When is an account foreign? An account is foreign if it is maintained in a foreign country. An account is NOT foreign if it is maintained with a financial institution located in the U.S. Custodial arrangements that do not permit the U.S. person to directly access their foreign holdings maintained by a U.S. global custodian bank are not foreign. 23

25 What is signature or other authority? Broadly defined as the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained The test for determining whether an individual has signature or other authority over an account is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account. The final regulations also exempt certain individuals with signature or other authority over, but no financial interest in, foreign accounts (for example, corporate employees) 24

26 Other New FBAR Rules Anti-Avoidance provision Streamlined reporting for 25 or more foreign accounts Consolidated reports 25

27 HIRE Act and FATCA Hiring Incentives to Restore Employment Act ( HIRE Act ) became law on March 18, 2010 and included modifications to the information reporting and withholding requirements of the Foreign Account Tax Compliance Act ( FATCA ) New withholding tax compliance regime requires withholding of 30% on certain payments, including FDAP and gross proceeds from sales, to foreign financial institutions (FFIs), unless FFI enters into an Agreement under which h the FFI agrees to undertake certain responsibilities To be exempt from withholding, requirements include the following: Enter into an agreement with Treasury; 26

28 HIRE Act and FATCA (Cont.) Obtain information regarding each account holder; Comply with due diligence requirements; and Report the information on U.S. accounts annually (name, address, TIN, account number, account balance or value, gross receipts or withdrawals, etc.) Similar rules apply to nonfinancial foreign entities Regulations will be crucial Generally effective for payments made after December 31, 2012, limited grandfathering rule 27

29 Disclosure of Foreign Financial Assets (26 U.S.C. 6038D) Requires taxpayers to disclose any interest in specified foreign financial asset if the aggregate value of all of these assets during the year exceeds $50,000 A specified foreign financial asset includes: any financial account maintained by a foreign financial institution, certain stock and securities, certain ti financial ilinstruments, t and dit interests t in a foreign entity Disclosure is attached to income tax return and is in addition to FBAR reporting obligations 40% penalty on any understatement attributable to an undisclosed specified foreign financial asset Extends statute of limitations to six years for all items on income tax return for failure to comply with 26 U.S.C. 6038D Effective for tax years beginning i after March 18,

30 Looking Ahead Where do we go from here? New FBAR form should be forthcoming Who is the next UBS? 29

31 Questions s & Answers s 30

32 About the Presenters e s Matthew D. Lee, Blank Rome LLP Lee-M@blankrome.com,,(215) Jennifer Bell, Blank Rome LLP JBell@blankrome.com, (212) David Gannaway, Citrin Cooperman Dgannaway@citrincooperman.com, (212)

33 Circular No Notice To ensure compliance with IRS Circular 230, you are hereby notified that any discussion of federal tax issues in this presentation is not intended or written to be used, and it cannot be used by any person for the purpose of: (A) avoiding gpenalties that may be imposed on them under the Code, and (B) promoting, marketing or recommending to another party any transaction or matter addressed herein. This disclosure is made in accordance with the rules of Treasury Department Circular 230 governing standards of practice before the Service. 32