larry alan campagna, houston chamberlain hrdlicka …larry alan campagna, houston chamberlain...

CRIMINAL TAX:

WHAT’S NEXT ON THE FBAR FRONT?

LARRY ALAN CAMPAGNA, Houston

Chamberlain Hrdlicka White Williams & Martin

ELIZABETH COPELAND, San Antonio

Oppenheimer, Blend, Harrison and Tate, Inc.

JOHN (“JACK”) A. TOWNSEND, Houston

Townsend & Jones LLP

State Bar of Texas

29th

ANNUAL

ADVANCED TAX LAW COURSE

August 18-19, 2011

Houston

CHAPTER 5

LARRY A. CAMPAGNA. Texas Monthly magazine repeatedly has named Larry one of its

"Texas Superlawyers," and his practice has been commended in The Best Lawyers in

America, Chambers USA, and The Legal 500. Larry is a shareholder with Chamberlain,

Hrdlicka, White, Williams and Martin, in Houston, Texas. His practice concentrates on

federal, state and local tax controversies, both civil and criminal. He also teaches a course

in the law of tax crimes and money laundering as an Adjunct Professor at the University of

Houston Law Center. Larry is a co-author of the casebook Tax Crimes published by Lexis-

Nexis. He also serves on the Advisory Board of Editors of the Journal of Tax Practice and

Procedure. Larry received his B.A. (with High Honors and Special Honors in Plan II) and

J.D. degrees from the University of Texas at Austin. Larry has served the American Bar

Association Section of Taxation as Chair of the Committee on Civil and Criminal Tax

Penalties, as Chair of a Task Force on Offshore Credit Card Cases, and as a member of

the Committee on Appointments to the Tax Court; he formerly served as Chair of the

Committee on Employment Taxes and as a subcommittee chair for IRS Investigations and

Procedures. His major cases include: representing the first taxpayer to be awarded

attorney's fees by the Fifth Circuit Court of Appeals; serving as lead counsel in one of the

largest project cases in the history of the United States Tax Court; and successfully

defending a "Final Four" accounting firm in a large tax malpractice case. In 1995, Larry

was unanimously inducted as a Fellow of the American College of Tax Counsel. He is the

proud father of a seventeen year old son who long ago learned to stuff his father's jump

shot.

711 NAVARRO, SIXTH FLOOR SAN ANTONIO, TEXAS 78205

PHONE - 210.224.2000

FAX - 210.224.7540 www.obht.com

ATTORNEY BIOGRAPHY

Elizabeth A. Copeland Shareholder [email protected] 210.299.2347

AREAS OF EXPERIENCE + Federal Income Taxation Planning and Controversy + Texas Margin Tax and Sales Tax Planning and Controversy + Board Certified in Tax Law by the Texas Board of Legal Specialization EDUCATION + J.D., The University of Texas School of Law, 1992 + B.B.A., with honors, Accounting, The University of Texas at Austin, 1986 PROFESSIONAL AFFILIATIONS + 2009 Recipient of The Janet Spragens Pro Bono Award as presented by

The American Bar Association, Section of Taxation + Honored by the American Society of Women Accountants as regional

winner of the 2007 Balance Award + Recognized as one of the Best Lawyers in America® 2010, as published

by Woodward/White, Inc. (2007-2011) + Recognized by Law & Politics and Texas Monthly magazine as a Texas

Super Lawyer in the area of Tax Law (2003-2009) + Listed by Scene in SA magazine as one of San Antonio’s Best Tax Law

Attorneys (2004-2010) + American Bar Association, Tax Section

· Committee on Appointments to the Tax Court, Chair

· Court Procedure and Practice Committee, Member

· Pro Bono Committee, Vice Chair

· Nominating Committee, Member

+ State Bar of Texas

· Treasurer

· Advanced Tax Law Course, Planning Committee Member

· Tax Controversy College, Planning Committee Member

+ Former Adjunct Professor, Our Lady of the Lake University School of Business

+ San Antonio Bar Association + American Bar Association Peer Mediation Project + Bexar County Women’s Bar Association

· Member

· Former Vice President, Treasurer and Director

+ South Texas IRS/Practitioners Council, Former San Antonio representative FIRM RANKINGS Oppenheimer, Blend, Harrison and Tate, Inc. has been ranked as San Antonio's leading Tax Law Firm by Woodward/White, Inc. (2009) ADMITTED + To the practice of law in Texas + U. S. Tax Court + Western District of Texas + Certified Public Accountant—Texas, 1988 ADDITIONAL INFORMATION Elizabeth works on all matters pertaining to Federal and State income taxation, both planning and tax controversies. She has expertise in dealing with the Internal Revenue Service at the administrative appeals level and in litigation. Recent United States Tax Court cases she has tried include:

· Sunbelt Clothing Company, Inc. v. Commissioner (taxpayer victory)

· AnnMarie Washington v. Commissioner (government concession after trial)

· Union Ganadera Regional de Chihuahua, Inc. v. Commissioner (taxpayer victory).

Elizabeth focuses on assisting businesses in determining the types of entities that best suit their needs, from the perspectives of tax savings and operational efficiency. She also assists taxpayers with foreign account disclosures and with criminal tax matters. Her previous experiences include:

· United States Tax Court, Washington, D.C.: Attorney Advisor, Judge Mary Ann Cohen, August 1992-August 1993

· Texas Supreme Court, Austin, Texas: Intern, Justice Eugene A. Cook, 1992

· Ernst & Young, Dallas, Texas, 1987-1989, and San Antonio, Texas, 1985-1987.

Elizabeth helped the State Bar of Texas form the Nation’s first statewide Tax Court Pro Bono program serving taxpayers in Dallas, El Paso, Houston, Lubbock, and San Antonio. The program has been used as a model for similar Bar-based programs throughout the United States.

222 SIDNEY BAKER SOUTH, SUITE 222 KERRVILLE, TEXAS 78028

PHONE - 830.792-2170

FAX - 830.895-0882 www.obht.com

JOHN A. (“JACK”) TOWNSENDPartner, Townsend & Jones, L.L.P.

5615 Kirby Dr., Suite 830, Houston, Texas 77005Tel: (713) 521-9977 Fax: (713) 893-2509

E-Mail: [email protected] Web: www.tjtaxlaw.com

Focus of Practice Civil and Criminal federal income tax controversy matters.

Experience Federal Tax Matters, including• Tax litigation in the U.S. Tax Court, U.S. District Courts, U.S. Court

of Federal Claims, most of the U.S. Courts of Appeals, and UnitedStates Supreme Court and before the IRS, involving: • Criminal cases (representing a defendant in the KPMG

criminal tax case – United States v. Stein in the SouthernDistrict of New York– touted by DOJ as the largest criminaltax case ever, and certainly one of the most controversial; theSecond Circuit Court of Appeals affirmed the dismissal ofthis defendant and 12 others based upon prosecutorialmisconduct in forcing KPMG to withdraw payment of theirfees under DOJ’s Thompson Memorandum. United States v.Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) and United Statesv. Stein, 495 F. Supp. 2d 390 (S.D.N.Y. 2007), aff'd UnitedStates v. Stein, 541 F.3d 130 (2d Cir. 2008).

• Civil cases (including transfer pricing (§ 482) and relatedcompetent authority issues), foreign tax credit and outboundtransfer issues).

• Expert testimony with respect to federal tax matters.

Past Employment U. S. Dept. of Justice, Tax Division (Trial 1974-77; Appeals 1969-74)

Activities University of Houston-Adjunct Professor of Law in the Tax Program, 1982-1988 and 1993 through present (teaching Tax Procedure (each Fall Semester)and Tax Fraud and Money Laundering (every other Spring Semester)).

Participant for programs by the ABA Tax Section's Court ProcedureCommittee; Tax Executives Institute, the Texas State Bar (partnerships andoil and gas), Houston Bar Association (partnerships), New York UniversityFederal Tax Institute (tax procedure); University of Houston School of Law(criminal tax), and Southern Methodist University School of Law (partner-ships and oil and gas taxation).

Mr. Townsend has authored the following books (downloadable from thefirm website) for his courses at the University of Houston Law School: Federal Tax Crimes (2011); and Federal Tax Procedure (2010).

Mr. Townsend has co-authored a book on Tax Crimes in the Lexis-Nexisgraduate tax series. Co-authors are Professors Steven Johnson and ScottSchumacher and Larry Campagna, a practitioner and adjunct at Universityof Houston Law School where he and Mr. Townsend jointly teach the TaxFraud and Money Laundering course.

Mr. Townsend has authored many articles, including the following:C Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?

(In 2009 in Houston Business and Tax Journal (on line article athttp://www.hbtlj.org/v09p2/v09p2townsend.pdf

C Judge Posner's Opinion in Kikalos, 108 Tax Notes 593 (2005).C Analysis of the Fastow Plea Bargains, 102 Tax Notes 1425 (2004).C Tax Treaty Interpretation, 55 Tax Lawyer 219 (Fall 2001).C Burden of Proof in Tax Cases: Valuations and Ranges, 2001 TNT

187-37 (2001).C Taxpayer Rights in Criminal Investigations, 90 Tax Notes 1842

(2001).C Reconciling Section 482 and the Nonrecognition Provisions, 50 Tax

Lawyer 701 (1997).C Audits and Appeals: Developments, 54 N.Y.U. Inst. on Fed.

Taxation, ch. 26 (1996).

Member American Bar Association, Tax Section Texas State Bar Association, Tax Section.Houston Bar Association (Past President and Director of Tax Section)Houston Tax Roundtable (Past Chair)The Tax Procedure Group (Past Chair)

Admitted Texas

Education University of South Carolina, A.B., 1964.University of Virginia, LL.B., 1967.New York University LL.M. (Taxation), 1969.

Certification Tax Law Specialist, Texas Board of Legal Specialization.

Honors Special Commendation Award at Attorney General's Awards Ceremony,Department of Justice; and Tax Division Meritorious Service Award.

Listed since 1997 among America’s top tax lawyers in The Best Lawyers inAmerica, the premier national peer group lawyer ratings.

Listed in Texas Lawyer’s “Go-to-Guide” as being among Texas’ top 5 taxlawyers (October 15, 2002).

Listed in Chambers USA Guide to America’s Leading Lawyers for BusinessListed in Who’s Who Legal (Texas 2008)

-2-

i

TABLE OF COTENTS

INTRODUCTION .......................................................................................................................................................... 1

BANK SECRECY ACT ................................................................................................................................................. 2

FBAR AUTHORITY ...................................................................................................................................................... 3

FBAR IN GENERAL ..................................................................................................................................................... 3

DEFINITION OF A UNITED STATES PERSON ........................................................................................................ 5

DEFINITION OF FINANCIAL ACCOUNTS ............................................................................................................... 6

DEFINITION OF FINANCIAL INTEREST .................................................................................................................. 7

DEFINITION OF SIGNATURE OR OTHER AUTHORITY ....................................................................................... 7

REPORTING FOR JOINT ACCOUNTS ....................................................................................................................... 8

FBAR PENALTIES ........................................................................................................................................................ 8

STATUTE OF LIMITATIONS TO ASSESS PENALTIES .......................................................................................... 9

PENALTY SUMMARY ............................................................................................................................................... 10

HISTORICAL IRS VOLUNTARY DISCLOSURE PRACTICE IRM 9.5.11.9 .......................................................... 10

DEPARTMENT OF JUSTICE VOLUNTARY DISCLOSURE POLICY .................................................................. 11

PRIOR VOLUNTARY DISCLOSURE PROGRAMS................................................................................................. 12

DOUGLAS H. SHULMAN, IRS COMMISSIONER FEBRUARY 8, 2011 ............................................................... 12

2011 OFFSHORE VOLUNTARY DISCLOSURE INITIATIVE ................................................................................ 14

POTENTIAL CIVIL PENALTIES THAT COULD APPLY ....................................................................................... 28

HIRE ACT OF 2010 AND FACTA .............................................................................................................................. 31

DEPARTMENT OF THE TREASURY - OPT OUT AND REMOVAL GUIDE ....................................................... 35

DRAFT FORM OF STATEMENT OF SPECIFIED FOREIGN FINANCIAL ASSETS ............................................ 54

Criminal Tax: What’s Next on the FBAR Front? Chapter 5

Criminal Tax: What’s Next on the FBAR Front?

Section of TaxationState Bar of TexasState Bar of TexasAugust 18, 2011

Larry Alan Campagna, Chamberlain Hrdlicka White Williams & Martin

Houston TX

Elizabeth Copeland, Oppenheimer, Blend, Harrison and Tate, Inc.

San Antonio TX

John (“Jack”) A. Townsend, Townsend & Jones LLPHouston TX

IntroductionIntroduction

Develop a practical understanding of the FBAR foreign acco nt reporting

Objectives:

Overview of FBAR reporting requirements

Some topics we’ll cover:

the FBAR foreign account reporting requirements

Gain awareness of recent developments surrounding the 2011 new Offshore Voluntary Disclosure Program and the pending Offshore Voluntary Disclosure Initiative

Develop a practical and strategic approach to delinquent FBARs, voluntary disclosures and current IRS

Overview of potential FBAR penalties

IRS Voluntary Disclosure Practice

Treatment of Taxpayers in the 2009 Offshore Voluntary Disclosure Program (OVDP)

IRS Voluntary Disclosures Post-OVDP

2011 Offshore Voluntary Disclosure Initiative (OVDI)

Considerations in “opting-out” of the OVDP th OVDI examination proceduresor the OVDI

Due diligence requirements by representatives of OVDI taxpayers

Overview of Foreign Account Reporting Compliance (FATCA)

And more!

1


Bank Secrecy ActBank Secrecy Act

Foreign Bank and Financial Accounts Report(FBAR) reporting requirements founded in( ) p g qthe Bank Secrecy Act (BSA) of 1970

Authorizes the Secretary of the Treasury(Secretary) to require residents or citizens ofthe United States to keep records and/or filereports concerning transactions with any foreignagencyagency

Financial Crimes and Enforcement Network(FinCEN) delegated enforcement to IRS

Bank Secrecy ActBank Secrecy Act

U.S. citizens, residents or a person in anddoing business in the U.S. must file areport with the government if they have afinancial account in a foreign countrywith a value exceeding $10,000 at anytime during the calendar year

Taxpayers comply by noting the accountp y p y y gon their income tax return and by filingForm 90-22.1, the FBAR

Due date is June 30th each year

2


FBAR AuthorityFBAR Authority

31 U.S.C. § 5314

31 U S C § 5321(a)(5)31 U.S.C. § 5321(a)(5)

§ 103.24

Instructions to the FBAR

Internal Revenue Manual (IRM) 4.26.16

Internal Revenue Manual (IRM) 4.26.17

FBAR in GeneralFBAR in General

FBAR is not a tax return, but an FBAR is not a tax return, but an information report filed with the Treasuryinformation report filed with the Treasury

Indicated on Form 1040, Schedule B, Part IIIIndicated on Form 1040, Schedule B, Part III

Deadline for filing FBAR is on or before Deadline for filing FBAR is on or before June 30June 30thth the following yearthe following year

–– No extensions grantedNo extensions granted

FBAR is not attached to taxpayer’s FBAR is not attached to taxpayer’s individual income tax returnindividual income tax return

–– Not subject to IRC Section 6103 confidentiality Not subject to IRC Section 6103 confidentiality and nondisclosure protectionsand nondisclosure protections

3


FBAR in General FBAR in General (cont.)(cont.)

Report of Foreign Bank and Financial Report of Foreign Bank and Financial Accounts TD F 90Accounts TD F 90--22.1 (FBAR) is available 22.1 (FBAR) is available at www.irs.treas.govat www.irs.treas.gov

FBAR is filed by mailing to:FBAR is filed by mailing to:

–– U.S. Department of TreasuryU.S. Department of TreasuryP.O. Box 32621P.O. Box 32621Detroit, MI 48232Detroit, MI 48232--06210621,,

FBAR is considered FBAR is considered filed when receivedfiled when received in in Detroit Detroit -- NOT when postmarkedNOT when postmarked

Who Must File the FBAR?Who Must File the FBAR?

AA UnitedUnited StatesStates personperson mustmust filefile anan FBARFBARreportreport ifif thatthat personperson hashas::

–– AA financialfinancial interestinterest inin;;

–– AA signaturesignature authorityauthority;;

–– OrOr anyany otherother authorityauthority overover anyanyfinancialfinancial account(s)account(s) inin aa foreignforeign countrycountryandand thethe aggregateaggregate valuevalue ofof thesetheseaccount(s)account(s) exceedsexceeds $$1010,,000000 atat anyany timetimeduringduring thethe calendarcalendar yearyear

4


Definition of a United States Definition of a United States PersonPerson

AA UnitedUnited StatesStates PersonPerson isis aa citizencitizen ororresidentresident ofof thethe UnitedUnited StatesStates

–– CitizenCitizen:: looklook forfor UU..SS.. birthbirth certificatecertificate orornaturalizationnaturalization paperspapers

–– ResidentResident:: notnot defineddefined inin FBARFBAR instructions,instructions,statutestatute oror regulationsregulations.. LookLook toto::

GreenGreen CardCard testtest

SubstantialSubstantial presencepresence testtest

PersonsPersons filefile aa firstfirst yearyear electionelection onon hishis incomeincome taxtaxreturnreturn toto bebe treatedtreated asas aa residentresident alienalien

Definition of a United States Definition of a United States Person Person (cont.)(cont.)

–– AA personperson doingdoing businessbusiness inin thethe UnitedUnited StatesStates

–– TheThe termterm “person”“person” includesincludes individualsindividuals andand allallformsforms ofof businessbusiness entities,entities, trusts,trusts, andand estatesestates

AA certificatecertificate ofof incorporationincorporation fromfrom aa UU..SS.. statestateestablishesestablishes thatthat thethe corporationcorporation isis aa UU..SS.. PersonPerson

AA foreignforeign subsidiarysubsidiary ofof aa UU..SS.. PersonPerson isis notnot subjectsubject totothethe FBARFBAR filingfiling requirementsrequirements

AA corporationcorporation thatthat ownsowns directlydirectly oror indirectlyindirectly moremoreAA corporationcorporation thatthat ownsowns directlydirectly oror indirectlyindirectly moremorethanthan 5050 percentpercent interestinterest inin oneone oror moremore otherother entitiesentitiesisis permittedpermitted toto filefile aa consolidatedconsolidated FBARFBAR

5


Definition of Financial AccountsDefinition of Financial Accounts

Financial accounts are:

– Bank accountsBank accounts

– Savings accounts

– Checking accounts

– Time deposits

– Securities accounts

Mutual funds– Mutual funds

– Brokerage accounts

– Securities derivatives accounts

Definition of Financial Accounts Definition of Financial Accounts (cont.)(cont.)

– Accounts where the assets are held in acommingled fund

– Owner holds an equity interest in the fund

– Any other account maintained in a foreignfinancial institution or with a person doingbusiness as a financial institution

– An insurance policy having a cash surrendervaluevalue

– NOT individual bonds, notes, or stockcertifications held by the filer

6


Definition of Financial InterestDefinition of Financial Interest

Financial Interest includes accounts for which the U.S.Person is the owner of record or has legal title, whether theaccount is maintained on his or her own benefit or for thebenefit of others including non-United States persons

– Also includes:

Accounts where the owner of record or holder of legal title is aperson acting as an agent, nominee, or in some other capacity onbehalf of a U.S. Person

A corporation in which a U.S. Person directly or indirectly ownsmore than 50% of the total value of the shares of stock

An account where the owner of record or holder of legal title is:

A partnership in with the U.S. person owns interest in morethan 50% of the profits

A trust in which the U.S. person either has a presentbeneficial interest in more than 50% of the current income

Definition ofDefinition ofSignature or Other AuthoritySignature or Other Authority A U.S. person has account signature authority if

that person can control the disposition of moneyor other property in the account by delivery of aor other property in the account by delivery of adocument containing his signature to the bank orother person with whom the account ismaintained

A person with other authority over an account isone who can exercise power that is comparable toi t th it t b di tsignature authority over an account by direct

communication, either orally or by some othermeans, to the bank or other person with whomthe account is maintained

7


Reporting for Joint AccountsReporting for Joint Accounts

Each U.S. person jointly maintaining anaccount (or if several persons each own apartial interest in an account) must file anFBAR

IRS will accept a single FBAR only for anaccount jointly held by a husband and wife

FBAR PenaltiesFBAR Penalties

The two primary penalties applicable toFBARs are Non-Willful and Willful:

– Non-Willful

Penalty may be waived if there is reasonable cause.LMSB-4-0908-047 (Oct. 31, 2008)

Examiners must weight facts and circumstances anddetermine whether:

A i l i ffi i A warning letter is sufficient,

Penalties less than the mitigation guidelines areappropriate, or

Penalties set forth in the mitigation guidelines areappropriate. Id.

8


FBAR Penalties FBAR Penalties (cont.)(cont.)– Willful

Applies to any person who has willfully violated theFBAR reporting or recordkeeping provisions

Test for willfulness is whether there was a voluntary,intentional violation of a known legal duty

Burden to establish willfulness is on the IRS by clearand convincing evidence. ILM 200603026

Compare and contrast United States v. Williams,2010 U.S. Dist. LEXIS 90794 (ED VA 2010).

If it is determined that the violation was due toreasonable cause, the willfulness penalty should notbe asserted

Willfulness may be demonstrated by the consciouschoice to not comply with FBAR requirements

Statute of LimitationsStatute of Limitationsto Assess Penaltiesto Assess Penalties

The statute of limitations to assess aFBAR civil penalty is six years [31 USCSection 5321(b)(1)] even if the FBAR hasnot been timely filed, and once assessed,the government must bring an action torecover the assessed FBAR penalty withintwo years from the date of assessment.

The statute of limitations for criminal BSAviolations is five years

9


Penalty SummaryPenalty Summary

The following chart highlights the civil and criminal penalties that maybe asserted for not complying with the FBAR reporting and recordkeeping requirements for violations occurring after October 22, 2004:

VIOLATIONVIOLATION CIVIL CIVIL PENALTIESPENALTIES

CRIMINAL CRIMINAL PENALTIESPENALTIES

COMMENTSCOMMENTS

NonNon--Willful ViolationWillful Violation Up to $10,000 forUp to $10,000 foreach negligent violationeach negligent violation

N/AN/A 31 U.S.C. 31 U.S.C. §§5321(a)(5)(B)5321(a)(5)(B)

Willful Willful -- Failure to Failure to file FBAR or retain file FBAR or retain records of accountrecords of account

Up to the greater of Up to the greater of $100,000, or 50 percent $100,000, or 50 percent of the amount in the of the amount in the account at the time of the account at the time of the

Up to Up to $250,000 or 5 $250,000 or 5 years or bothyears or both

31 U.S.C. 31 U.S.C. §§5321(a)(5)(C)5321(a)(5)(C)31 U.S.C. 31 U.S.C. §§5322(a)5322(a)and 31 C.F.R. and 31 C.F.R. §§103.59(b)103.59(b)for criminal. The penaltyfor criminal. The penalty

violationviolation applies to all U.S. persons.applies to all U.S. persons.

Willful Willful -- Failure to Failure to file FBAR or retain file FBAR or retain records of account records of account while violating while violating certain other lawscertain other laws

Up to the greater of Up to the greater of $100,000, or 50percent of $100,000, or 50percent of the amountthe amountin the account at the time in the account at the time of the violationof the violation

Up to Up to $500,000 or 10 $500,000 or 10 years or bothyears or both

31 U.S.C. 31 U.S.C. §§5322(b) and 31 5322(b) and 31 C.F.R. C.F.R. §§103.59(c) for 103.59(c) for criminal. The penaltycriminal. The penaltyapplies to all U.S. persons.applies to all U.S. persons.

Civil and Criminal Penalties may be imposed together. 31 U.S.C. Civil and Criminal Penalties may be imposed together. 31 U.S.C. §§5321(d).5321(d).

Historical IRS Voluntary Historical IRS Voluntary Disclosure Practice Disclosure Practice IRM 9.5.11.9 IRM 9.5.11.9

(06(06--2626--2009)2009)InformalInformal IRSIRS practicepractice sincesince 19541954 –– voluntaryvoluntaryInformalInformal IRSIRS practicepractice sincesince 19541954 voluntaryvoluntarydisclosuredisclosure isis anan issueissue toto bebe consideredconsidered inin thethe IRSIRSdecisiondecision rere criminalcriminal prosecutionprosecution referralreferral

–– Truthful,Truthful, completecomplete andand timelytimely –– disclosuredisclosurebeforebefore IRSIRS hashas infoinfo rere taxpayertaxpayer

–– LegalLegal sourcesource incomeincome

–– TaxpayerTaxpayer mustmust::

FullyFully cooperatecooperate withwith IRSIRS

MakeMake goodgood faithfaith arrangementsarrangements toto paypay anyany tax,tax,interest,interest, andand penaltiespenalties

DiscloseDisclose everyevery aspectaspect ofof noncompliancenoncompliance

10


Historical IRS Voluntary Historical IRS Voluntary Disclosure Practice Disclosure Practice IRM 9.5.11.9 (06IRM 9.5.11.9 (06--

2626--2009)2009)ExampleExample ((66)) aa.. ofof IRSIRS VoluntaryVoluntary DisclosureDisclosurePracticePractice (IRM(IRM 99 55 1111 99 ((0606--2626--20092009))PracticePractice (IRM(IRM 99..55..1111..99 ((0606--2626--20092009))

–– ((66)) ExamplesExamples ofof voluntaryvoluntary disclosuresdisclosures includeinclude::

aa.. aa letterletter fromfrom anan attorneyattorney whichwhich enclosesencloses amendedamendedreturnsreturns fromfrom aa clientclient whichwhich areare completecomplete andandaccurateaccurate (reporting(reporting legallegal sourcesource incomeincome omittedomitted fromfromthethe originaloriginal returns),returns), whichwhich offersoffers toto paypay thethe tax,tax,interestinterest andand anyany penaltiespenalties determineddetermined byby thethe IRSIRS totointerest,interest, andand anyany penaltiespenalties determineddetermined byby thethe IRSIRS totobebe applicableapplicable inin fullfull andand whichwhich meetsmeets thethe timelinesstimelinessstandardstandard setset forthforth aboveabove.. ThisThis isis aa voluntaryvoluntarydisclosuredisclosure becausebecause allall elementselements .. .. .. aboveabove areare metmet

SinceSince 19521952,, thethe IRSIRS hashas notnot referredreferred aa timely,timely,truthfultruthful voluntaryvoluntary disclosuredisclosure forfor criminalcriminalprosecutionprosecution

Department of Justice Department of Justice Voluntary Disclosure PolicyVoluntary Disclosure Policy

SectionSection 44..0101,, CriminalCriminal TaxTax Manual,Manual, UU..SS..DepartmentDepartment ofof JusticeJustice ((20082008))pp (( ))

–– WheneverWhenever aa personperson voluntarilyvoluntarily disclosesdiscloses thatthat hehe oror sheshecommittedcommitted aa crimecrime beforebefore anyany investigationinvestigation ofof thethe person’sperson’sconductconduct begins,begins, thatthat factorfactor isis consideredconsidered byby thethe TaxTax DivisionDivisionalongalong withwith allall otherother factorsfactors inin thethe casecase inin determiningdetermining whetherwhethertoto pursuepursue criminalcriminal prosecutionprosecution

–– IfIf aa putativeputative criminalcriminal defendantdefendant hashas compliedcomplied inin allall respectsrespectswithwith allall ofof thethe requirementsrequirements ofof thethe InternalInternal RevenueRevenue Service’sService’sqqvoluntaryvoluntary disclosuredisclosure practice,practice, thethe TaxTax DivisionDivision maymay considerconsiderthatthat factorfactor inin itsits exerciseexercise ofof prosecutorialprosecutorial discretiondiscretion.. ItIt willwillconsider,consider, interinter alia,alia, thethe timelinesstimeliness ofof thethe voluntaryvoluntary disclosure,disclosure,whatwhat promptedprompted thethe personperson toto makemake thethe disclosure,disclosure, andandwhetherwhether thethe personperson fullyfully andand truthfullytruthfully cooperatedcooperated withwith thethegovernmentgovernment byby payingpaying pastpast taxtax liabilities,liabilities, complyingcomplying withwithsubsequentsubsequent taxtax obligations,obligations, andand assistingassisting inin thethe prosecutionprosecution ofofotherother personspersons involvedinvolved inin thethe crimecrime..

11


Prior Voluntary Disclosure Prior Voluntary Disclosure ProgramsPrograms

ProgramProgram inin 20032003:: RevRev ProcProc 20032003--1111:: EligibleEligibleProgramProgram inin 20032003:: RevRev.. ProcProc.. 20032003--1111:: EligibleEligibleOVCIOVCI taxpayerstaxpayers filedfiled delinquentdelinquent returnsreturns forfor threethreetaxtax yearsyears ((19991999--20012001)) paidpaid allall taxtax andand interest,interest,andand receivedreceived accurancyaccurancy /delinquency/delinquency penalties,penalties,butbut NONO FBARFBAR penaltypenalty..

ProgramProgram inin 20092009:: OVDPOVDP taxpayerstaxpayers filedfiled SixSix yearsyearsd dd d tt dd FBARFBAR ((20032003 20082008)) idid llllamendedamended returnsreturns andand FBARsFBARs ((20032003--20082008)) paidpaid allall

taxtax andand interestinterest andand aa 2020%% penaltypenalty inin lieulieu ofof thetheFBARFBAR (and(and other)other) penaltiespenalties..

Douglas H. Shulman, IRS Douglas H. Shulman, IRS CommissionerCommissioner

February 8, 2011February 8, 2011y ,y ,Announced a new 2011 program through 8/31/11

“This new effort gives those hiding money inforeign accounts a tough, fair way to resolvetheir tax problems once and for all. And itgives people a chance to come in before we findgives people a chance to come in before we findthem.”

Note that the 2009 OVDP closed withapproximately 15,000 voluntary disclosuressubmitted.

12


2011 Offshore Voluntary Disclosure 2011 Offshore Voluntary Disclosure InitiativeInitiative

Covers eight tax years (2003Covers eight tax years (2003--2010)2010)

Requires payment of all taxes and interestRequires payment of all taxes and interest

§§6662(a) 20% accuracy penalty applies6662(a) 20% accuracy penalty applies

§§6651(a)(1) failure to file penalty applies, if 6651(a)(1) failure to file penalty applies, if applicableapplicable

§§6651(a)(2) failure to pay penalty applies, if 6651(a)(2) failure to pay penalty applies, if applicableapplicable

FBAR and/or other foreign account FBAR and/or other foreign account reporting penalties are covered by a 25% reporting penalties are covered by a 25% miscellaneous penaltymiscellaneous penalty

13


2011 Offshore Voluntary 2011 Offshore Voluntary Disclosure Initiative (OVDI) Disclosure Initiative (OVDI) --OVDIOVDI identifiedidentified inin IRIR--20112011--1414 (February(February 88,, 20112011))

EndsEnds AugustAugust 3131,, 20112011

IRSIRS CriminalCriminal InvestigationInvestigation prepre clearanceclearance processprocess remainsremainsIRSIRS CriminalCriminal InvestigationInvestigation prepre--clearanceclearance processprocess remainsremains

OnlyOnly ExceptionsExceptions toto thethe 2525%% penaltypenalty::

–– AA 1212..55%% FBARFBAR--relatedrelated penaltypenalty ifif thethe highesthighest aggregateaggregatebalancebalance inin allall foreignforeign accountsaccounts isis lessless thanthan $$7575,,000000

–– aa 55%% FBARFBAR--relatedrelated penaltypenalty ifif ––

TaxpayerTaxpayer diddid notnot openopen thethe account,account, hadhad infrequentinfrequent contact,contact,minimalminimal withdrawalswithdrawals andand fundsfunds onon depositdeposit werewere previouslypreviously taxedtaxed

TaxpayersTaxpayers areare foreignforeign residentsresidents andand werewere unawareunaware theythey werewere UU..SS..citizens,citizens, oror

TaxpayersTaxpayers areare foreignforeign residentsresidents andand paidpaid taxtax inin thethe foreignforeignjurisdictionjurisdiction

Do Not Use OVDI IfDo Not Use OVDI IfNo Underreporting But No FBARNo Underreporting But No FBAR

If the taxpayer reported all income on his return and merely failed to file an If the taxpayer reported all income on his return and merely failed to file an FBAR, OVDI is not necessary and no penalty will apply for 2003FBAR, OVDI is not necessary and no penalty will apply for 2003--2009 2009 failures as long as the taxpayer:failures as long as the taxpayer:failures, as long as the taxpayer:failures, as long as the taxpayer:

–– Files the late FBARs with an explanatory statement to:Files the late FBARs with an explanatory statement to:Department of Treasury, Post Office Box 32621, Detroit, MI 48232Department of Treasury, Post Office Box 32621, Detroit, MI 48232--06210621By August 31, 2011 (see FAQ 17) By August 31, 2011 (see FAQ 17) This savings clause extended from August 31st to November 1, 2011 by Notice 2011This savings clause extended from August 31st to November 1, 2011 by Notice 2011--5454The standard is based on fully reporting income not no tax due, so someone who owed The standard is based on fully reporting income not no tax due, so someone who owed no additional tax but failed to report foreign interest would not qualify under this savings no additional tax but failed to report foreign interest would not qualify under this savings clauseclause

–– The penalty protection also applies to failures to file other foreign reporting forms The penalty protection also applies to failures to file other foreign reporting forms such as 5471s 3520s 8865s 926s etc if there is no underreporting of incomesuch as 5471s 3520s 8865s 926s etc if there is no underreporting of incomesuch as 5471s, 3520s, 8865s, 926s, etc. if there is no underreporting of income such as 5471s, 3520s, 8865s, 926s, etc. if there is no underreporting of income (see FAQ 18)(see FAQ 18)

For 2010 filings, Fin Cen Notice 2011For 2010 filings, Fin Cen Notice 2011--1 extended the time for filing FBARs 1 extended the time for filing FBARs to June 30, 2012 if the filing party was an employee or officer of a U.S. to June 30, 2012 if the filing party was an employee or officer of a U.S. owned foreign corporation and such individual had no financial interest in owned foreign corporation and such individual had no financial interest in the account, but had signatory or other authority over the foreign accountthe account, but had signatory or other authority over the foreign account

14


How to make a Voluntary How to make a Voluntary Disclosure under the 2011 OVDIDisclosure under the 2011 OVDI

SubmitSubmit prepre--clearanceclearance requestrequest andand identifyingidentifying informationinformation(name,(name, datedate ofof birth,birth, socialsocial securitysecurity numbernumber andand address)address)andand PowerPower ofof AttorneyAttorney (attached),(attached), ifif represented,represented, byby faxfax totothethe IRSIRS CriminalCriminal InvestigationInvestigation LeadLead DevelopmentDevelopment CenterCenterthethe IRSIRS CriminalCriminal InvestigationInvestigation LeadLead DevelopmentDevelopment CenterCenter(LDC)(LDC) atat ((215215)) 861861--30503050.. ForFor callcall ((215215)) 861861--37593759

IfIf clearedcleared byby CICI,, withinwithin 3030 daysdays submitsubmit OffshoreOffshore VoluntaryVoluntaryDisclosureDisclosure LetterLetter toto IRSIRS CriminalCriminal Investigation,Investigation, AttnAttn::OffshoreOffshore VoluntaryVoluntary DisclosureDisclosure Coordinator,Coordinator,600600 ArchArch Street,Street,RoomRoom 64046404,, Philadelphia,Philadelphia, PAPA 1910619106

IfIf notifiednotified thatthat voluntaryvoluntary disclosuredisclosure hashas beenbeen acceptedacceptedyy ppsubmitsubmit fullfull VoluntaryVoluntary DisclosureDisclosure PackagePackage (see(see FAQFAQ 2525)) forforapplicableapplicable yearsyears byby AugustAugust 3131,, 20112011 toto IRS,IRS, 36513651 SS.. II HH 3535StopStop 43014301 AUSC,AUSC, Austin,Austin, TXTX 7874178741 ATTNATTN:: 20112011 OffshoreOffshoreVoluntaryVoluntary DisclosureDisclosure InitiativeInitiative

2011 OVDP2011 OVDPOptional Voluntary Disclosure LetterOptional Voluntary Disclosure Letter

AfterAfter Preclearance,Preclearance, thethe taxpayertaxpayer hashas 3030 daysdays toto provideprovide ananOptionalOptional VoluntaryVoluntary DisclosureDisclosure LetterLetter thatthat containscontainsinformationinformation aboutabout thethe foreignforeign accountsaccounts includingincluding butbut notnotlimitedlimited toto::limitedlimited toto::

–– InformationInformation onon accountsaccounts oror assetsassets thatthat taxpayertaxpayer hashas controlcontrol oror areare isisbeneficialbeneficial ownerowner ofof thethe accountaccount oror assetasset.. TheThe OVDIOVDI requiresrequires taxpayerstaxpayerstoto listlist anyany andand allall financialfinancial institutionsinstitutions andand thethe countrycountry wherewhere thetheinstitutioninstitution isis located,located, datesdates thethe accountsaccounts werewere openedopened and/orand/or closed,closed,andand pointpoint ofof contactcontact atat eacheach financialfinancial institutioninstitution

–– AnAn explanationexplanation ofof allall faceface toto faceface meetings,meetings, andand anyany otherothercommunicationscommunications regardingregarding thethe accountsaccounts oror assetsassets withwith thethe financialfinancialinstitution(s)institution(s) AlsoAlso includedincluded areare faceface toto faceface meetingsmeetings ororinstitution(s)institution(s).. AlsoAlso includedincluded areare faceface toto faceface meetingsmeetings ororcommunicationscommunications regardingregarding thethe accountsaccounts oror assetsassets withwith independentindependentadvisors/investmentadvisors/investment managersmanagers notnot fromfrom thethe financialfinancial institution(s)institution(s)wherewhere thethe fundsfunds areare heldheld..

Next,Next, anan OVDIOVDI PackagePackage mustmust bebe submittedsubmitted byby 88//3131//1111

15


2011 OVDI Voluntary Disclosure 2011 OVDI Voluntary Disclosure PackagePackage

CopiesCopies ofof originallyoriginally filedfiled taxtax returnsreturns forfor allall yearsyears

AmendedAmended returnsreturns withwith applicableapplicable schedulesschedules ofof thethe amountamountandand typetype ofof previouslypreviously unreportedunreported incomeincome fromfrom thethe accountaccountypyp p yp y pporor entityentity (e(e..gg..,, ScheduleSchedule BB forfor interestinterest andand dividends,dividends,ScheduleSchedule DD forfor capitalcapital gainsgains andand losses,losses, ScheduleSchedule EE forforincomeincome fromfrom partnerships,partnerships, SS corporations,corporations, estatesestates oror trusts)trusts)

FBARsFBARs forfor foreignforeign accountsaccounts maintainedmaintained duringduring calendarcalendar yearsyearscoveredcovered byby thethe voluntaryvoluntary disclosuredisclosure and/orand/or copiescopies ofofpreviouslypreviously filedfiled FBARsFBARs

CopCop ofof signedsigned OffshoreOffshore Vol ntarVol ntar Disclos reDisclos re LetterLetterCopyCopy ofof signedsigned OffshoreOffshore VoluntaryVoluntary DisclosureDisclosure LetterLetter

PaymentPayment ofof thethe tax,tax, interest,interest, accuracyaccuracy--relatedrelated penalty,penalty, and,and,ifif applicable,applicable, thethe failurefailure toto filefile andand failurefailure toto paypay penaltiespenalties(plus(plus FormsForms 433433--AA andand 433433--BB ifif unableunable toto paypay inin full)full)


ForeignForeign AccountAccount oror AssetAsset StatementsStatements (NEW(NEW FORM)FORM) forfor eacheachpreviouslypreviously undisclosedundisclosed foreignforeign accountaccount oror assetasset

PenaltyPenalty ComputationComputation WorksheetWorksheet (NEW(NEW FORM)FORM) signedsigned byby thethePenaltyPenalty ComputationComputation WorksheetWorksheet (NEW(NEW FORM)FORM) signedsigned byby thetheapplicantapplicant andand thethe applicant’sapplicant’s representative,representative, ifif thetheapplicantapplicant isis represented,represented, settingsetting forthforth::

–– determinationdetermination ofof thethe aggregateaggregate highesthighest accountaccount balancebalanceofof thethe undisclosedundisclosed offshoreoffshore accountsaccounts

–– fairfair marketmarket valuevalue ofof foreignforeign assets,assets, andand

penaltpenalt comp tationcomp tation–– penaltypenalty computationcomputation

ProperlyProperly completedcompleted andand signedsigned agreementsagreements toto extendextend thetheperiodperiod ofof timetime toto assessassess taxtax (including(including taxtax penalties)penalties) andand totoassessassess FBARFBAR penaltiespenalties

16



IfIf highesthighest aggregateaggregate accountaccount balancebalance exceedsexceeds $$11 millionmillion ininanyany year,year, submitsubmit Foreign Financial Institution Statement(NEW(NEW FORM)FORM) forfor eacheach foreignforeign financialfinancial institutioninstitution withwith(( )) ggwhichwhich thethe taxpayertaxpayer hadhad undisclosedundisclosed accountsaccounts orortransactionstransactions

IfIf highesthighest aggregateaggregate accountaccount balancebalance exceedsexceeds $$500500,,000000 ininanyany year,year, submitsubmit copiescopies ofof offshoreoffshore financialfinancial accountaccountstatementsstatements reflectingreflecting allall accountaccount activityactivity forfor eacheach taxtax yearyearwithwith anan explanationexplanation ofof anyany differencesdifferences betweenbetween thetheamountsamounts reportedreported onon thethe accountaccount statementsstatements andand thethe taxtaxppreturnsreturns

IfIf highesthighest aggregateaggregate accountaccount balancebalance isis lessless thanthan $$500500,,000000inin anyany year,year, copiescopies ofof offshoreoffshore financialfinancial accountaccountstatementsstatements reflectingreflecting allall accountaccount activityactivity forfor eacheach taxtax yearyearmustmust bebe availableavailable uponupon requestrequest

2011 OVDI Voluntary Disclosure 2011 OVDI Voluntary Disclosure Package Package –– Entity IssuesEntity Issues

StatementStatement identifyingidentifying allall offshoreoffshore entitiesentities forfor thethe taxtax yearsyearscoveredcovered byby thethe voluntaryvoluntary disclosure,disclosure, whetherwhether heldheld directlydirectlyoror indirectly,indirectly, andand thethe shareshare ofof ownershipownership oror controlcontrol forfor eacheachentityentityentityentity

ForFor accountsaccounts oror assetsassets heldheld inin thethe namename ofof aa foreignforeign entity,entity,completecomplete andand accurateaccurate amendedamended (or(or original,original, ifif delinquent)delinquent)informationinformation returnsreturns requiredrequired toto bebe filed,filed, including,including, butbut notnotlimitedlimited to,to, FormsForms 35203520,, 35203520--A,A, 54715471,, 54725472,, 926926 andand 88658865forfor allall taxtax yearsyears coveredcovered byby thethe voluntaryvoluntary disclosuredisclosure

IfIf requestingrequesting waiverwaiver ofof thethe informationinformation reportingreportingq gq g p gp grequirementrequirement onon thethe basisbasis thatthat thethe entityentity hadhad nono purposepurposeotherother thanthan toto concealconceal thethe taxpayer’staxpayer’s ownershipownership ofof assets,assets,submitsubmit aa completedcompleted andand signedsigned StatementStatement onon DissolvedDissolvedEntitiesEntities (available(available atat IRSIRS website)website)

17


PFICsPFICs

ForFor disclosuresdisclosures involvinginvolving PassivePassive ForeignForeignInvestmentInvestment CompanyCompany (PFIC)(PFIC) issues,issues, provideprovideaa statementstatementaa statementstatement

–– whetherwhether thethe amendedamended returnsreturns involveinvolve PFICPFIC issuesissues duringduringthethe taxtax yearsyears coveredcovered byby thethe 20112011 OVDIOVDI period,period, andand ifif so,so,

–– whetherwhether thethe applicantapplicant chooseschooses toto electelect thethe alternativealternative totothethe statutorystatutory PFICPFIC computationcomputation thatthat resolvesresolves PFICPFIC issuesissuesonon aa basisbasis thatthat isis consistentconsistent withwith thethe markmark--toto--marketmarket(MTM)(MTM) methodologymethodology authorizedauthorized inin IRCIRC §§ 12961296 butbut doesdoes(MTM)(MTM) methodologymethodology authorizedauthorized inin IRCIRC §§ 12961296 butbut doesdoesnotnot requirerequire completecomplete reconstructionreconstruction ofof historicalhistorical datadata (A(Adescriptiondescription ofof thisthis alternativealternative methodmethod isis includedincluded inin FAQFAQ1010))

2011 OVDI Examinations2011 OVDI ExaminationsFAQ 26 and 27FAQ 26 and 27

FollowingFollowing receiptreceipt ofof thethe completecomplete VoluntaryVoluntaryDisclosureDisclosure Package,Package, aa formalformal examinationexamination isis notnotcontemplatedcontemplated;; although,although, thethe disclosuredisclosure willwill bebeco te platedco te plated;; alt oug ,alt oug , t et e d sclosu ed sclosu e w llw ll bebeassignedassigned toto aa civilcivil examinerexaminer toto certifycertify thethe taxtaxreturnsreturns forfor accuracy,accuracy, completenesscompleteness andandcorrectnesscorrectness

TheThe examinerexaminer maymay askask anyany relevantrelevant questions,questions,requestrequest anyany relevantrelevant documents,documents, andand contactcontactthirdthird partiesparties ifif necessarynecessary withoutwithout convertingconverting thethethirdthird parties,parties, ifif necessary,necessary, withoutwithout convertingconverting thethecertificationcertification toto anan examinationexamination

ThereThere areare nono appealappeal rightsrights withwith respectrespect toto thetheOVDIOVDI determinationdetermination

18


2011 OVDI 2011 OVDI Exchange Rate Exchange Rate –– FAQ 31FAQ 31

ConvertConvert foreignforeign currencycurrency byby usingusing thetheforeignforeign currencycurrency exchangeexchange raterate atat thethe endendofof thethe yearyearofof thethe yearyear

InIn valuingvaluing currencycurrency ofof aa countrycountry thatthat usesusesmultiplemultiple exchangeexchange rates,rates, useuse thethe raterate thatthatwouldwould applyapply ifif thethe currencycurrency inin thethe accountaccountwerewere convertedconverted intointo UnitedUnited StatesStates dollarsdollarstt thth ll ff thth l dl datat thethe closeclose ofof thethe calendarcalendar yearyear

EachEach accountaccount isis toto bebe valuedvalued separatelyseparately

2011 OVDI 2011 OVDI CalculationsCalculations

NoNo dede minimisminimis unreportedunreported incomeincome exceptionexception -- NoNoamountamount ofof unreportedunreported incomeincome isis consideredconsidered dedeminimisminimis forfor purposespurposes ofof determiningdetermining whetherwhetherss oo pu posespu poses oo dete gdete g w et ew et etherethere hashas beenbeen taxtax nonnon--compliancecompliance withwith respectrespecttoto anan accountaccount oror assetasset andand whetherwhether thethe accountaccount ororassetasset shouldshould bebe includedincluded inin thethe basebase forfor thethe 2525percentpercent penaltypenalty (FAQ(FAQ 3333))

PrePre--20032003 GainsGains -- GainGain realizedrealized onon aa foreignforeigntransactiontransaction occurringoccurring beforebefore 20032003 isis notnot includibleincludibletransactiontransaction occurringoccurring beforebefore 20032003 isis notnot includibleincludibleinin thethe basebase forfor thethe 2525%% offshoreoffshore penaltypenalty unlessunlessthethe proceedsproceeds remainedremained offshoreoffshore (FAQ(FAQ 3434))

19


2011 OVDI 2011 OVDI Calculations Biggest ProblemCalculations Biggest ProblemIncludibleIncludible AssetsAssets –– (FAQ(FAQ 3535))

–– AllAll assetsassets directlydirectly ownedowned byby thethe taxpayer,taxpayer, includingincludingfi i lfi i l tt h ldih ldi hh itiiti ththfinancialfinancial accountsaccounts holdingholding cash,cash, securitiessecurities oror otherothercustodialcustodial assetsassets;; tangibletangible assetsassets suchsuch asas realreal estateestate ororartart;; andand intangibleintangible assetsassets suchsuch asas patentspatents oror stockstock ororotherother interestsinterests inin aa UU..SS.. oror foreignforeign businessbusiness

–– IfIf assetsassets areare indirectlyindirectly heldheld oror controlledcontrolled byby thethe taxpayertaxpayerthroughthrough anan entity,entity, thethe penaltypenalty maymay bebe appliedapplied toto thethetaxpayer’staxpayer’s interestinterest inin thethe entityentity or,or, ifif thethe IRSIRS determinesdeterminesth tth t thth tittit ii ltlt ii ff thththatthat thethe entityentity isis anan alteralter egoego oror nomineenominee ofof thethetaxpayer,taxpayer, toto thethe taxpayer’staxpayer’s interestinterest inin thethe underlyingunderlyingassetsassets


IncludibleIncludible AssetsAssets –– (FAQ(FAQ 3636))

–– IfIf foreignforeign assetsassets werewere acquiredacquired withwith fundsfunds thatthat werewerebj tbj t tt UU SS tt b tb t hi hhi h hh tt ididsubjectsubject toto UU..SS.. taxtax butbut onon whichwhich nono suchsuch taxtax waswas paid,paid,

thethe 2525%% penaltypenalty wouldwould applyapply eveneven ifif thethe assetsassets areare notnotproducingproducing currentcurrent incomeincome

–– IfIf acquiredacquired withwith afterafter--taxtax fundsfunds oror fromfrom fundsfunds thatthat werewerenotnot subjectsubject toto UU..SS.. taxationtaxation andand thethe assetsassets havehave notnot yetyetproducedproduced anyany income,income, therethere hashas beenbeen nono UU..SS.. taxabletaxableeventevent andand nono reportingreporting obligationobligation toto disclosedisclose.. BecauseBecausethth hh tt bb tt lili thth 2525%% ltlttherethere hashas notnot beenbeen taxtax noncompliance,noncompliance, thethe 2525%% penaltypenaltywouldwould notnot applyapply toto thosethose assetsassets

–– TheThe taxpayertaxpayer willwill bebe requiredrequired toto reportreport anyany currentcurrentincomeincome derivedderived oror gaingain fromfrom itsits dispositiondisposition atat suchsuch timetimeinin thethe futurefuture whenwhen realizedrealized

20



SignatureSignature AuthorityAuthority (FAQ(FAQ 3838)) –– aa taxpayertaxpayer havinghavingsignaturesignature authorityauthority overover anan accountaccount willwill bebe liableliable forforthethe 2525%% penaltypenalty ifif therethere isis unreportedunreported incomeincome fromfrom thethethethe 2525%% penaltypenalty ifif therethere isis unreportedunreported incomeincome fromfrom thetheaccountaccount andand theythey areare determineddetermined toto havehave aa directdirect ororindirectindirect beneficialbeneficial interestinterest inin thethe account,account, ifif thetheaccountaccount

–– IsIs heldheld inin thethe namename ofof aa relatedrelated person,person, suchsuch asas aa familyfamilymembermember oror aa corporationcorporation controlledcontrolled byby thethe taxpayertaxpayer

–– IsIs heldheld inin thethe namename ofof aa foreignforeign corporationcorporation oror trusttrust forfor whichwhich–– IsIs heldheld inin thethe namename ofof aa foreignforeign corporationcorporation oror trusttrust forfor whichwhichthethe taxpayertaxpayer hadhad aa TitleTitle 2626 reportingreporting obligation,obligation, oror

–– WasWas relatedrelated inin somesome otherother wayway toto thethe taxpayer’staxpayer’s taxtaxnoncompliancenoncompliance

–– However,However, ifif therethere isis nono unreportedunreported incomeincome withwith respectrespect toto thetheaccount,account, nono penaltypenalty willwill bebe imposedimposed

2011 OVDI Calculations2011 OVDI Calculations

MultipleMultiple AccountholdersAccountholders –– (FAQ(FAQ 4040//4141)) ––

–– OnlyOnly oneone 2525%% penaltypenalty willwill bebe appliedapplied withwith respectrespect totovoluntaryvoluntary disclosuresdisclosures relatingrelating toto thethe samesame accountaccountvoluntaryvoluntary disclosuresdisclosures relatingrelating toto thethe samesame accountaccount

–– EachEach taxpayertaxpayer whowho makesmakes aa voluntaryvoluntary disclosuredisclosure willwill bebe liableliableforfor thethe 2525%% penaltypenalty onon theirtheir percentagepercentage ofof thethe highesthighestaggregateaggregate balancebalance inin thethe accountaccount

–– IfIf therethere areare multiplemultiple individualsindividuals withwith signaturesignature authorityauthority overoveraa trusttrust account,account, thethe penaltypenalty maymay bebe allocatedallocated amongamong thethetaxpayerstaxpayers withwith beneficialbeneficial ownershipownership makingmaking thethe voluntaryvoluntarydisclosuresdisclosures inin anyany wayway theythey choosechoose

–– TheThe reportingreporting requirementsrequirements forfor filingfiling anan FBAR,FBAR, however,however, dodonotnot changechange -- everyevery individualindividual whowho isis requiredrequired toto filefile anan FBARFBARmustmust filefile oneone

21


2011 OVDI 2011 OVDI Taxpayer Representatives Taxpayer Representatives –– FAQ 47FAQ 47

IfIf aa taxpayertaxpayer seeksseeks thethe adviceadvice ofof aa taxtax practitioner,practitioner, thethepractitionerpractitioner mustmust exerciseexercise duedue diligencediligence inin determiningdetermining thethecorrectnesscorrectness ofof anyany oraloral oror writtenwritten representationsrepresentations mademade totothethe clientclient aboutabout thethe programprogram andand thethe implicationsimplications forfor thatthatthethe clientclient aboutabout thethe programprogram andand thethe implicationsimplications forfor thatthattaxpayertaxpayer ofof goinggoing forwardforward

IfIf thethe taxpayertaxpayer decidesdecides toto proceedproceed withwith thethe disclosure,disclosure, thethepractitionerpractitioner mustmust exerciseexercise duedue diligencediligence inin determiningdetermining thethecorrectnesscorrectness ofof anyany oraloral oror writtenwritten representationsrepresentations thatthat thethepractitionerpractitioner makesmakes duringduring thethe representationrepresentation

AA practitionerpractitioner whosewhose clientclient declinesdeclines toto makemake fullfull disclosuredisclosureppofof thethe existenceexistence of,of, oror anyany taxabletaxable incomeincome from,from, aa foreignforeignfinancialfinancial account,account, maymay notnot prepareprepare aa currentcurrent oror futurefutureincomeincome taxtax returnreturn forfor thatthat taxpayertaxpayer withoutwithout beingbeing ininviolationviolation ofof CircularCircular 230230

No Appeals from 2011 OVDI ? No Appeals from 2011 OVDI ? (FAQ 49)(FAQ 49)

TheThe OVDIOVDI penaltypenalty frameworkframework andand thethe agreementagreementtoto limitlimit taxtax exposureexposure toto yearsyears 20032003 throughthrough 20102010areare “package“package terms”terms” underunder thethe 20112011 OVDIOVDI.. IfIf anyanya ea e pac agepac age te ste s u deu de t et e 00 OVOV .. a ya ypartpart ofof thethe offshoreoffshore penaltypenalty isis unacceptableunacceptable totothethe taxpayer,taxpayer, thethe casecase willwill bebe examinedexamined andand allallapplicableapplicable penaltiespenalties willwill bebe imposedimposed (see(see alsoalso FAQFAQ5151)) SeeSee alsoalso OptOpt OutOut discussiondiscussion belowbelow

AfterAfter aa fullfull examination,examination, anyany taxtax andand penaltiespenaltiesimposedimposed byby anan examinationexamination maymay bebe appealedappealed (but(butimposedimposed byby anan examinationexamination maymay bebe appealedappealed (but(butthethe OVDIOVDI civilcivil resolutionresolution willwill notnot bebe availableavailable ininAppeals)Appeals)

22


No 2011 OVDI Examiner No 2011 OVDI Examiner Discretion (FAQ 50)Discretion (FAQ 50)

TheThe OVDIOVDI examinersexaminers dodo notnot havehave discretiondiscretion totosettlesettle casescases forfor amountsamounts lessless thanthan whatwhat isisproperlyproperly duedue andand owingowingproperlyproperly duedue andand owingowing

However,However, underunder nono circumstancescircumstances willwill taxpayerstaxpayersbebe requiredrequired toto paypay aa penaltypenalty greatergreater thanthan whatwhattheythey wouldwould otherwiseotherwise bebe liableliable forfor underunder thethemaximummaximum (willful)(willful) penaltiespenalties imposedimposed underunderexistingexisting statutesstatutes.. NoNo nonnon--willfulwillful penaltiespenalties willwill bebeconsideredconsidered unlessunless thethe taxpayertaxpayer optsopts outout ofof thetheprogramprogram

Reduced 5% OVDI Penalty Reduced 5% OVDI Penalty (FAQ 52)(FAQ 52)

55%% OVDIOVDI penaltypenalty isis availableavailable toto::

–– TaxpayersTaxpayers whowho meetmeet allall ofof thethe followingfollowing conditionsconditions::

TheyThey diddid notnot openopen oror causecause thethe accountaccount toto bebe openedopened(unless(unless thethe bankbank requiredrequired thatthat aa newnew accountaccount bebe opened,opened,ratherrather thanthan allowingallowing aa changechange inin ownershipownership ofof anan existingexistingaccount,account, uponupon thethe deathdeath ofof thethe ownerowner ofof thethe account)account);; andand

TheyThey havehave exercizedexercized minimalminimal contactcontact withwith thethe accountaccount andandhavehave notnot withdrawnwithdrawn moremore thanthan $$11,,000000 inin anyany yearyear coveredcoveredbyby thethe voluntaryvoluntary disclosuredisclosure exceptexcept forfor aa withdrawalwithdrawal closingclosingthethe accountaccount andand transferringtransferring thethe fundsfunds toto anan accountaccount inin thetheUnitedUnited StatesStates andand onlyonly accountaccount earningearning escapedescaped taxationtaxation;; oror

–– ForeignForeign residentsresidents andand whowho werewere unawareunaware theythey werewere UU..SS..citizenscitizens (note,(note, inin thisthis case,case, foreignforeign assetsassets areare notnot includedincluded inin thethepenaltypenalty base)base);; oror

–– ForeignForeign residentsresidents whowho paidpaid taxtax inin theirtheir homehome countrycountry (note,(note, ininthisthis case,case, foreignforeign assetsassets areare notnot includedincluded inin thethe penaltypenalty base)base)

23


Reduced 12.5% OVDI Penalty Reduced 12.5% OVDI Penalty (FAQ 53)(FAQ 53)

–– TaxpayersTaxpayers whosewhose highesthighest aggregateaggregate accountaccountbalancebalance (including(including thethe fairfair marketmarket valuevalue ofofassetsassets inin undisclosedundisclosed offshoreoffshore entitiesentities andand thetheassetsassets u d sclosedu d sclosed o s o eo s o e e t t ese t t es a da d t et efairfair marketmarket valuevalue ofof anyany foreignforeign assetsassets thatthatwerewere eithereither acquiredacquired withwith improperlyimproperly untaxeduntaxedfundsfunds oror producedproduced improperlyimproperly untaxeduntaxed income)income)inin eacheach ofof thethe yearsyears coveredcovered byby thethe 20112011 OVDIOVDIisis lessless thanthan $$7575,,000000 willwill qualifyqualify forfor aa 1212..55%%offshoreoffshore penaltypenalty

–– ExaminersExaminers havehave nono authorityauthority toto negotiatenegotiate aadifferentdifferent offshoreoffshore penaltypenalty percentagepercentage

No 2009 OVDP Taxpayer Left No 2009 OVDP Taxpayer Left Behind (FAQ 52 and 53)Behind (FAQ 52 and 53)

TaxpayersTaxpayers whowho participatedparticipated inin thethe 20092009 OVDPOVDPwhosewhose casescases havehave beenbeen resolvedresolved andand closedclosed withwith aaFormForm 906906 closingclosing agreementagreement whowho believebelieve thethe factsfactsoo 906906 clos gclos g ag ee e tag ee e t w ow o bel evebel eve t et e actsactsofof theirtheir casecase qualifyqualify themthem forfor thethe 55%% oror thethe 1212..55%%reducedreduced penaltypenalty criteriacriteria ofof thethe 20112011 OVDI,OVDI, butbutpaidpaid aa higherhigher penaltypenalty amountamount underunder thethe 20092009OVDPOVDP shouldshould provideprovide aa statementstatement toto thisthiseffecteffect

–– includingincluding allall pertinentpertinent contactcontact informationinformation (name,(name,address,address, SSN,SSN, home/cellhome/cell phonephone numbers),numbers), thethe namename ofofthethe RevenueRevenue AgentAgent assignedassigned toto theirtheir case,case, andand aa copycopy ofoftheirtheir closingclosing agreementagreement

–– toto InternalInternal RevenueRevenue Service,Service, 36513651 SS.. II HH 3535 StopStop 43014301AUSC,Austin,AUSC,Austin, TXTX 7874178741 AttnAttn:: 20092009 OVDPOVDP DeterminationDetermination

24


“Opting“Opting--Out” of the 2011 OVDI Out” of the 2011 OVDI (FAQ 51)(FAQ 51)

IfIf thethe offshoreoffshore penaltypenalty isis unacceptableunacceptable toto aataxpayer,taxpayer, theythey mustmust submitsubmit anan irrevocableirrevocablewrittenwritten electionelection toto withdrawwithdraw fromfrom OVDIOVDIwrittenwritten electionelection toto withdrawwithdraw fromfrom OVDIOVDI

TheThe examinerexaminer andand managermanager willwill followfollowproceduresprocedures inin thethe OptOpt OutOut andand RemovalRemovalGuideGuide forfor thethe 20092009 OVDPOVDP andand 20112011 OVDIOVDI(attached)(attached) afterafter notificationnotification ofof aa taxpayer’staxpayer’sd id i tt tt ttdesiredesire toto optopt outout

“Opting Out” of the 2011 OVDI “Opting Out” of the 2011 OVDI (FAQ 51)(FAQ 51)

AnAn IRSIRS formform letterletter 47284728 isis sentsent givinggivingtaxpayertaxpayer 2020 daysdays toto respondrespond withwithtaxpayer’staxpayer’s positionpositiontaxpayer’staxpayer’s positionposition

IRSIRS examinerexaminer providesprovides aa summarysummary ofof thethecasecase andand recommendationrecommendation toto aa“centralized“centralized reviewreview committee”committee” inin DCDC

TheThe centralizedcentralized reviewreview committeecommittee isisTheThe centralizedcentralized reviewreview committeecommittee isiscomposedcomposed ofof managersmanagers

TheThe centralizedcentralized reviewreview committeecommittee decidesdecidesthethe scopescope ofof thethe auditaudit oror “other“othertreatment”treatment”

25


General Observations re the 2011 General Observations re the 2011 OVDIOVDI

OverviewOverview ofof thethe 20112011 OVDIOVDI::

–– NoNo examinerexaminer discretiondiscretion

EmphasizesEmphasizes maximummaximum penaltiespenalties–– EmphasizesEmphasizes maximummaximum penaltiespenalties

–– IncludesIncludes realreal estate,estate, foreignforeign entities,entities, etcetc.. inin thethe penaltypenaltycalculationcalculation –– especiallyespecially ifif assets/propertyassets/property acquiredacquired withwithfundsfunds subjectsubject toto USUS taxationtaxation –– FAQFAQ 3636

–– NoNo dede minimusminimus incomeincome exceptionsexceptions

AllAll relevantrelevant informationinformation mustmust bebe submittedsubmitted byby AugustAugust 3131,,20112011 ithith aa limitedlimited 9090 dada e tensione tension SeeSee FAQFAQ 2525 1120112011 withwith aa limitedlimited 9090 dayday extensionextension -- SeeSee FAQFAQ 2525..11

ConsiderConsider utilizingutilizing estimatesestimates ifif actualactual informationinformation isis notnotavailableavailable and,and, ifif usingusing estimates,estimates, clearlyclearly disclosedisclose andandidentify,identify, inin writing,writing, thatthat estimatesestimates areare beingbeing utilizedutilized


ForFor 20092009 OVDPOVDP participants,participants, FAQFAQ 3535 reasonablereasonable causecauseconsiderationsconsiderations havehave beenbeen eliminatedeliminated andand replacedreplaced inin currentcurrentfieldfield examinationsexaminations byby FAQFAQ 5050 optopt outout rulesrules

TaxTax yearyear 20102010 isis includedincluded inin thethe 20112011 OVDPOVDP penaltypenaltycalculationcalculation (both(both accuracyaccuracy andand miscellaneous)miscellaneous) eveneven thoughthoughtaxpayerstaxpayers maymay notnot havehave filedfiled aa 20102010 returnreturn

MultipleMultiple accountsaccounts -- TheThe accountaccount withwith nono incomeincome taxtax issueissue isisunrelatedunrelated toto thethe taxpayer’staxpayer’s taxtax noncompliance,noncompliance, soso nonopenaltypenalty willwill bebe imposedimposed withwith respectrespect toto thatthat accountaccount (FAQ(FAQ4646))

PFICPFIC ElectionElection –– BeBe carefulcareful regardingregarding thethe PFICPFIC electionelection (FAQ(FAQ1010))

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ContentsContents ofof safesafe depositdeposit boxesboxes –– ifif offshoreoffshore assetsassets werewereacquiredacquired withwith fundsfunds thatthat werewere subjectsubject toto USUS taxtax butbut ononwhichwhich nono suchsuch taxtax waswas paid,paid, thethe OVDIOVDI penaltypenalty wouldwould applyapplyregardlessregardless ofof whetherwhether thethe assetsassets areare producingproducing currentcurrentregardlessregardless ofof whetherwhether thethe assetsassets areare producingproducing currentcurrentincomeincome.. AssumingAssuming thatthat thethe assetsassets werewere acquiredacquired withwith afteraftertaxtax fundsfunds oror fromfrom fundsfunds thatthat werewere notnot subjectsubject toto USUStaxation,taxation, ifif thethe assetsassets havehave notnot yetyet producedproduced anyany income,income,therethere hashas beenbeen nono USUS taxabletaxable eventevent andand nono reportingreportingobligationobligation toto disclosedisclose (see(see FAQFAQ 3636))

WhatWhat toto expectexpect forfor thosethose optingopting--outout ofof thethe 20092009 OVDPOVDP oror thethe20112011 OVDI?OVDI? F llF ll e aminations?e aminations? HoHo manman tata ears?ears?20112011 OVDI?OVDI? FullFull examinations?examinations? HowHow manymany taxtax years?years?TaxpayerTaxpayer andand PreparerPreparer interviews?interviews? CriminalCriminal investigations?investigations?TaxpayerTaxpayer willwill remainremain withinwithin CriminalCriminal Investigation’sInvestigation’sVoluntaryVoluntary DisclosureDisclosure PracticePractice (FAQ(FAQ 5151))


DuplicationDuplication ofof fundsfunds transferredtransferred fromfrom oneone accountaccounttoto anotheranother shouldshould bebe removedremoved beforebefore calculatingcalculatingthethe 2525%% OVDIOVDI penaltypenalty (FAQ(FAQ 3636))t et e 55%% OVOV pe altype alty ( Q( Q 3636))

ConsiderationConsideration ofof notnot usingusing OVDIOVDI

–– “Quiet”“Quiet” filingfiling ofof amended/delinquentamended/delinquent returnsreturns –– aa viableviableoption?option?

–– ComplianceCompliance goinggoing forwardforward onlyonly –– aa viableviable option?option?

FAQFAQ 1717 andand FAQFAQ 3838 eacheach applyapply toto “signature“signatureFAQFAQ 1717 andand FAQFAQ 3838 eacheach applyapply toto signaturesignatureauthority”authority” FBARsFBARs butbut seemseem somewhatsomewhatirreconcilableirreconcilable

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Asset/propertyAsset/property inclusionsinclusions -- taxtax noncompliancenoncompliance includesincludesfailurefailure toto reportreport incomeincome fromfrom thethe assets,assets, asas wellwell asas failurefailuretoto paypay USUS taxtax thatthat waswas duedue withwith respectrespect toto thethe fundsfunds usedused totoacquireacquire thethe assetasset (FAQ(FAQ 3535))acquireacquire thethe assetasset (FAQ(FAQ 3535))

IfIf therethere areare questionsquestions rere howhow toto makemake aa 20112011 OVDIOVDI voluntaryvoluntarydisclosuredisclosure oror whatwhat penaltiespenalties apply?apply?

–– FBARFBAR HotlineHotline atat 800800..800800..28772877 (Select(Select optionoption 22))

–– YouYou cancan alsoalso submitsubmit writtenwritten questionsquestions aboutabout thethe FBARFBARrulesrules byby ee--mailmail addressedaddressed toto FBARQuestions@[email protected]

20112011 OVDIOVDI HOTLINEHOTLINE forfor practitionerspractitioners –– 267267..941941..00200020 ororcontactcontact thethe nearestnearest IRSIRS CriminalCriminal InvestigationInvestigation officeoffice

PostPost AugustAugust 3131,, 20112011 –– WhatWhat toto expect?expect?

Potential Civil Penalties That Could Potential Civil Penalties That Could ApplyApply

FBARFBAR -- thethe civilcivil penaltypenalty forfor willfullywillfully failingfailing toto filefile anan FBARFBARcancan bebe asas highhigh asas thethe greatergreater ofof $$100100,,000000 oror 5050 percentpercent ofofthethe totaltotal balancebalance ofof thethe foreignforeign accountaccount perper violationviolation.. SeeSee3131 UU SS CC 53215321(a)((a)(55)) NonNon willfulwillful violationsviolations thatthat thethe IRSIRS3131 UU..SS..CC.. 53215321(a)((a)(55)).. NonNon--willfulwillful violationsviolations thatthat thethe IRSIRSdeterminesdetermines werewere notnot duedue toto reasonablereasonable causecause areare subjectsubject totoaa $$1010,,000000 penaltypenalty perper violationviolation

FormForm 35203520,, AnnualAnnual ReturnReturn toto ReportReport TransactionsTransactions WithWithForeignForeign TrustsTrusts andand ReceiptReceipt ofof CertainCertain ForeignForeign GiftsGifts –– IRCIRC60486048 andand 60396039FF -- thethe penaltypenalty forfor failingfailing toto filefile eacheach oneone ofofthesethese informationinformation returns,returns, oror forfor filingfiling anan incompleteincompleteret rnret rn isis 3535%% ofof thethe grossgross reportablereportable amo ntamo nt e cepte cept forforreturn,return, isis 3535%% ofof thethe grossgross reportablereportable amount,amount, exceptexcept forforreturnsreturns reportingreporting gifts,gifts, wherewhere thethe penaltypenalty isis 55%% percentpercent ofofthethe giftgift perper month,month, upup toto aa maximummaximum penaltypenalty ofof 2525%% ofof thethegiftgift

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FormForm 35203520--A,A, InformationInformation ReturnReturn ofof ForeignForeign TrustTrust WithWith aaUU..SS.. OwnerOwner -- TaxpayersTaxpayers mustmust alsoalso reportreport ownershipownership interestsinterestsinin foreignforeign trusts,trusts, byby UnitedUnited StatesStates personspersons withwith variousvariousinterestsinterests inin andand powerspowers overover thosethose truststrusts underunder IRCIRCinterestsinterests inin andand powerspowers overover thosethose truststrusts underunder IRCIRC60486048(b)(b)..TheThe penaltypenalty forfor failingfailing toto filefile eacheach oneone ofof thesetheseinformationinformation returnsreturns oror forfor filingfiling anan incompleteincomplete return,return, isis 55%%ofof thethe grossgross valuevalue ofof trusttrust assetsassets determineddetermined toto bebe ownedowned bybythethe UnitedUnited StatesStates personperson

FormForm 54715471,, InformationInformation ReturnReturn ofof UU..SS.. PersonsPersons withwith RespectRespecttoto CertainCertain ForeignForeign CorporationsCorporations -- UnderUnder IRCIRC 60356035,, 60386038andand 60466046 TheThe penaltpenalt forfor failingfailing toto filefile eacheach oneone ofof thesetheseandand 60466046..TheThe penaltypenalty forfor failingfailing toto filefile eacheach oneone ofof thesetheseinformationinformation returnsreturns isis $$1010,,000000,, withwith anan additionaladditional $$1010,,000000addedadded forfor eacheach monthmonth thethe failurefailure continuescontinues beginningbeginning 9090daysdays afterafter thethe taxpayertaxpayer isis notifiednotified ofof thethe delinquency,delinquency, upup totoaa maximummaximum ofof $$5050,,000000 perper returnreturn


FormForm 54725472,, InformationInformation ReturnReturn ofof aa 2525%% ForeignForeign--OwnedOwned UU..SS..CorporationCorporation oror aa ForeignForeign CorporationCorporation EngagedEngaged inin aa UU..SS..TradeTrade oror BusinessBusiness -- IRCIRC 60386038AA andand 60386038CC -- thethe penaltypenalty forforfailingfailing toto filefile thesethese informationinformation returnsreturns oror toto keepkeep certaincertainfailingfailing toto filefile thesethese informationinformation returns,returns, oror toto keepkeep certaincertainrecordsrecords regardingregarding reportablereportable transactions,transactions, isis $$1010,,000000 plusplus ananadditionaladditional $$1010,,000000 forfor eacheach monthmonth thethe failurefailure continuescontinuesbeginningbeginning 9090 daysdays afterafter thethe taxpayertaxpayer isis notifiednotified ofof thethedelinquency,delinquency, upup toto aa maximummaximum ofof $$5050,,000000 perper returnreturn

FormForm 926926,, ReturnReturn byby aa UU..SS.. TransferorTransferor ofof PropertyProperty toto aaForeignForeign CorporationCorporation -- IRCIRC 60386038BB -- thethe penaltypenalty forfor failingfailing totofilefile eacheach oneone ofof thesethese informationinformation ret rnsret rns isis tenten percentpercent ofoffilefile eacheach oneone ofof thesethese informationinformation returnsreturns isis tenten percentpercent ofofthethe valuevalue ofof thethe propertyproperty transferred,transferred, upup toto aa maximummaximum ofof$$100100,,000000 perper return,return, withwith nono limitlimit ifif thethe failurefailure toto reportreportthethe transfertransfer waswas intentionalintentional

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FormForm 88658865,, ReturnReturn ofof UU..SS.. PersonsPersons WithWith RespectRespect toto CertainCertainForeignForeign PartnershipsPartnerships -- IRCIRC 60386038,, 60386038B,B, andand 60466046AA --PenaltiesPenalties includeinclude $$1010,,000000 forfor failurefailure toto filefile eacheach return,return,withwith anan additionaladditional $$1010 000000 addedadded forfor eacheach monthmonth thethe failurefailurewithwith anan additionaladditional $$1010,,000000 addedadded forfor eacheach monthmonth thethe failurefailurecontinuescontinues beginningbeginning 9090 daysdays afterafter thethe taxpayertaxpayer isis notifiednotified ofofthethe delinquency,delinquency, upup toto aa maximummaximum ofof $$5050,,000000 perper return,return,andand tenten percentpercent ofof thethe valuevalue ofof anyany transferredtransferred propertypropertythatthat isis notnot reported,reported, subjectsubject toto aa $$100100,,000000 limitlimit

FraudFraud penaltiespenalties -- IRCIRC 66516651(f)(f) oror 66636663 -- WhereWhere ananunderpaymentunderpayment ofof tax,tax, oror aa failurefailure toto filefile aa taxtax return,return, isis dueduetoto fra dfra d thethe ta pa erta pa er isis liableliable forfor penaltiespenalties thatthat altho ghaltho ghtoto fraud,fraud, thethe taxpayertaxpayer isis liableliable forfor penaltiespenalties that,that, althoughalthoughcalculatedcalculated differently,differently, essentiallyessentially amountamount toto 7575%% ofof thetheunpaidunpaid taxtax


FailureFailure--toto--filefile aa taxtax returnreturn -- IRCIRC 66516651(a)((a)(11)) -- aa penaltypenalty ofof55%% ofof thethe balancebalance due,due, plusplus anan additionaladditional 55%% forfor eacheach monthmonthoror fractionfraction thereofthereof duringduring whichwhich thethe failurefailure continuescontinues maymaybebe imposedimposed upup toto aa maximummaximum ofof 2525%%bebe imposed,imposed, upup toto aa maximummaximum ofof 2525%%

FailureFailure--toto--paypay thethe taxtax shownshown onon thethe returnreturn -- IRCIRC66516651(a)((a)(22)) -- aa penaltypenalty ofof 00..55%% ofof thethe amountamount ofof taxtax shownshown ononthethe return,return, plusplus anan additionaladditional 00..55%% forfor eacheach additionaladditionalmonthmonth oror fractionfraction thereofthereof thatthat thethe amountamount remainsremains unpaid,unpaid,upup toto aa maximummaximum ofof 2525%%

AccuracyAccuracy--relatedrelated penaltypenalty onon underpaymentsunderpayments ofof taxtax -- IRCIRCyy p yp y p yp y66626662 -- dependingdepending uponupon whichwhich componentcomponent ofof thethe accuracyaccuracy--relatedrelated penaltypenalty isis applicable,applicable, aa taxpayertaxpayer maymay bebe liableliable forfor aa2020%% oror 4040%% ofof thethe taxtax underpaymentunderpayment

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HIRE Act of 2010 and FACTAHIRE Act of 2010 and FACTA

President Obama signed the Hiring Incentives to Restore Employment Act (Pub. L. No. 111-14) (“HIRE Act”)( HIRE Act )

HIRE modified provision of the Foreign Account HIRE modified provision of the Foreign Account Tax Compliance Act (“FATCA”)Tax Compliance Act (“FATCA”)

FACTA provisions of the HIRE Act affect 3 areas:

– Increased reporting for individuals with foreign assets

– Substantive changes in U.S. federal income tax law

– Disclosure and compliance issues for foreign financial institutions

FATCAFATCA

Now Foreign Banks must gather Now Foreign Banks must gather information on their customers for theinformation on their customers for theinformation on their customers for the information on their customers for the United States orUnited States or–– Face a 30% withholding on any payment from Face a 30% withholding on any payment from

a U.S. source.a U.S. source.The 30% withholding applies to all of the foreign The 30% withholding applies to all of the foreign banks clients whether U.S. citizens or not.banks clients whether U.S. citizens or not.For Example, a German bank with 90% of its For Example, a German bank with 90% of its deposits held by German citizens and 10% held by deposits held by German citizens and 10% held by U.S. citizens/residents that does not elect to U.S. citizens/residents that does not elect to disclose its accountholder information.disclose its accountholder information.

–– 30% withholding on transactions with U.S. banks or U.S. 30% withholding on transactions with U.S. banks or U.S. securities firms would be required on any funds transfer to the securities firms would be required on any funds transfer to the German Bank. So the German citizen would have to file U.S. German Bank. So the German citizen would have to file U.S. returns to get their money backreturns to get their money back

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FATCA Requires Foreign Banks to FATCA Requires Foreign Banks to Disclose US Taxpayer InformationDisclose US Taxpayer InformationName & Address of U.S. Account Holder;Name & Address of U.S. Account Holder;

The Foreign Account Number;The Foreign Account Number;

The Foreign Account Balance;The Foreign Account Balance;

The Yearly Gross Deposits and Yearly The Yearly Gross Deposits and Yearly Gross Withdrawals from the Foreign Gross Withdrawals from the Foreign AccountAccountAccount.Account.

FATCA FATCA Requires US Taxpayers to Requires US Taxpayers to Disclose Foreign AssetsDisclose Foreign Assets

U.S. Taxpayers with Foreign Financial U.S. Taxpayers with Foreign Financial Assets with values > $50 000Assets with values > $50 000Assets with values > $50,000Assets with values > $50,000–– Now have reporting requirements on their Now have reporting requirements on their

1040 for the following:1040 for the following:Depository Accounts;Depository Accounts;

Securities issued by Foreign Entities (or Persons);Securities issued by Foreign Entities (or Persons);

Financial Instruments Issued by Foreign Entities or Persons;Financial Instruments Issued by Foreign Entities or Persons;

Any Interest in a Foreign Entity.Any Interest in a Foreign Entity.

–– Penalty is 40% for the understatement Penalty is 40% for the understatement derived from an unreported foreign financial derived from an unreported foreign financial asset.asset.

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More on FACTAMore on FACTA

The reporting is on a new foreign asset disclosure form that will attach to an individual’s yearly 1040 filing (See attached draft form 8938)

Does not eliminate the need to also file FBAR or other foreign reporting forms

Includes foreign accounts and foreign assets such as real estate

There is now a six year statute of limitations There is now a six-year statute of limitations for omission of income relating to foreign assets

Thank You for ComingThank You for Coming

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