Criminal Tax Lawyer – IRS Subpoenas, Summons & Special Agent Summary Review
- 1 Golding & Golding
- 2 OVDP
- 3 Do NOT Speak with the IRS Special Agent Directly
- 4 A Special Agent Came to My Home
- 5 The Special Agent Told me Not To Worry
- 6 You are issued a Summons
- 7 You are Issued a Subpoena
- 8 Be Proactive – Consider Entering OVDP
- 9 When Do I Need to Use Voluntary Disclosure?
- 10 Golding & Golding – Offshore Disclosure
- 11 The Devil is in the Details…
- 12 What if You Never Report the Money?
- 13 Getting into Compliance
- 14 1. OVDP
- 15 2. Streamlined Domestic Offshore Disclosure
- 16 3. Streamlined Foreign Offshore Disclosure
- 17 4. Reasonable Cause Statement
At Golding & Golding, we limit our entire tax law practice to International Offshore Disclosure and International Tax Fraud/Tax Evasion.
With international tax being a mainstay on the IRS’ Dirty Dozen tax scam list, in recent years the IRS has ramped up enforcement of offshore reporting – making it an enforcement priority.
In addition, the IRS has also increased the number of individuals and businesses placed on the Foreign Financial Institution or Facilitator List – which is a list designed to publish who the IRS believes are considered “ bad banks” and more recently “ bad people.”
Golding & Golding
We represent individuals in criminal tax investigations involving Offshore/Foreign Disclosure. A criminal tax investigation can be a very scary ordeal, because unlike an IRS Civil Audit (unless it turns criminal) which will resolve itself by either penalties being issued or a no change letter – with Criminal Tax, your freedom is at stake.
If you are considering OVDP compliance, it is important to be proactive and enter the Program while you still have an opportunity to do si.
Unfortunately, we have had clients who came to our office too late, only to arrive home to find 20+ individuals waiting with a search warrant in hand.
Other times, we have had clients who contacted us after contacting a special agent — who may have left a summons or business card for them — only to mistake the situation (Read: insert their foot in the mouth) and cause a much bigger problem that would have been easily avoided had the individual made no direct communication to the IRS.
Do NOT Speak with the IRS Special Agent Directly
I cannot state this any more clearly to anyone who receives a communication or personal introduction from an IRS Special Agent. Do NOT speak with them. They are not your friends, they are not here to make sure you are safe, and they are not here “just for her information.”
Trust me, special agents do not travel door-to-door to check up on the welfare of individuals to make sure everything is okay in life. Rather, the Special Agents are there to try to extract information from you. They are extremely well-trained and will read your body language and responses to their initial questions and/or presence, quickly “size you up” and determine the best strategy to try to obtain information from you.
You are never required to speak to the IRS Special Agent outside the presence of your attorney. Always remember, the Special Agents are investigating situations in which they believe there is a criminal aspect.
Never in the history of the world will the IRS drop a criminal investigation because you convinced them during an initial introduction that there is no need for them to communicate with you and it always benefits you to “Lawyer Up.” (see Tom Segura’s comedy segment on 48 hours for a good laugh about it)
Here are a few things to keep in mind if you are ever contacted by the IRS Special Agent:
My Bank Told Me a Special Agent Left his or her Card
If the Special Agent left his or her information at the bank and is researching your account, then you need to run – not walk – and find an experienced International Tax/Litigation Attorney. The IRS does this with the hope that the bank does contact you, so the IRS can see how you react (Who do you call, Do you go to see an attorney, etc.)
As with everything they do, the reason the IRS agent contacted the bank is because the IRS agent wants to obtain information regarding your accounts. Since we practice in the realm of International Tax and Offshore Tax Fraud law, from our experience it is probably because you have international funds being transferred in and out of the United States and the IRS once to learn more — or a related issue.
Maybe you did not file the proper FBAR Forms, or maybe you’re out of FATCA Compliance. Moreover, more likely than not your offshore financial representative or institution may have gotten themselves or itself into trouble with the law. As such, the IRS is investigating all of the clients associated with this particular financial advisor or institution and your name popped up.
*Go With Your Instinct.
I Think I am Being Tailed
If the Internal Revenue Service believes you have committed a serious financial crime, you may become the subject of an investigation. Generally, before you are approached by a Special Agent, the agency will have compiled at least some evidence against you. It is not above the IRS special agents to tail you, without your knowledge – to get a better idea of what the facts and circumstances are.
In fact, if you believe your being tailed then you should contact an attorney immediately. Recently, we had a client contact us who had considered entering OVDP, but was hesitant. After leaving office they returned home to find 10 unmarked vehicles and upwards of 20 officers on the search warrant for their luxury home in Los Angeles.
I May be a Little Bit Guilty
It is important that if you are ever confronted by Special Agent, that you do not engage in conversation with that special agent. We had a client who came days after speaking with the Special Agent, in which the special agent assured the individual that the investigation was only against financial institution, and not him personally.
They interviewed him “informally,” and must have taken note of the fact that he was very scared. Why? Because even though they questioned him in a “soft” non-threatening matter, two days later, the agent returned with other agents and issued a search warrant, retrieving multiple computers from the home.
I was only “kind of Involved” in the Fraud
As the old saying goes, you can’t get a little bit pregnant. The same concept holds true for guilt. You may not been the leading cause of the fraud, you may not receive the most money from the fraud, and you may not have initiated the fraud — but if you are involved in the fraud, then from the IRS perspective you are guilty. Moreover, if the IRS special agents believe you are the weak link, you may become subject to intense investigation — hoping that the break.
I Did it, but I Have Not Been Charged Yet
This is a situation, which can be resolved. Presuming that the foreign bank has not reported you to the IRS, and an investigation has not been initiated against, this is the time to do it.
The Offshore Voluntary Disclosure Program is designed to assist individuals with unreported foreign and domestic money before they are contacted by the IRS. If the money is illegally sourced, there maybe some additional hurdles and hoops to jump through – but almost always you will be in a much better positioned than if you are caught by the special agents before proactively making a disclosure.
A Special Agent Came to My Home
As if it’s not scary enough for your trusted bank employee to let you know an IRS agent came by the bank, imagine your reaction when you open the door to find two individuals, in suits holding a “badge” and wanting to speak with you. Once you pick your stomach up off the ground and try to gather your thoughts (while trying to stay calm as you read the words “ IRS Special Agent” from the card handed to you from the agent), the only words that should come out of your mouth are “ I’ll have my attorney contact you.”
There is no need to be rude or abrasive toward the special agent – that will get you nowhere fast. Rather, by letting the agent know you have an attorney, he or she will not expect any further response. They may try to goad you on to elicit a response, but you should not fall victim.
Unless the special agent has an arrest warrant, typically they cannot simply arrest you on the spot, or force you to answer questions. If they have a search warrant, they will want to enter the home immediately, so you should contact an attorney immediately to review the parameters of the warrant.
** If the special agents “knock and announce” that they have a search warrant, ask them to slip a copy of it under the door before opening the door. Technically, you are entitled to have a copy of the warrant and you are not required to open the door to strangers — but if they have a warrant, they make their way in irrespective of whether you cooperate or not.
The Special Agent Told me Not To Worry
Special agents will use this technique when they know you are scared. They would try to relax you enough to obtain information from you, which we used against you later in the process. If a special agent tells you not to worry, he or she just has a few questions for you, your response should be “ I’ll have my attorney contact you.”
We understand that in general individuals like to adhere to rules and answer questions to try to explain the situation.
And, when a person of authority comes to your door and wants to speak to you, your immediate reaction will be to want to speak to them to either diffuse the situation or be respectful. We understand this, but is important that you realize that if a Special Agent is knocking at your door, he or she has belief, or reason to believe that you are involved in something that is criminal.
In other words, when was the last time before now that a Special Agent just randomly stopped by your house to ask you some questions?
Thus, while it may feel slightly awkward — your best bet is to not answer any questions at that time and only do so in the presence of your attorney.
You are issued a Summons
If the IRS agent issues you a summons (or you are otherwise issued a summons by the IRS) you cannot ignore. Why? Because if you ignore the summons, the matter will escalate. A summons is a legal document which is enforceable by the court, and your failure to respond to a summons may lead to a court order finding you in contempt and thereafter an arrest warrant being issued for your arrest.
We understand it is scary and overwhelming, but the best way to resolve your issue when you’re contacted for a potentially criminal investigation by the IRS is to retain experienced international tax/litigation counsel to represent you throughout the process. There are more effective methods than burying your head in the sand hoping it will go away – because normally it will not go away and the longer you stall, the worse it becomes.
The IRS is working at a much reduced capacity and will not have the ability to go after each person individually that it believes may be involved. No matter how far removed you are from the main fraud – with international tax evasion related issues – it is important to try to take care of the matter sooner as opposed to later (and to put the fire out when it is smaller, before it becomes a raging inferno which may result in the loss of your freedom).
You are Issued a Subpoena
If you are issued a subpoena, contact an attorney. You could attempt could quash the subpoena or take other legal action, but burying your head in sand is not one of them. Why? Because the subpoena is a legal document requiring you to comply and if you fail to comply, a Judge may issue a bench warrant to have you arrested on the spot.
Moreover, if your initial reactions (as it would be for most people) is to run, please keep in mind that depending on how much money you owe the IRS may have already revoked her passport and/or issue customs hold at the airport. Trust me, you do not want to be at the airport alone, outside of counsel — and placed into a small room and questioned on the spot.
Be Proactive – Consider Entering OVDP
For most individuals, if they have not been contacted yet by the Internal Revenue Service or other government agency, the best option will be entering the traditional Offshore Voluntary Disclosure Program.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.
After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.
If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.
OVDP is the Offshore Voluntary Disclosure Program — a program designed to facilitate taxpayer compliance with IRS, DOT, and DOJ International Tax Reporting and Compliance. It is generally reserved for individuals and businesses who were “Willful” (aka intentional) in their failure to comply with U.S. Government Laws and Regulations.
The Offshore Voluntary Disclosure Program is open to any US taxpayer who has offshore and foreign accounts and has not reported the financial information to the Internal Revenue Service (restrictions apply). There are some basic program requirements, with the main one being that the person/business who is applying under this amnesty program is not currently under IRS examination.
The reason is simple: OVDP is a voluntary program and if you are only entering because you are already under IRS examination, then technically, you are not voluntarily entering the program – rather, you are doing so under duress.
Any account that would have to be included on either the FBAR or 8938 form as well as additional income generating assets such as rental properties are accounts that qualify under OVDP. It should be noted that the requirements are different for the modified streamlined program, in which the taxpayer penalties are limited to only assets that are actually listed on either an FBAR or 8938 form; thus the value of a rental property (reduced by any outstanding mortgage) would not be calculated into the penalty amount in a streamlined application, but it would be applicable in an OVDP submission.
An OVDP submission involves the failure of a taxpayer(s) to report foreign and overseas accounts such as: Foreign Bank Accounts, Foreign Financial Accounts, Foreign Retirement Accounts, Foreign Trading Accounts, Foreign Insurance, and Foreign Income, including 8938s, FBAR, Schedule B, 5741, 3520, and more.
What is Included in the Full OVDP Submission?
The full OVDP application includes:
- Eight (8) years of Amended Tax Return filings;
- Eight (8) Years of FBAR (Foreign Bank and Account Reporting Statements);
- Penalty Computation Worksheet; and
- Various OVDP specific documents in support of the application.
Under this program, the Internal Revenue Service wants to know all of the income that was generated under these accounts that were not properly reported previously. The way the taxpayer accomplishes this is by amending tax returns for eight years.
Generally, if the taxpayer has not previously reported his accounts, then there are common forms which were probably excluded from the prior year’s tax returns and include 8938 Forms, Schedule B forms, 3520 Forms, 5471 Forms, 8621 Forms, as well as proof of filing of FBARs (Foreign Bank and Financial Account Reports).
The taxpayer is required to pay the outstanding tax liability for the eight years within the disclosure period – as well as payment of interest along with another 20% penalty on that amount (for nonpayment of tax). To give you an example, let’s pick one tax year during the compliance period. If the taxpayer owed $20,000 in taxes for year 2014, then they would also have to include in the check the amount of $4,000 to cover the 20% penalty, as well as estimated interest (which is generally averaged at about 3% per year). This must be done for each year during the compliance period.
Then there is the “FBAR/8938” Penalty. The Penalty is 27.5% (or 50% if any of the foreign accounts are held at an IRS “Bad Bank”) on the highest year’s “annual aggregate total” of unreported accounts (accounts which were previously reported are not calculated into the penalty amount).
For OVDP, the annual aggregate total is determined by adding the “maximum value” of each unreported account for each year, in each of the last 8 years. To determine what the maximum value is, the taxpayer will add up the highest balances of all of their accounts for each year. In other words, for each tax year within the compliance period, the application will locate the highest balance for each account for each year, and total up the values to determine the maximum value for each year.
Thereafter, the OVDP applicant selects the highest year’s value, and multiplies it by either 27.5%, or possibly 50% if any of the money was being held in what the IRS considers to be one of the “bad banks.” When a person is completing the penalty portion of the application, the two most important things are to breathe and remember that by entering the program, the applicant is seeking to avoid criminal prosecution!
The Streamlined Domestic Offshore Disclosure Program is a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance.
What am I supposed to Report?
There are three main reporting aspects: (1) foreign account(s), (2) certain specified assets, and (3) foreign money. While the IRS or DOJ will most likely not be kicking in your door and arresting you on the spot for failing to report, there are significantly high penalties associated with failing to comply.
In fact, the US government has the right to penalize you upwards of $10,000 per unreported account, per year for a six-year period if you are non-willful. If you are determined to be willful, the penalties can reach 100% value of the foreign accounts, including many other fines and penalties… not the least being a criminal investigation.
Reporting Specified Foreign Assets – FATCA Form 8938
Not all foreign assets must be reported. With that said, a majority of assets do have to be reported on a form 8938. For example, if you have ownership of a foreign business interest or investment such as a limited liability share of a foreign corporation, it may not need to be reported on the FBAR but may need to be disclosed on an 8938.
The reason why you may get caught in the middle of whether it must be filed or not is due largely to the reporting thresholds of the 8938. For example, while the threshold requirements for the FBAR is when the foreign accounts exceed $10,000 in annual aggregate total – and is not impacted by marital status and country of residence – the same is not true of the 8938.
The threshold requirements for filing the 8938 will depend on whether you are married filing jointly or married filing separate/single, or whether you are considered a US resident or foreign resident.
Other Forms – Foreign Business
While the FBAR and Form 8938 are the two most common forms, please keep in mind that there are many other forms that may need to be filed based on your specific facts and circumstances. For example:
- If you are the Beneficiary of a foreign trust or receive a foreign gift, you may have to file Form 3520.
- If you are the Owner of a foreign trust, you will also have to file Form 3520-A.
- If you have certain Ownerships of a foreign corporation, you have to file Form 5471.
- And (regrettably) if you fall into the unfortunate category of owning foreign mutual funds or any other Passive Foreign Investment Companies then you will have to file Form 8621 and possibly be subject to significant tax liabilities in accordance with excess distributions.
Reporting Foreign Income
If you are considered a US tax resident (which normally means you are a US citizen, Legal Permanent Resident/Green-Card Holder or Foreign National subject to US tax under the substantial presence test), then you will be taxed on your worldwide Income.
It does not matter if you earned the money in a foreign country or if it is the type of income that is not taxed in the country of origin such as interest income in Asian countries. The fact of the matter is you are required to report this information on your US tax return and pay any differential in tax that might be due.
In other words, if you earn $100,000 USD in Japan and paid 25% tax ($25,000) in Japan, you would receive a $25,000 tax credit against your foreign earnings. Thus, if your US tax liability is less than $25,000, then you will receive a carryover to use in future years against foreign income (you do not get a refund and it cannot be used against US income). If you have to pay the exact same in the United States as you did in Japan, it would equal itself out. If you would owe more money in the United States than you paid in Japan on the earnings (a.k.a. you are in a higher tax bracket), then you have to pay the difference to the U.S. Government.
What do you do if you reside outside of the United States and recently learned that you’re out of US tax compliance, have no idea what FATCA or FBAR means, and are under the misimpression that you are going to be arrested and hauled off to jail due to irresponsible blogging by inexperienced attorneys and accountants?
If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three tax years or do not meet the Substantial Presence Test), you may be in for a pleasant surprise.
Even though you may be completely out of US tax and reporting compliance, you may qualify for a penalty waiver and ALL of your disclosure penalties would be waived. Thus, all you will have to do besides reporting and disclosing the information is pay any outstanding tax liability and interest, if any is due. (Your foreign tax credit may offset any US taxes and you may end up with zero penalty and zero tax liability.)
*Under the Streamlined Foreign, you also have to amend or file 3 years of tax returns (and 8938s if applicable) as well as 6 years of FBAR statements just as in the Streamlined Domestic program.
When a Person, Estate, or Business is out-of-tax compliance for failing to report Foreign Income and/or Foreign Assets, the applicant has relatively few options for timely and safely getting into tax and foreign reporting compliance — before fines and penalties are issued.
While the most common options include the Offshore Voluntary Disclosure Program or the Streamlined Offshore Disclosure Program, there is another alternative. It is called making a Reasonable Cause submission.
Reasonable Cause Process
An individual should never attempt offshore disclosure without the assistance of a qualified attorney. With that said, it is even more important to ensure that if you are even considering a reasonable cause submission, that you do so only with the help of an attorney. That is because only with an attorney do you receive the benefit of the attorney-client privilege.
Unlike the Streamlined Program or OVDP where there are strict procedures to be followed, a reasonable cause submission is different. It should be noted that a person can submit a reasonable cause application for any number of different reasons; it is not limited only to offshore money and reporting foreign accounts. It should also be noted that there are potentially high risks and penalties associated with this Reasonable Cause process, so you have carefully weigh your options.
With a reasonable cause submission, the attorney will carefully evaluate and analyze the facts and circumstances of your case in detail. He or she should sit down with you either in person or via teleconference if you are non-local and assess the pros and cons of the potential submission in order to determine what the benefits and detriments may be to a reasonable cause disclosure. Thereafter the attorney will amend the returns, prepare the necessary forms, and draft a persuasive Reasonable Cause Letter.
At Golding & Golding, we are Tax Attorneys (with Masters of Tax Law) and Enrolled Agents credentialed by the IRS (Highest Credential awarded by the IRS), so we can handle your entire submission (Taxes, Legal, and Audit Defense) in-house, for a flat-fee.
Reasonable Cause Examples
If you were completely non-willful in your failure to disclosure and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd and you may consider Reasonable Cause as an alternative option.
Reasonable Cause is determined on a Case by Case basis in accordance with your specific facts and circumstances.
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