With FATCA (Foreign Account Tax Compliance Act)firmly in place, and more than 100 countries and thousands of foreign financial institutions reporting US taxpayers to the IRS and U.S. Government, receiving a FATCA Letter and not getting into compliance by filing your FBARs, 8938s, 3520, 3520-A, 5471 or 8621 – as well as an amended tax return(s) – may result in irreparable Financial harm and damage to you and your family.
The following is a case study example of how one individual can get stuck in the FBAR/FATCA matrix:
- 1 Background – David
- 2 David Received a FATCA Letter
- 3 David and Irene’s Information is Sent to the IRS
- 4 David and Irene are Audited
- 5 It Gets Worse…
- 6 It Gets even Worse…
- 7 Passport Revocation, Customs Holds & Loss of Green Card
- 8 The IRS Special Agents Also want to Investigate
- 9 Golding & Golding: About Our International Tax Law Firm
Background – David
David is a U.S. Legal Permanent Resident (Green Card Holder or LPR Status) and Chinese Citizen who currently resides in the United States. He has had his Green Card for nearly 20 years and alternates between living in the United States and living abroad.
He has numerous accounts worldwide with upwards of $1-$3 million at any given time. The money is scattered amongst different accounts, including Investment Accounts, Banking Accounts, Mutual Funds, and Insurance Policies.
David Received a FATCA Letter
Although David’s primary residence is in the United States, when he opened up his foreign bank accounts he used an address in Hong Kong as his main address. In addition, since he is a Chinese citizen, David does not disclose that he is a US Resident for Tax Purposes when he opened the accounts. (In other words, he does not complete a W-9).
Recently, David’s wife, Irene (who resides primarily in Hong Kong) informs David that they received a FATCA Letter at their home from the foreign financial institution (Hang Seng Bank). The letter requests that David and his wife (as a Green Card Holder) confirm their US residence status.
David begins researching the issue online, and after visiting various ex-pat forums (and against the advice of the attorneys he spoke to) decides he is going to do nothing, except “sit and wait.”
David and Irene’s Information is Sent to the IRS
Multiple foreign banks have already provided the IRS with David and Irene’s information regarding their foreign accounts. Unfortunately for David and Irene, they had already been selected for audit on an unrelated matter at around the same time that the IRS received the notice from Hong Kong. Specifically, David and Irene were being audited because a 1099 was issued to David from a US bank in the amount of $93.
The $93 stemmed from a small savings account that David forgot he had, since he had not accessed it for many months. As a result, David and Irene did not report the information to the IRS in their original tax return.
David and Irene are Audited
David and Irene are audited by the IRS. They receive a notice from the IRS in the form of a Request for Documents (IDR) requesting various different documents. In addition, they are asked the name of their CPA or other tax preparer.
David and Irene believe they can talk their way out of the issue, and further believe that because they reside overseas they will be fine. After doing more research, David realizes that Hong Kong entered into a IGA (Intergovernmental Agreement) with the United States and that his money overseas is subject to possible levy or seizure.
It Gets Worse…
While in Hong Kong, David and Irene use a licensed CPA who prepared their taxes. The CPA was aware that David and Irene had foreign accounts but did not put that information on the tax return. David and Irene were also aware of this but decided to roll the dice and take their chances. They intentionally checked off “No” for Question 7 on Schedule B.
Since the failure to report was willful, and the CPA herself had gotten into trouble for not reporting foreign accounts for many clients residing in Hong Kong, David and Irene would not have been able to rely on the Streamlined Program or make a claim for “Reasonable Cause” anyway. Instead, David and Irene are considered willful tax evaders – which would subject them to a 50% penalty on the balance of their accounts.
It Gets even Worse…
David and Irene are being audited for three years initially, so the total value of the penalty they could get hit with is 100% value of the foreign accounts — which is just the FBAR penalties. Since David and Irene have more than $5000 of unreported foreign earnings, the amount of time the IRS has to audit them expands to six years.
That means for six years, the IRS will be able to audit prior tax returns, issue penalties or prior tax returns, charge taxes and interest for prior tax returns, and literally make David and Irene’s life a financial mess. If the IRS discovers the Fraud, there is no Statute of Limitations — and the IRS can go back and audit them as far as they would like.
Passport Revocation, Customs Holds & Loss of Green Card
If David and Irene decide that they are not going to pay the fine and just “hide out” in a foreign country, their ability to travel may be severely impaired. That is because (working in conjunction with foreign countries) the United States could try to place a hold on David and Irene’s passports and/or ability to travel. It could result in David and Irene losing their passport (if it is US-based) and/or be subject to a customs hold at the airport, and forced to answer questions from the US government.
Moreover, the U.S. could also deny the renewal of the Green Card or deny Naturalization, due to Tax Fraud and Evasion.
The IRS Special Agents Also want to Investigate
Since David and Irene had over $3 million of unreported foreign accounts at the time of Audit, nearly $100,000 in annual unreported foreign income, and used a CPA that also was in trouble – David and Irene will also receive a visit from the IRS Special Agents since their failure to report could be considered willful… which can be considered a tax crime.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel
Generally, experienced attorneys in this field will have all the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.