Golding & Golding - Offshore Disclosure & FATCA Compliance

Golding & Golding – Offshore Disclosure & FATCA Compliance

At Golding & Golding are an International Tax Law Firm that limits its representation to clients worldwide in Offshore Voluntary Disclosure matters (OVDP, Streamlined Disclosures, FBAR Penalties).

A large portion of our clients reside overseas, in nearly 50 different countries!

As such, we have developed a strong knowledge of issues relating to U.S. citizens, Expats, Accidental Americans, and Green Card Holders/Legal Permanent Residents who reside overseas and for one reason or another, are subject to U.S. Tax.

Oftentimes, when clients first approach us they have the same question in mind “How is the IRS or U.S. government going to find me?”

The following is a case study example (we find using examples is the best way to learn) of how an individual would get caught by the IRS and possibly subject to very high fines and penalties…and even criminal prosecution for failure to file U.S. taxes and report foreign accounts.

Case Study Example – Pamela

Pamela is a U.S. Citizen, originally from the United States but relocated to Asia many years ago. While Pamela resided in the United States she always filed her U.S. tax returns timely, and paid any any tax liability as required. About 20 years ago Pamela received the offer of a lifetime to work overseas as a journalist.

Over time, Pamela developed an exceptional reputation for her writing skills, and began earning significant income as the lead editor of an international newspaper. In addition, Pamela operates a restaurant alongside her foreign national husband; together Pamela earns upwards of $400,000 per year after taxes.

Pamela Pays Foreign Tax Overseas

Pamela has multiple residences, with the majority of her residence being split between Singapore and Hong Kong. As such, Pamela and her husband file the appropriate taxes necessary in each country they earn income; neither Pamela nor her husband earn any money in the United States.

Nevertheless, Pamela knows that she is required to file US taxes. Her father is a CPA and admonished her that if she does not file the requisite tax documents each year, she could be facing serious consequences. Pamela never worried about US tax consequences, because she has no intent of ever returning to the United States  — aside from visiting her parents.

Pamela has a U.S. based CPA Overseas

When Pamela first arrived overseas, she only spoke English. As such, she initially retained an English-speaking CPA who is also an ex-pat originally from Washington state. Pamela and her CPA have been working together for the better of 20 years. The CPA Is aware that Pamela is a U.S. person with a U.S. tax reporting requirement. Nevertheless, the CPA helps Pamela forge documentation early on in their relationship with both the local banks/financial institutions and the tax authority  –so that neither of them are aware of Pamela’s U.S. status.

At this time, in 2016, Pamela has a net worth of  upwards of $3 million in foreign accounts, along with millions of dollars of assets, including a foreign business, foreign real estate, and antiques.

FATCA

FATCA is the Foreign Account Tax Compliance Act. It was written into law back in 2010 and began being enforced in 2014. In accordance with FATCA ,more than 100 foreign countries and tens of thousands of foreign financial institutions/foreign banks are actively reporting US taxpayer information to the IRS.

Pamela’s CPA becomes aware of this law in 2014. She explains to Pamela that there’s going to be in heightened scrutiny regarding unreported for accounts, but she still believes Pamela can fly below the radar, and not worry about reporting these accounts to the US authorities and/or filing US tax returns.

In fact, Pamela’s CPA gives the same advice to all of her clients…along with an increase in her fees to prepare tax returns. Pamela does not file any requisite U.S. Tax Returns, FBARs, 5471s, etc. to report her income and accounts to the U.S.

Foreign Banks Begin Reporting to the IRS

Pamela has her foreign accounts in five different financial institutions. Unfortunately for Pamela, two of these institutions are reporting information to the IRS. While they do not have Pamela’s Social Security number they do have families maiden name.

Moreover, what Pamela and her CPA failed to recognize was that as part of the bank account application they completed many years ago, it asked when the individual first arrived in the country of residence – and Pamela mentioned it was 1990. Since Pamela’s birthday shows a birthday of 1957, the bank was aware that Pamela is not originally from Hong Kong (where the majority of the money sits).

The bank also took note that Pamela speaks fluent English and when she opened the account, she did not speak any other languages – with the CPA doing most of the “talking.” As such, the bank presumes Pamela is from the United States and therefore sends the information regarding Pamela to the IRS and U.S. government.

Pamela’s CPA Gets Caught

Unfortunately, one of the CPA’s clients gets caught in a tax situation, which resulted in the U.S. Department of Justice filing charges against him. This occurred when the client was trying to relocate from Singapore back to the United States — only to get intercepted by the special agents at the airport, subject to a customs hold – and later indicted for criminal tax fraud and tax evasion.

In order to save himself from doing 20 years in a federal penitentiary, the client quickly rolled over on the CPA and explained how the CPA goes about facilitating compliance for US ex-pats and non-citizens otherwise subject to U.S. tax, by opening accounts under false names and/or using false local businesses or fake identification numbers.

The CPA is Indicted

The CPA gets into trouble with local law, and is arrested in South Korea while she is on vacation from the Philippines.  The CPAs files are taken and turned over to the United States, so that the United States can analyze the files to determine if any U.S. Citizens, Legal Permanent Residents, or anybody else subject to US tax has been working with the CPA.

Unfortunately for Pamela, her name pops up and as a US citizen who is not filed a tax return in more than 20 years.   The United States sends a document/information request to the various foreign institutions that Pamela banks with.

Pamela is Indicted by a Grand Jury

United States Department of Justice has enough information to charge Pamela with tax fraud and tax evasion. It is not lost upon the IRS that Pamela’s father was a CPA, and therefore presumes he must have at least told her about the international reporting and tax requirements.

Pamela is Detained at the Bank

At this time, Pamela was unaware that there was any investigation, or that anything was wrong. Pamela does not communicate much with her CPA until it is time to file local taxes, and therefore was unaware that the CPA had been arrested.

When Pamela goes to her local bank to deposit the income earned from the restaurant for the week, she is arrested and detained.   Thereafter, Pamela becomes aware of the indictment and is sent back to the United States to face her crime.

Never filed a U.S. Tax Return or FBAR?

If so, you are not alone; we have represented hundreds of individuals with International Tax problems, who are in the same situation as you. While you may be scared and feeling alone, there is help. Although the above-referenced case study is an example of how noncompliance can turn criminal, there are several situations in which you may be able to remedy the situation before any serious repercussions occur.

Moreover, with current programs in place such as the Streamlined Foreign Offshore Disclosure program for non-willful taxpayers – you may be able to avoid penalties altogether. If you were willful, you can still enter OVDP (Offshore Voluntary Disclosure Program) and get into compliance before it’s too late.

Basic Summary – US tax and FBAR Reporting Requirements:

Golding & Golding is a flat-fee, full-service firm; we are lawyers who assist international clients in reporting their offshore accounts to the IRS. Most recently, many of our clients learned about Foreign Bank Account reporting requirements when they received a FATCA Letter from their Bank, asking them to certify their U.S. Status by submitting either a W-9 or W-8 BEN.

Who Has to Report?

We have represented numerous clients worldwide with issues similar to yours:

Expats who relocated overseas and did not know they had to report their foreign accounts.

U.S. Citizens who live overseas and may or may not earn significant income, but have accounts in a foreign country.

Legal Permanent Residents of the United States who relocate back to a foreign country but are unaware that they are still required to report the foreign accounts.

Non-Residents who meet the substantial presence test and therefore are required to report foreign bank and other accounts to the US government.

Please do not worry. We can assist you as we have assisted hundreds of clients in over 40 countries disclose upwards of $40 million in a single disclosure.

We are available seven days a week and provide flat-fee and full-service representation to our clients around the world.

The Basics

These are the most basic rules when it comes to foreign accounts and foreign income:

Foreign Income

If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.

Foreign Accounts

If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.

In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.

Fines & Penalties

Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.

Customs Holds and Passport Revocation

With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).

Getting Into Compliance

Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.

To that end, there are three main methods of compliance:

(1) Streamlined Compliance

This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.

(2) OVDP

This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.

(3) Reasonable Cause Statement

This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.