Tax Organizers & Foreign Accounts (Did You Admit You Were Willful) - Golding & Golding

Tax Organizers & Foreign Accounts (Did You Admit You Were Willful) – Golding & Golding

Tax Organizers & Foreign Accounts (Did You Admit You Were Willful?)

While a simple Tax Organizer may be a useful tool for your CPA or Enrolled Agent (EA) to help prepare your taxes, it can be a major roadblock in trying to move forward with certain IRS Voluntary Disclosures – especially if you were willful.

What is a Tax Organizer?

A Tax Organizer is a questionnaire (or packet) used by Tax Professionals to help collect data about your taxes. It may ask questions such as:

  • Copies of W-2s
  • Copies of Receipts
  • Copies of 1099s
  • A List of Questions about your tax situation

Does Your Tax Organizer Ask About Foreign Accounts?

Typically, if the Tax Organizer asks about Foreign Accounts, the questions will be along the lines of the following:

  • Do you have accounts outside of the U.S.?
  • Do you have assets outside of the U.S.?
  • Do you have investments outside of the U.S.?
  • Do you have income from outside of the U.S.

Were the Questions in the Tax Organizer Clear?

As a Board Certified Tax Law Specialist, we work on many different types of IRS Voluntary Disclosure cases. And, oftentimes, we are referred cases after an inexperienced attorney (less than 10-15 years of private practice) touted themselves as “experts,” only to have the client comes to us in a panic – once the reality sets in that their Attorney knows little to nothing about the complexities of IRS Voluntary Disclosure, and was trying to make a quick sale that left the client in danger.

Everyone is Non-Willful…

Unfortunately, some people are willful.

While some attorneys believe they can convince anybody that their client was non-willful (they can’t) and that if they were willful, they should go Streamlined because the IRS will never find them (they shouldn’t) – you have to try to keep your wits about you, and not make any bad decisions based on attorney bravado (aka salesmanship)

Do not let inexperienced counsel sell you on a false bill of goods.

For a case study example of what happens when you go streamlined when you are willful, click here.

Here are 5 Important Considerations

1. Did You Write “No” For Foreign Accounts (short questionnaire)?

If you speak and read English, the questionnaire was short, and the questions were clear, you are in a tough spot – but there may be wiggle room. If, for example, the Organizer asked about foreign accounts, but you only have foreign life insurance or other asset(s) which are not conventionally considered to be “accounts,” there may be some room for ambiguity.

2. Did You Read/Complete the Full (Long) Questionnaire?

You’re busy, right? We have many clients who relocate to the U.S and are provided tax equalization services from their employer –which usually includes free CPA services from a big 4 accounting firm for the first two years.

Sometimes, these firms send you a 60-page questionnaire, and who has the time to read one of those all the way through….

If you only got through the first few pages, and then next 30 pages didn’t apply to you, then maybe you did not read the questionnaire all the way through (and the foreign questions were further into the questionnaire) — maybe you can show non-willfulness.

3. Did You Understand the Questionnaire?

Maybe English is not your first language and there was some confusion about the call or context of the questions.

4. Did the Accounts Belong to your Spouse?

Maybe you are the boring one in the relationship, tasked with handling the taxes. And, if all of the foreign accounts belong to your spouse, and you do not think of that money as yours, then it may not have occurred to you when you completed Tax Organizer to include the accounts (presuming your spouse did not read the Tax Organizer either.)

5. Don’t Let Inexperienced Counsel Lead You Astray

We’ve seen it first hand.  A client contacts us and/or other experienced counsel and explains that they were willful and wrote note “No,” in response to foreign accounts in a tax organizer. They want to get compliant, but are afraid of OVDP (we understand).

The individual then speaks with inexperienced counsel, who tells them not to worry about it. (Good old, newbie attorney Bravado)

In one situation, we spoke with an individual who was convinced to go Reasonable Cause even though he was admittedly willful. The Attorney (a self-proclaimed “Expert”) was only in Private practice for only a few years, and was so eager to make a sale, that the Attorney actually told a person to go Streamlined or Reasonable Cause (after the individual stated he was sure he was willful) because the IRS will never catch him.

This was despite the fact that:

  • English was the individual’s first language
  • The questionnaire from the CPA firm is in English
  • The individual speaks English
  • The CPA speaks English
  • The individual completed all the questions on the questionnaire (so obviously the individual read it)
  • When it comes to the foreign account questions, the individual marked no.
  • When it comes to the foreign income questions, the individual marked no.
  • When it comes to foreign asset questions, the individual marked off no.

…and the individual had all the above.

Don’t Dig an Even Deeper Hole…

Picture it: You are sitting across from the IRS Auditor in an audit, and wondering how to explain that even though you speak English, the questionnaire is in English, and your CPA speaks English – that somehow you didn’t understand these particular sets of questions about foreign accounts, income, investments, real estate, etc. and instead put no (automatic reflex?) — but you understood the rest of the questionnaire enough to answer the other non-foreign account related questions just fine.

So, what do you say now when the IRS agent asks you how you were non-willful… “(Gulp!) Because… my attorney said I could still go Streamlined because the chances of you finding me were low.”

Hmm… It will be hard for your Attorney to represent you while he or she is facing an ethical inquiry from the State Bar.

Manafort Gets Convicted

People do get convicted, and people do go to jail. Of course, not everyone does, but it does happen.

Don’t give the IRS more fuel for the fire.

After Manafort’s conviction, we received many inquiries about the same few firms that seemed to have employed this strategy of selling willful people into streamlined to make a quick buck.

These individuals face very real risk of Tax Fraud and Evasion penalties, which can also mean loss of freedom (aka Prison).

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.