Friday, April 6, 2012

Ownership of Joint Accounts - Whose Income; Whose Accounts? (4/6/12)

Robert Wood and Jamie Ogden, lawyers at Wood LLP in San Francisco, have published a very interesting article that I recommend to readers struggling with the consequences of foreign accounts where, for U.S. income tax and FBAR purposes, the U.S. reporting for the accounts and income is murky.  Robert W. Wood and Jamie K. Ogden, Who Pays Tax on Joint Bank Accounts?,  135 Tax Notes 113 (Apr. 2, 2012), here.

The authors focus on the income tax issues rather than FBAR and Form 8938, but the issues discussed should bear on FBAR reporting and Form 8938 reporting as well.  (See my comment below.)

Although the issues are complex, key general -- emphasis on general -- rules of thumb related to foreign accounts are:

1.  Beneficial ownership is the key to income tax consequences.

2.  Local law -- i.e., foreign law -- generally determines who is the beneficial owner of the account.

3.  Nominal local law ownership as opposed to real beneficial ownership cognizable as such under local law will not determine the U.S. income tax reporting obligation.  For example, agents are not taxed; principals are.  Where the taxpayer seeks to deflect U.S. income tax consequences to a foreign person, the taxpayer will have to prove that his or title ownership under local law is nominal, such as in the status of agent rather than principal.  Proof of the nominal relationship could be an issue.

3.  Sometimes the actual exercise of ownership attributes over an account may show that U.S. a person is the beneficial owner of all or some of the account even if from a technical local law perspective he or she does not appear to be the owner or the sole owner.

4.  Community property (or its local law  equivalent) may be trumped by Section 879(a)

For more nuance, read the article.  I should note that I think that beneficial ownership governs the Form 8938 reporting but FBAR may require reporting both by beneficial owners and nominal owners, particularly where all of some portion of the account appears nominally in the name of a U.S. person.


  1. This is a very good article and first of its kind. As for determining beneficial ownership, the article states

    the IRS and courts may weigh a
    variety of indicia of beneficial ownership:
    (1) which
    party enjoys the economic benefit of the property;
    (2) which party has possession and control; and (3) the intent of the parties.

    Thanks for posting this.

  2. Nice article.

    My parents bought a property in my name in India when i was young and later i came to the US. During the OVDI years, they sold this property which had appreciated significantly and deposited the funds in a joint account with me being the first and my mom the second joint holder. My parents are citizens of India. Since the first name in the account is mine, the bank deducts tax from interest and pays it to the govt of india against my name.

    My parents utilize the funds in these account for their local upkeep as well as they use the funds for their travel to US to visit me etc. These funds are non repatriable, and hence I cannot access them. I have not deposited any funds from the US in this account.

    The intent is for them to use this account and upon death pass to me as inheritance with no nettlesome will/probate issues etc,.

    I entered the OVDI and showed all the income as mine to be very conservative. However i sincerely feel and have proof from the banks etc to show that my parents have had possession and control of the account and have enjoyed the economic benefit of this account.

    This article has some interesting examples that resonates with my situation especially i see
    the beneficial ownership is determined by
    (1) party enjoys the economic benefit of the property;
    (2) which party has possession and control; and (3)the intent of the parties.

    As my case gets assigned to an agent, i am hoping to bring the above arguments to see if i
    can get the income from the above assets to not be treated as mine. I know it is difficult to give advice based on a minimal set of facts within the confines of this blog, but based on the stated facts, in your expert opinion do you think i have a minimal chance of getting these income to be treated as my parents and not as mine?

    I am sure many in the OVDI will be under such situations. This article is first of its kind and i hope it helps a lot of people under similar situation

    1. On the facts as you present them (and without any other facts that might be adverse or less supportive), you may have a good chance of convincing the agent that the ownership never left your parents. The IRS agent may have some latitude -- or may exercise some latitude -- as to the quality of your proof and not include the account in the penalty base. Keep in mind, of course, as a title owner, you were supposed to report the account on the FBAR and requiring you answer yes to the Schedule B question on the 1040. But, if he accepts your explanation, there is no U.S. tax noncompliance and thus this account should not enter the penalty.


      Jack Townsend

    2. thanks a Lot Jack. Hopefully the agents see reason and fairness and not resort to unduly harrasing the taxpayers.

    3. Jack,
      I am the original poster.
      Taking an extremely conservative standi, i did report all the income as mine in the ovdi. When an agent is assigned to my case, can i then tell him/her that i took a very conservative stand and the income actually should belong to my mother. This would cause me to reamend the ovdi submitted returns and remove the additional offshore income shown on my returns. did you handle similar cases?

    4. If you filed amended returns showing income that was not yours, that is not good and you should re-amend. But keep in mind that you have stated under oath one time that it is your income. You better have good proof that it is not your income if you are going to change that version of the facts.

      I understand that you say you took a conservative stand in reporting income that was your mother's. If in fact the income were your mother's, reporting it as yours is not really conservative. Indeed, it is black letter criminal tax law that reporting income that is not yours is itself a criminal. Now, in the context of the confusion and your claim of good faith, maybe nothing will come of it.

      But, bottom line, I suggest you get all of your facts worked out and the proof of the facts before you again amend your return or try to convince the agent to make that adjustment.

      Jack Townsend

  3. Jack,
    I am the OP. As mentioned earlier, to be on the conservative side, i have picked the income from my parents (account is joint) and included in my return.
    I was conservative and included the income so that i did not want the Service to feel that i am hiding or misrepresenting and took a safer approach.
    Sometimes i feel i should have disclosed the account and not included the income with an explanation.
    My lawyer was fine with this approach since i was disclosing all the accounts and taking a specific stand based on factual information. Being the nervous wreck i am, i decided to include everything which i regret now.
    By including the income, and by being extra conservative, did i reduce my chances of being able to take this income out when an agent is assigned?
    Would convincing an agent be more difficult after taking this stand. This is considerable income i am talking about.

    1. I responded above. However, I find in these accounts that the income is usually not the big cost; it is the inclusion of the account maximum balance in the in lieu of penalty calculation (now 27.5%). Are you wanting to exclude the income and the high balance from the in lieu of penalty calculation?

      Jack Townsend

    2. The income as well as the high balance would be the same in my case. This is because when my parents sold the property
      it had appreciated many fold. The purchase price about 25 years back was miniscule but the gains were many fold close to 150 times. Per indian tax laws they parked the gain in a India Govt Bond and the entire gain became tax exempt in
      India. This bond yielded yearly interest
      income after that. So the entire income in this case is same as the max account balance. The gain is close to 220K and hence i need to include this as income and after that 25% of the same amount
      as FBAR max. So between attorney fees, taxes (fed & state), penalties and fbar penalty i may have to pay more than the
      capital gain. Also this entire proceeds is not
      repatriable since the original property was bought by my father from his income
      earned in India.

      As mentioned earlier, the proceeds from the sale is in a joint account with me being the primary. I have not sent/remitted any funds to this account.
      My parents have been using this account for their local upkeep and other maintenance. I cannot access the funds since these are in indian rupees and i
      cannot convert them due to curreny control restrictions.

      SO if IRS agrees with the intent of this account the economic beneficiary has been
      my parents and hence all the income should be attributable to them. If not,
      i am in a deep soup. I am looking at paying 250-270k by way of tax/penalties and fees for an asset that i cannot repatriate which is jointly held and
      maybe partially belong to me that i can
      use if i go to India but for the most part has been used by my parents. This is frustrating but i am trying to get out of
      the frustation and trying to arrange my affairs such that i can convince the Service without appearing that i am hiding something. My parents are in frail health and they get to utilize this fund before i have any claims though it is in joint names.

      My attorney says we can provide proof and try to justify that the income should be treated as my parents and in the absense of that atleast negotiate to a 50%/50% sharing. I took the conservative stand to avoid any misgivings that i was shifting income and avoid any headaches later.

    3. you had thrown yourself in the fire. hopefully you can opt out if your facts are in your favor.

    4. Anon @Apr 8, 2012 06:14 PM

      You should definitely consider opt out, but only after talking to a lawyer. I find your message somewhat confusing. On the one hand, you say the funds were used to buy a bond, then you say they are in a bank account.

      My personal opinion is that if the original property was in your name, and it was deposited in an account where you were the primary holder and tax was paid to the Indian government in your name, then you would have a very hard time making a case that the account is not yours.

      But you could still likely do better under opt out. Right now it looks like you're liable for capital gain AND FBAR penalties. The capital gain would almost certainly have to be paid on opt out (even if its outside the SOL, I do not think the IRS will let that slip), but you might be able to make a favorable case for the FBAR penalty. If this is the only account you have outside the US, then the total non-willful penalty would be capped at 10K/year, and possibly less.

    5. "I find your message somewhat confusing. On the one hand, you say the funds were used to buy a bond, then you say they are in a bank account."
      when the property was sold, the entire gain was used to buy a govt of india bond. Upon maturity of the bond, after 3 years, the proceeds went in the joint bank account.

    6. "when the property was sold, the entire gain was used to buy a govt of india bond. Upon maturity of the bond, after 3 years, the proceeds went in the joint bank account."

      Whose name was the bond registered in ? If income from the bond was taxable in India, did your parents pay the tax ? If the original property was registered in your name, if the bond was in your name, if the tax paid was in your name, and if the money was deposited was in a bank where you were the primary holder, it would be extremely hard to claim that the income from sale Or account was not yours. Indeed, its not even clear which income you're trying to exclude, income from sale or interest on the amount deposited in the account.

      Besides, consider the ramifications. If you claim that the income was actually your parents, and if the IRS accepts it, they might pass that on to Indian tax authorities. I doubt you want your aging parents to be harassed by Indian tax authorities asking why their income was being reported in your name in India.

      You should consider (after consultation with your lawyer) whether to opt out or not. You'll likely still have to pay tax on the sale (fortunately at LTCG rates) and on the interest, but you could likely get the FBAR penalty reduced under mitigation guidelines.

    7. If the economic beneficiary has been my parents, then i should technically not have to include the income from sale as well as interest on the amount deposited. Based on the paper that Jack has included the ownership is determined by
      1) which party enjoys the economic benefit of the property;
      (2) which party has possession and control; and (3) the intent of the parties.

      I can prove that i did not access the funds.
      The funds have been used predominently by my parents and has been used when they visited US.

      See sometime the ownership is not clearly black and white.
      a) Can i access the funds? Technically yes but i need to be in india for me to be able to use it. b) Who has accessed it most and has been
      the economic beneficiary? My parents more than me.
      c) whose name is the bank account? Joint. primary
      d) Taxes in India gets automatically deducted in the name of primary holder for the interest income @ of 30% and get paid to the govt. My father had to file taxes in India against the primary holder (me) in order to get a refund of the taxes paid.

      Ultimately, the question boils to whose money is it and how do you prove it? I thought the doc Jack posted delves into these aspects. Till i saw this documents i had pretty much given up and
      hence included all the income as mine.
      But this document gives me some hope.

    8. I have a feeling that i may not be alone and there may be many others under similar circumstances, Would be good to know, how they are handling similar accounts and what their attorney's are suggesting.

    9. Hi Anon - the key question is whether on opt out you have any penalty whatsoever because I am not sure individual bonds are FBAR reportable - if an individual bond is not FBAR reportable and if thats the only account you have you may be able to get penalty relief. But thats for Jack to comment.

    10. Individual bonds are not FBAR reportable. But if the bond generated interest, then it is counted for the penalty. And the proceeds of the bond went into an account (apparently), so that is also subject to penalty.

      But it seems that Anon (from what I understand) is seeking not only to exclude the account/bond from FBAR penalty, he's seeking to exclude income earned in the account from tax AND gain on a property used to buy the bond from tax, all of which were in his name. His theory seems to be that because although he was the primary owner on the bank account, and tax returns were filed in his name on the bank account, his parents were secondary holders on the bank account and used the proceeds of the account.

      I'm not favorably disposed towards the IRS, but I see absolutely no way they are going to accept that, and I don't blame them.
      I hate to sound harsh, but this is really lame.

    11. Individual bonds are not reportable under FBAR. Some of these bonds were bought in 2003/2004/2005 and they matured after 4 years and the proceeds from maturity got deposited in joint account with parent. so somewhere around 2006 i would have seen a max value with INR/USD rate in favor of the
      rupee in 2006.

    12. Anon

      'My father had to file taxes in India against the primary holder (me) in order to get a refund of the taxes paid.'

      I would suggest being very careful in what you say, even anonymously. It seems from your comments that you are intending to claim that this money was actually your parents, not yours. In which case, it would seem like you committed income tax (fill in your own word here, it could start with a 'e' or even a 'f') in India by claiming it as your own to get a refund. The IRS may not care about your Indian tax liability (and certainly doesn't care about that of your parents), but they may toss it over the fence to Indian tax authorities under whatever sharing treaty they have. You seem to be opening a really squirmy can of worms here.

    13. To Anonymous Apr 11, 2012 04:00 AM

      I understand your concern but think that the IRS does not have the interest or resources to track down anonymous or pseudonymic comments on this blog. And, even if it could, the likelihood of the IRS tossing information over the fence to India in the absence of a request from India is remote -- at least into the foreseeable future.

      Having said that, at least from the U.S. perspective, it is imperative that representations made to the IRS be fair representations -- i.e., not deliberately and knowing false with an intent to mislead. Now memories and characterizations of past events always carry a degree of uncertainty. But knowing misstatements are always risky.

      Jack Townsend

    14. Jack

      I wasn't suggesting that the IRS might try and track down anonymous comments on the blog, but I gather from the previous Anon's comments that he was thinking of claiming to the IRS that the account was not really his, but his parents. That would certainly bring him under their scanner. And while I doubt the IRS would bother to inform India, I would guess they would not be too willing to accept a claim from someone who essentially admitted to misrepresenting income on another country's return. Fraternity of revenue officers and all that :)

    15. I am still not sure that the information would ever get to the Indian tax authorities. The more likely problem would be, as you mention, that past inconsistent representations to India will make the current representations not credible to the IRS in this process. It could be a problem, but even if the taxpayer can make the current representation credible and believable to the IRS, he should get the results he wants. But, if the taxpayer is not credible to the IRS, the IRS may make judgment calls against him and that would not be good. Before he goes down that path, he needs to have some check on the credibility of the story.

      Jack Townsend

    16. More important than IRS reading this blog and figuring out that real facts in the above Anonymous person's statements is that when this taxpayer claims that the money belongs to his parents, then IRS will ask for proof of tax paid by his parents to India.

      But since, as the writer has mentioned, his father claimed the tax back, what proof can he give to show that the income was properly taxed by India to his father and therefore belongs to his father?

      Do you'll see the issue or am I taking this too far?

      If you claim that the funds and income belong to someone else, won't it help to show that the other person is paying tax on it as mentioned in Robert Wood's article?

    17. I don't think it matters that much whether the joint foreign holder got a refund on the taxes due on that account as long as he/she reported the income properly on his foreign tax return. You're not claiming a foreign tax credit based on taxes actually paid to a foreign jurisdiction, you're saying the account is not really yours and hence no tax is due to the US.

      But in this case, what the Anonymous person seemed to say is that the foreign tax return was filed in his name to obtain a refund. I would guess this was done because this person fell into a lower (or maybe no tax bracket) in India as he would be taxed only on Indian source income. And he still thinks he might be able to convince the IRS its not his account. Not likely.

  4. Anon

    The sum involved seems to be large and could potentially be life changing for you. You should talk to your current lawyer and get advice (apparently you chose to disregard his advice before, but that is water under the bridge). It may cost more, but given the sum, you don't want to be penny wise, pound foolish.

  5. Jack,

    I would also like to point out gift tax issues that might arise in addition to income tax issues for joint ownership of bank accounts/property with non U.S. citizen persons . This impacts many immigrants.

    US Gift tax rules are quite different than income tax rules. Gift tax rules take into account citizenship and not residency for persons living in the U.S.

    This is what I found while filling up gift tax forms (form 709) for the joint accounts I had with my parents back in my native country (of which I am still a citizen)

    So, lets say you are a resident for US income tax purposes(you pass GC test, substantial presence test etc) but are not citizen of the U.S.

    You have been working in the U.S. (on work visa) for 6-7 years. You bought a house in the U.S. during those years since you intend to stay in the US for at least 10 more years.

    You get married to a person who is citizen of your native country (i.e. non US citizen). You both are now living in the US and you add your spouse's name to your U.S. bank accounts and create joint tenancy for the house (i.e add your spouse to the title of the house)

    From what I read in form 709, gifts to non-citizen spouses are limited to $136,000 per year.

    Given that your bank accounts and house value is worth much more than $136,000 and your spouse did not contribute any money to these accounts/house, have you just created gift tax nightmare for yourself ?

    Situation is even worse if you opened joint accounts with non citizen person other than your spouse. In that case, gift annual exclusion is capped at $13,000 per year.

    TurboTax did not ask me about gifts and many CPAs will not be aware of different gift tax rules for non citizens. This is understandable since from what appears, gift/estate tax and income tax are independent (even though both are handled by the IRS). Gift tax form goes to Cincinnati and not with 1040.

    My point is, this is yet another pitfall where many immigrants to the U.S will innocently fall into and IRS does not seem to advertise gift tax issues for non citizens.

    I will appreciate if you can create a blog post on gift taxes and provide your insights.

    1. I think you are needlessly getting worried. Unless your gift exceeds at least $5M for 2012 (the limit was less for earlier years but it was at least 1 million dollars for a long time), there is no gift tax to be paid, only a return needs to be filed.

    2. I am not sure that is the right answer for gifts to non U.S. persons (whether spouse or family member). I have an inquiry to a colleague and hopefully can have something to post on this.

      Jack Townsend

    3. Jack,

      I did some googling and found this excellent document that clearly outlines all scenarious for gifts and estate taxes:

      Based on that I think that if a resident alient (person with a green card) gifts money to his non-resident parents in his native country outside the US, then the lifetime exclusion limit of $1M or $5M applies before he has to pay any tax.

      Please correct me if I am wrong.

      Thank you.

  6. Hello,

    According to this article if for example US person placed his funds into his relatives bank account overseas then under the local foreign law the relative is considered only one to have beneficiary ownership. I want to say that for the time being that the funds are in the relative's account then there is no control over those funds from the US person, other than when the relative moves back the funds to the US person bank account. So in that case if under local law the sole beneficiary is the foreign relative then US person does not have FBAR reporting requirement.

    Moreover FBAR helpline states that:
    Financial interest means ownership; your name is on the account or you own it jointly with someone else. Since your name is not on the account and you do not have signature authority, there is no FBAR filing requirement.

    In the end I am getting confused over this part of FBAR instructions:

    Financial Interest. A United States person has a financial interest in a
    foreign financial account for which:
    (1) the United States person is the owner of record or holder of legal
    title, regardless of whether the account is maintained for the benefit of
    the United States person or for the benefit of another person; or
    (2) the owner of record or holder of legal title is one of the following:
    (a) An agent, nominee, attorney, or a person acting in some other
    capacity on behalf of the United States person with respect to the

    Jack, can you comment in the presented above situation if accounts need to be reported in FBAR.

    1. I think that, if the U.S. person has beneficial ownership and title is in some other person's (the foreign relative in your example), the U.S. has a reporting obligation. To state this another way: If, while the money is in the foreign person's account, the foreign person is not the beneficial owner but the U.S. person is, then there is an arrangement described in (2)(a) above.

      That is my understanding. We have had this type of situation arise and were required to separate the funds in the foreign person's account between the foreign person's funds and the U.S. person's funds.

      Others might want to comment as well.

      Jack Townsend

    2. Jack,

      Can you please tell us what circumstances required your client to separate the funds? Was it due to transactions performed by the US taxpayer that gave rise to suspicion in the mind of the agent?

      Thank you

    3. On the penalty worksheet, we show the account gross amount that requires reporting and then we back out the portion that does not belong to the client. In the particular case where the account was title in a non U.S. relative's name but which had funds belonging to the U.S. person, this left a net of the amount belonging to the U.S. person. That amount then was in the penalty base.

      We just could not find a reason, based on the law as we understood it, to omit the net amount beneficial owned by the non-titled U.S. person.

      Hence, from that perspective, the IRS did not insist on it. In all likelihood, had we not reported it, the IRS might have never found out about it. But, playing that game would be exceedingly dangerous. For example, most of the accounts reported on the penalty worksheet and asset statement likely would never be discovered by the IRS if the taxpayer did not report them in the OVDI package (including the delinquent FBARs), but that is not a good reason not to include them in the OVDI package.

      Jack Townsend

    4. " if the U.S. person has beneficial ownership and title is in some other person's (the foreign relative in your example), the U.S. has a reporting obligation."

      In cases where you have cloudy ownership, ie account jointly held where US person and his parents (non US person) have utilized the funds in the account, how would you split the account?

    5. If a US person reporting obligation is classified under (2)(a), would he have to pay taxes in the US? if so can he claim tax credit for the taxes paid against the foreign person?

      The local law (at least in India) would deduct taxes under 2(a) against the foreign relative.

      Taking a hypothetical situation if an IT person (GC holder) in the US Sends his savings to India and deposits it in the name of his father an indian citizen. The local bank in India will automatically deduct the taxes for interest accrued in India against his father.

      So based on (2)(a) above would the US person
      pay tax for the interest in US?
      Can he get tax credit for the tax deducted from the interest income but paid to the Indian Govt against his father?


      should he pay the taxes in India against his father and in the US again pay the taxes but
      not claim any tax credit since the taxes were paid against his fathers name in India? this would amount to taxing the same income twice due to the way titling is done and the tax laws in different countries.

    6. To Anonymous Apr 17, 2012 04:05 AM

      There is no magic way to split the account. The ultimate test is whose asset is it? That portion of the account as to which the title holder is not the beneficial owner and the beneficial owner is a U.S. person, the U.S. person has to report his or her portion on the FBAR. Moreover, since income follows ownership of the principal / capital, the income earned on the account has to be allocated between the title holder and the beneficial owner.

      To vary the saying, follow the beneficial ownership.

      Now, keep in mind that, if the U.S. person were the title owner with some portion of the account beneficially owned by a foreign person, the U.S. person would report the entire account on the FBAR but, for U.S. income tax purposes, would report only the share of the income from the account that is allocable to the U.S. person's beneficial ownership.

      Jack Townsend

    7. To Anonymous Apr 17, 2012 04:52 AM


      Question 1. Would the U.S. person have to pay tax on his or her share of the account income. Yes the person would have to pay tax on his or her share of the income.

      Question 2. Can the U.S. person claim a credit for the Indian tax paid with respect to the U.S. person's share of the income. I don't know the answer to this question. At least in theory, if the income tax were paid on the U.S. person's share of the income, he or she should get a credit. There may be a problem, however, because the foreign income tax is being paid with respect to the title owner and not the U.S. person. One would have to go through the foreign tax credit rules to see if that is a disqualifier, but if it is not, then I would think that the economic impact of the foreign tax would fall on the U.S. person's share of the income and should be creditable. Perhaps some reader with direct knowledge or experience can provide a better answer.

      And, this may be addressed in the U.S. / India double tax treaty or a protocol or interpretation by the competent authorities.

      Jack Townsend

    8. "To vary the saying, follow the beneficial ownership."

      Title ownership is one aspect of determining
      who the beneficial owner is but not the ONLY aspect. As the document you have posted points
      to other aspects that determines the beneficial ownership are
      "1) which
      party enjoys the economic benefit of the property;
      (2) which party has possession and control; and (3) the intent of the parties.

      However using the titling to establish or prove ownership is the easiest way.

      What kind of proof would the service look for
      items 1,2,3 above. 2 may be easy. Again if
      the titling is in joint names both can control
      the funds in the account.

      1. what proof would be acceptable to show which party enjoyed the economic benefits.

      3. Again what proof would be acceptable to show the intent of the parties.

    9. This is a facts and circumstances test. I don't know what your facts and circumstances are.

      Maybe others will want to respond, but I do not have time given my other commitments do throw out hypotheticals that may or may not be meaningful to anyone.

      The bottom line is what do your facts and circumstances -- the real ones, not hypothetical made up ones -- show about who is the beneficial owner. Merely because the IRS may encounter some difficulty in some cases in showing someone other than title owner is beneficial owner does not give taxpayers the right to pick the result they would prefer.

      Bottom line, I am suggest that, if you are the U.S. person in this scenario, you know what the intent of the parties is and what the objective facts on the ground are that may be used to show the real intent of the parties.

      If you know that you are the beneficial owner, then you need to meet all U.S. obligations consistent with that knowledge and you should not concern yourself with whether the IRS will ever discover the truth. Your obligation is to report the truth, regardless.


      Jack Townsend

  7. "if the U.S. person were the title owner with some portion of the account beneficially owned by a foreign person, the U.S. person would report the entire account on the FBAR but, for U.S. income tax purposes, would report only the share of the income from the account that is allocable to the U.S. person's beneficial ownership."

    If title is in the name of US person and the beneficiary, a non US person, has enjoyed part or full economic benefit of the account, what proof would IRS need/look accept so that this reporting position can be sustained.

  8. See my answer above. If the truth is -- and you know the truth -- that the U.S. person is not the beneficial owner and the foreign person is, then your obligation is to report consistently with the truth. Proof is a secondary issue. However, if the truth is that the foreign person is beneficial owner of some or all of it, then you need to find some objective evidence somewhere of that objective proof. I don't know your facts and cannot tell you what your facts would show objectively. But I don't think it would be meaningful to speculate about what sort of proof would be that has nothing to do with your facts.


    Jack Townsend

  9. Jack,

    Truth without evidence is as good as any lie.

    The question was how do you convince IRS that your share is lets say 70% of the account and not more. I am sure IRS will gladly accept 100% share in the account so that the penalty is increased.

    1. Anon @Apr 17, 2012 12:53 PM

      I would suggest that you consult a professional and prepare a comprehensive case for penalty exclusion if you are within the VD program rather than trying to get an answer anonymously. I would surmise that cruicial data points may be

      -- Who funded the account ?
      -- Who is the primary account holder ?
      -- Who paid taxes (if any were due) to the foreign government ? Whose tax id is on that account ?

      That would likely be definitive to the IRS.

  10. "Truth without evidence is as good as any lie"

    Can I also say "lie without (never) being caught is just as good as truth" ?

    If you make disclosure to IRS, the assumption is that it is full and truthful disclosure. I don't think you need convince IRS with any evidence while there is no evidence to prove otherwise.

  11. I had accounts individually in my name in India and joint accounts with my parents outside India. Both the accounts were funded by my Dad.

    My name was later deleted in the joint account outside India and when my Dad died, my Mom closed the accounts and moved the funds to her account in India and solely owned them. In this case, as I interpret from the document,my mom had the economic benefit if I am not worng.

    When I joined OVDI 2011, I did not include the joint accounts in base penalty or inlude them in my amended tax returns and explained the reason in a letter that I never made any transactions on the account or funded them. However, I declared them in the FBAR.As for the individual accounts, I paid the taxes in amended returns and included them in base penalty. Does this sound like a reasonable approach?

    1. I can't address the underlying facts, but you did advise the IRS of the accounts so that there can be no complaint that you tried to hide them. I am sure that the IRS will sort it out and will not be unreasonable in the process. What consequence the accounts will have depends upon the facts. I wish you the best.

      Jack Townsend

  12. Just curious, what happened to vaibhav dahake and Josephine basin sentencing? Are the other hsbc officials being investigated?

    1. I don't know what the status of these guilty pleas are. They should have been sentenced by now, but sometimes they are delayed for any number of reasons. One reason might be that they are not cooperating and providing important information to DOJ Tax. By providing significant cooperation in such cases, they could have great arguments for mitigating the sentence.

      Jack Townsend

  13. Hi,
    We husband and wife have joint accounts. Some of the accounts have primary holder as wife and others have husband as the primary owner. When we make the OVDI submission, can we split the peak balance into half and each of us report half as the peak balance under our name and each of us give penalty on our share of peak balance. This would reduce the penalty to 12.5% by making the balance under 75K, if its combined peak balance, it would fall under 27.5%penalty.

  14. Has anyone tried and actually succeeded "beneficiary owner" argument to lower penalty base for OVDP/OVDI?

    In my case, I have a joint account with my father, and I never directly used that account, except that I am a joint owner. None of the money or interest in that account ever benefitted me. Especially this: the highest aggregate balance shot up to $80,000, because my father deposited some $60,000 of his entire life's retirement savings into it (and then later immediately withdrew the amount to invest in his own singly owned stock market accounts). BTW my father is not US-citizen, not US-resident, not US tax payer.

    Note that at this amount, my penalty changes from 12.5% to 27.5%.

  15. I have one where the IRS did not included the joint title holder but nonowner of the account in the penalty base in the inside OVDI calculation. We are opting out, I think it is a matter of the believability under all the circumstances of the claim of no beneficial interest in the account.

    Jack Townsend

  16.  Jack

    You're saying you were successful getting this account excluded within OVDI, but the taxpayer is likely to opt out anyway ?

  17.  Jack,
    That means in your specific case they did not buy the "beneficial interest" argument and hence rejected the proposed lower penalty base (partly contributing to your decision to opt out)? I am trying to guage  what my chances of making them see the reason/fairness in my argument. I never benefitted a dollar on the earnings or principal, I was merely a sigantory.

  18. I got it eliminated in the inside OVDI penalty calculation. We are opting out for another reason -- i.e., the inclusion of very expensive real estate with relatively minimal unreported -- i.e., the inclusion of that real estate makes the in lieu of penalty attributable to it over 12,000 percent of the omitted income. That is why the client will opt out, at the risk that the joint account could be punitively included in the opt out penalty. But, since willfulness is not involved, the nonwillful penalty is the worst that could apply -- i.e., $60,000 for a max of six years, which is a small amount of the in lieu of penalty applying to the real estate which will not be penalized on the opt out except as to 20% of the minimal income.

    Jack Townsend

  19.  Jack

    If the IRS were to penalize your client (or anyone else for that matter) for an account that person had no financial interest in, and only a signatory authority over (such as a corporate account, for instance), could it be considered an excessive fine under the Eighth Amendment ? You've blogged before about the Excessive fines clause in the context of someone who actually owns an account, but in this case, there is no financial gain, no ownership interest etc., so any penalty (even a  non-willful one) would be  disproportionate. There may not even be any tax loss if the actual owner was a non US person not subject to taxation. The only loss is information loss, similar to the Bajakajian case you mentioned. [I wouldn't even get into the ridiculous 50%/100K willful penalty, and I exclude extreme cases such as a bookkeeper for illegal money, where there is clearly loss to the government]

  20. I suspect that the IRS could get some type of minimal penalty because information reporting is still a legitimate Government goal. But, as in Bajakajian, it should not be disproportionate. So, I think that even the maximum nonwillful penalty of $10,000 per year (or even for a single year) would be disproportionate. My belief is that the IRS will take that into consideration on the opt out audit because my client really has no bad facts with generally and with respect to the particular account.

    Jack Townsend

  21.  US Spouse visa receiver afterwards apply to modify status to a permanent resident or LPR with the DHS or Department of Homeland Security US Citizenship and Immigration Services (USCIS) upon affirmation of the petition. .

  22. I have several joint accounts with parents enjoying the money I deposited for them, along with their own money they deposited. Can you or anyone provide some info on where (which form, letter, spreadsheet, accountInformationSheet etc. etc. etc. . . . . .) I can demonstrate reduced penalty-base?

    I am thinking of claiming reduced penalty-base of a joint account by (a) stating that I do not have any beneficial interest in the account (b) portion of the balance not belonging to me because deposits came from other account owners. I have proofs for such deposits (c) Interest earnings were never enjoyed by me . . .etc. etc. etc . . .

    I am looking for practical input such as which document to put this explanation on. There are various potential places: (a). Penalty Computation Worksheet. (b) Foreign Account and Asset Statement (c) Offshore Voluntary Disclosure Letter (d) attachments with the above letter (e) write a separate letter on a white paper . . . . etc. etc. etc. . .

    My dollar amounts fall into a category where an attorney is too expensive (some experts like Jack may not even consider my case worth their time); but a wrong step would eat a significant chunk of my parents' lifetime savings and mine too.

    Thanks a lot in advance.

  23. I think I would show all of the accounts on the spreadsheet and then show reductions for each that you think qualifies for a reduction (e.g., U.S. tax compliant account, etc.). Then, if you have an overarching reasonable cause / good faith argument, you can make it by attachment to the spreadsheet (perhaps revise the spreadsheet to refer to the attachment). But that is not the way the program works without opting out. Reasonable cause and good faith arguments are made after the opt out, not in the penalty structure inside the program. Still, it cannot hurt to make the arguments.

    Jack Townsend

  24. I would like to second what Jack says above as well as suggest a possible alternative approach. I used a similar approach that was accepted to show balance transfers and qualify for the 5% penalty under OVDI FAQ 52.3. What I did was first to create a document showing the transfers between accounts. I submitted this document. (The agent even said this document was very helpful.) I mentioned that I was including this document in my cover letter that described what I had included in my package.

    Next, on the penalty computation worksheet, for each year, I added one column so that I had one column showing the total balances before transfers and a column showing the total balances after transfers. Additionally, on the penalty computation worksheet, where the total amount of the penalty was to be shown, I showed what the 25% penalty would be (I faded the text) and added a line showing the 5% penalty in bold as being the correct penalty. At the same time, I submitted a supplemental letter describing how I met each of the conditions for the 5% penalty. I also referred to the inclusion of this document in my cover letter.

    My agent had already gone through all these documents before our first phone contact. When we spoke, I asked if help was needed in understanding the documents. The agent told me that all was clear and that as a result we were talking about the 5% penalty as my maximum in lieu of penalty. Note though, this was a penalty reduction that was clearly specified in the FAQs.

    Alternatively, what you can do is when you get an agent assigned, just be straightforward and tell the agent you have an account that you do not think should be included in the penalty calculation. Supply the agent with a document and proof of everything you say in that document about why the account should not be included. If the agent has not dealt with a request like this before, he or she will likely send it to a technical adviser for a decision. You are within your right to ask that the technical adviser justify whatever response they provide so that you understand it. I also did this to clarify the status of an account.

  25. Did you ever hear back on this matter?


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