Wednesday, June 18, 2014

Israel Focuses on Offshore Accounts (6/18/14)

I don't watch closely efforts by foreign countries to protect their own tax bases that may be eroded by accounts outside their borders, but I do know generally that tax authorities in other countries are concerned.  It is not just the United States.  Germany and France have made major  moves, for example.

Consider this recent story regarding Israel:  Tax Authority targets foreign bank account holders (Globes 6/12/14), here.  Here are some excerpts:
The Tax Authority has been handed information about thousands of Israelis with foreign accounts. 
"The Tax Authority has a list of Israelis with foreign bank accounts with tens of billions of shekels. They can expect to receive registered letters from the Tax Authority. Figures will be published soon about investigations that will be opened against some of the tens of thousands of Israelis whose names have been made known to the Tax Authority through various leaks. We're talking about turnovers of billions of euros," Tax Authority senior deputy director general for investigations and intelligence Avi Arditi told the panel on black capital at the Institute of CPAs in Israel conference in Eilat on Wednesday. 
As for the Tax Authority's capabilities in uncovering Israelis' money overseas, Arditi said, "In the past it was taboo to talk about people with a foreign bank account. No one knew about it and the chances that the Tax Authority would receive information about it was zero. But things have changed. Countries have grasped the need to share information, and banks are now required to examine the sources of their customers' money. We're in a new era, in which information flows into Israel from abroad, and we know how to deal with sources in Israel that provide us material. This is something new and interesting, and tax cheats should realize it."


  1. Thanks, I just posted on this. Will be back with more later.

    Jack Townsend

  2. Will be interesting to see the new eligibility criteria but hope is they will be fairly expansive.

  3. Anonymous - please contact me at desi2005b at maybe we can help each other

  4. RajNIL, you posted the following question below 3 months ago:
    "So the fact that one (negligently/unknowingly) answered 'No' to the "Do you have interest in foreign accounts...." question for multiple years - can that by itself constitute material criminal risk in the eyes of IRS?"


  5. Jack/all, what is a "Go Forward Strategy"?

  6. Go forward is simply doing everything required from this date forward, without any affirmative attempt to address the past either by joining one of the voluntary disclosure programs or doing a quiet disclosure.

    For a taxpayer willing to take the risk that he or she will come well if there is an audit of any year or years before the go forward years, that might be a good strategy. But in adopting the strategy, the taxpayer should assume that there will be an audit and be comfortable that he or she will not get unacceptable results if there is an audit.

    There are taxpayers for whom a go forward strategy is a good strategy.

    For taxpayers with the characteristics of go forward, two alternative strategies that might end up in the same place are (i) quiet disclosure (assume there will be an audit) which, if amended returns rather than delinquent returns are involved, will avoid the accuracy related penalty may be involved in a go forward audit, or (ii) join OVDP and opt out which will avoid the accuracy related penalty. And, the third option is to go streamlined if the taxpayer qualifies.

    Jack Townsend

  7. Not really :(. But I recall some other posts did say that that alone in isolation cannot be considered willful and that it's in light of other supporting circumstances. Let me know if you come to know something new. Thanks

  8. In terms of doing a GF how will this best be done if one has filed for an extension to file taxes?More concretely, if filling taxes in Oct with a schedule b stating that a fbar should be filed; yet, the fbar deadline has already passed, so can either file 2013 fbar late (which may pose more questions than help) or file the 2014 fbar next January (which is the first fbar which can be filed on time). Either is probably not ideal, but what would likely work best, or is there some other approach?

  9. Taxquestion,

    You are between a rock and a hard place on this one. You have no option but to file a true, correct and complete 1040 by 10/15, the extended due date. So, the question is whether you file a delinquent FBAR.

    The best go forward is one that is implemented in the first half of the year so that timely 1040 (even on extension) and timely FBAR can be filed.

    Since your timely date for the FBAR has passed, if you have a good reason for not filing it, you can file the FBAR with that reason stated and hope for the best. Or you can file your 1040 (with the Form 8938, the foreign income properly reported and the schedule B question answered yes) and not file the FBAR, counting on your narrative to avoid the penalty if the IRS connects your 1040 information with an unfiled FBAR. Those are your only two options -- to file a delinquent FBAR or not.

    I think making the choice should be done only after analysis of all of the facts -- first to see whether you should be joining one of the voluntary disclosure initiatives rather than doing a GF. If you don't have a good story to tell, you should not be doing a GF in the first place. And, if you have a good story to tell, you can tell it with the delinquent FBAR or not file and tell it if the IRS audits. Probably a flip of the coin as to which way to go there.

    Jack Townsend

  10. Jack - Should the Account Number in FBAR tie with 8938/Certification? what if for readability purpose, one decide to group them in 8938 (amended returns) and the Certification ?

    So we have 20 Accounts listed in FBAR... however corresponding only 1 Group Account in Certification and 8938..


  11. Keep in mind that the IRS may require it to be re-done if you aggregate accounts. But if you aggregate them, I suggest that you make it clear on your submission what you are doing.

    I am submitting a streamlined transition today with the year end balances and date openings on a spreadsheets that presents the information far better than the certification, but for each year's table I am referring to the spreadsheet for the details.

    Jack Townsend

  12. Do you think the IRS would bother to assess an FBAR penalty in a situation where the tax payer had no tax due and received a refund after filing taxes for that year the FBAR penalty would be on?
    I have a situation in 2007 when I failed to file my FBAR forms, but I had a foreign account with over 1 million dollars in it. I ticked no foreign accounts on my 1040 and I did not specifically declare the income from this account, but I paid enough tax to cover the income and in fact got a small refund for that year. My agent is gesturing that I am open to a FBAR penalty . I have said take me to court, because no judge is going to award a penalty when there was no harm done and no tax due. Do you think he would really carry out the threat and assess a penalty in this situation? And if he did, do you think as the issue moves up the ladder of the IRS, that higher ups would just drop the assessment because it would not hold up in court?

  13. Blackseal1234,

    Are you in OVDP? Have you opted out? Why do you think you were not willful (not enough facts to assess that issue)? Do you have other bad facts?

    If you did not include the income, how can you say that you paid enough tax (keep in mind that the benchmark is after refund net tax you paid)?

    The agent alone does not have authority to assert the FBAR penalty. His manager has to approve and, as to willful penalties, there are additional levels of review.

    Just remember the downside -- even a one-year willful max 50% penalty would be significant. I would not assume that you will necessarily win the case before a judge or jury. $1,000,000 is a significant amount, particularly if the Government were to show that you were otherwise sufficiently sophisticated to have known about the duty (or willfully blind in not doing so).

    Jack Townsend

  14. Yes ,I am in OVDP.
    No, I have not yet opted out
    After doing my amended returns for the OVDP, it was discovered that I had overpaid for 2007 and that overpayment more than covered the income not reported from the foreign account and I am do a refund for 2007.

  15. Blackseal123,

    The point is that you overpaid only because you made some other mistake. If you were willful with respect to your FBAR and income tax filing obligations, you intended not to file the FBAR and underreport and underpay your tax. That you did not underreport and underpay your tax because of the mistake in the IRS's favor on the original return really has no material bearing on your willfulness.

    Jack Townsend

  16. ......because of the mistake in the IRS's favor.....
    Jack,correction it should read "in your favour"

  17. Jack I have a question for you. Why are you saying the Service does
    not have a lot of facts in the SDOP certification ? Of course they have
    less than in OVDP but still enough to cross reference that all required
    FBARs have now been filed and the original 1040s have been amended and
    Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621 if applicable have
    been added . That is enough information imo. to come to the same
    conclusion they would if they had 8 years in front of them. The quality
    of the information is the same with RC arguments just not the amount of

    Why would the IRS not check the max. amounts on the FBARs
    first before they grant the certification to make sure that not a bigger
    fish is slipping through !

  18. The original mistake must have been in the IRS's favor because he did not have any additional tax from the omitted income when he filed in OVDP.

  19. In my country when there is no harm, ( ie. tax owed) there can be no foul
    ( penalty assessed). I find it absolutely astounding that the IRS can possibly assess a $500,000 penalty on a 1 million dollar account which was not created by money leaving the USA, but was earned while I was a citizen of a foreign country living in that country. I simply left it in my home country when I moved to the USA on a green card. The IRS was not out a penny of tax in 2007, they just want 500,000 because I failed to report the account. Do you really think a jury or judge is going to let the IRS get away with such a penalty? Is there no justice or fair play.?

  20. that is a good one ..."Is there no justice or fair play?"... Remember Congress passes the laws and the IRS has the power to execute enforce and administer these tax laws. This is tax policy not equitable tax law - not what is fair, just, ethical or humane. The next problem is that public perception is against you coming from a tax haven like the Cayman Islands.

  21. I have question to anyone with an opinion. Most of my 27.5% penalty in the OVDP was calculated on the value of my Cayman real estate. Real estate that I bought as a Cayman citizen 20 years ago when I lived and worked in Cayman. Because I rented my home for 2 our of the 8 years under the OVDP. The agent included the value of the home in each year. Of course if I opt out the agent cannot assess the FBAR penalty against the value of my home, however when I sold my home the money had to go into a Cayman bank account for settlement. I immediately moved the funds out of Cayman to the USA. The funds were in my account for less than 30 days. So I jumped out of frying pan into the fire, because now the IRS can attach a FBAR penalty equal to the value of the house, even though the money was not in the account for very long. Do you think I have an argument against the value of my home being applied to the FBAR penalty, because I immediately moved the money to the USA? I wonder if this has happened to anyone else and if they were successful in getting the value removed from the FBAR penalty.?

  22. Temporary stopovers in an account are sometimes excluded from the 27.5% penalty base. There is a lot of nuance there. But, for example, if it moved in and out the same day, eliminating from the base has been done. Certainly, the elimination would be appropriate if it move into one foreign bank account for a short., ephemeral (relatively) time and then to another foreign bank account. The elimination in that case is appropriate because the other foreign bank account would then draw the penalty for that year.

    In your case you should argue that by moving the amount to the U.S. -- thus totally visible to the IRS -- you should not be treated worse. The permanent place of deposit should be penalized or not penalized (U.S. Bank accounts are not penalized).

    I think that, if you can get that to the right place, you may be able to win that one.

    Also, on the 30-day stopover, how much interest, if any, did the funds earn. If it is de minimis, then any penalty would be particularly egregious.

    The problem is finding someone with some sense and sensibility to deal with the issue may be difficult.

    And, my usual caveat, are there any bad facts or even any good facts that need to be factored into the consideration.

    Jack Townsend

  23. the key sentence here is and I repeat ..."The problem is finding someone with some sense and sensibility to deal with the issue may be difficult." This is something your current tax lawyer should have done already a long time ago. You need to get away from your current biased examiner and his manager because this is a dead end. I think you have a credible typical immigrant story to tell about being negligent or inadvertent and your conduct is a result of a good faith misunderstanding of the requirements of the US tax law which means a jury trial would be probably best.


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