Wednesday, August 20, 2014

Another Offshore Account Depositor Guilty Plea (8/20/14)

The USAO SDNY announced, here, another guilty plea for a U.S. person, Bernard Kramer, with hidden offshore accounts in Switzerland and Israel.  The plea is to conspiracy (5 year offense) and tax perjury (3 year offense).  Here is the description of the conduct:
Between approximately 1987 and 2010, KRAMER maintained an undeclared bank account at a Swiss private bank headquartered in Zurich, Switzerland (the “Swiss Bank”). With the assistance of others at the Swiss Bank, KRAMER took steps to conceal the existence of, and his interest in, the undeclared account. KRAMER and certain individuals at the Swiss Bank used the coded phrase “Hot Lips” to refer to KRAMER’s undeclared account at the Swiss Bank. Periodically, KRAMER met with a representative of the Swiss Bank (“Swiss Bank Representative-1”) in the United States to discuss KRAMER’s undeclared account at the Swiss Bank and to review statements related to the account. With the assistance of the Swiss Bank, KRAMER repatriated funds to the United States from his undeclared account in a manner designed to ensure that U.S. authorities did not discover the account, including by requesting and receiving checks from the account in amounts just under $10,000 each. 
In approximately 2008, it became publicly known that the Swiss bank UBS AG (“UBS”) was being investigated by United States authorities for helping U.S. taxpayers maintain undeclared accounts. Around that time, KRAMER chose to maintain his undeclared account at the Swiss Bank after being assured by Swiss Bank Representative-1 that KRAMER’s undeclared account would remain safe at the Swiss Bank despite the UBS investigation. In approximately March of 2010, however, with the assistance of Swiss Bank Representative-1 and others at the Swiss Bank and an Israeli bank headquartered in Ramat Gan, Israel (the “Israeli Bank”), KRAMER transferred the remaining assets in his undeclared account at the Swiss Bank to a new undeclared account at the Israeli Bank. KRAMER maintained the new undeclared account at the Israeli Bank from 2010 to 2012. 
From approximately 1987 through 2012, KRAMER filed false tax returns with the IRS that failed to report his interest in his undeclared accounts at the Swiss Bank and the Israeli Bank, and the income generated in these undeclared accounts, which had a high value of at least $1.1 million.
JAT Comment:  Another bad actor.  This is one of the rare prosecutions which apparently does not involve entities to hide ownership of the accounts.

According to a USA Today report, here:
The Manhattan court filing shows Kramer secretly received periodic disbursements from the unidentified Swiss bank by requesting checks for amounts less than $10,000 — the threshold that requires banks to report transactions to government regulators.

85 comments:

  1. The Civil Fine is already $588,042, which just about represents half of his high balance during the period. Thus, from a purely academic standpoint, I am wondering what specific penalties the $588,042 is made up from. Also, I am wondering what the willful penalty would be, 3.5 X, like in previous cases? And of course what the sentencing would be, given his age. From a human standpoint, this is just sad. Seems like he was a just a stubborn man, set in his ways. I hope he gets no jail time, and has learned his lesson that money is just not everything.

    ReplyDelete
  2. Other than to say, that he agreed to pay back taxes owed, the press release apparently did not disclose exactly what amounts of back taxes Mr. Kramer avoided by not declaring the income from this - rather modest-sized - account.

    The "civil fine", i.e. the FBAR or - euphemistically: the "offshore" - penalty was roughly 50% of the high value of the account.

    I would be interested to learn the ratio of TAX/FuBAR to see if it is as egregiously disproportionate as in other cases.

    ReplyDelete
  3. John, that would be interesting indeed. But I am sure the FBAR penalty would definitely exceed, by far, the income tax on this account.

    ReplyDelete
  4. Milan - Once we do SDOP for the 3 years, what is the need to amend the full 6 years? After all in SDOP we are not just paying the back tax + interest, but also paying the 5% penalty.. shouldn't that cover?

    ReplyDelete
  5. Thanks Milan for the detailed reply.

    I concur with your analysis. I hadn't considered that there could be stock certificates which don't earn dividends.



    My stock certificate holdings issue yearly dividends. So I have to include them in the in-lieu penalty calculations. I was hoping that the asset references in FAQ 35 was not a catch all, but it is.


    The article on bitcoins and bitcoins being covered by FBAR regulations is an interesting read no doubt. The tax man is definitely keeping up with the technological advancements.

    ReplyDelete
  6. Milan, Honestabe1947,

    The post by Asher Rubinstein brings up a corner case:

    http://federaltaxcrimes.blogspot.com/2014/06/the-new-streamlined-processes.html#comment-1450359820

    ... "But what about, e.g., an account where the US owner withdrew funds? Assume further that this is the sole "bad fact", and there were no other indicia of willfulness. We know that there is case law that holds that use of the accounts (withdrawals) coupled with failure to "check the box" on Schedule B of Form 1040, constitutes willfulness." ...



    If that is the case, for those who are in line for streamlined procedure what is the risk of being later on found by IRS to be willful? If the above scenario does not describe a benign actor what does? What facts describes a squeaky clean actor?

    ReplyDelete
  7. Honestabe1947,

    I was not able to find the form 8468 on the IRS website using the IRS search utility and also by hand flipping through the pages.

    .... "Therefore, these stock certificates in paper form were not subject to being put in the FBAR or to FBAR penalites ( but ARE required to be entered in Form 8468)" ....



    Can you check if the form number 8468 in your post is a typo in your post?

    ReplyDelete
  8. You make a good point about the tax to FBAR penalty ratio. In my spreadsheet, I have columns for the tax loss and the high amount (with, in the cases to date, the FBAR penalty being 50% of the high amount. I do not in all cases have the data, but where I do have the data, I could add a column that makes the calculation (on the 50% assumption).

    I am putting that on my checklist to add that calculation.

    There is one point of uncertainty. The tax loss is a word that can mean various things. In this context, it probably means the tax loss that the Government can prove by a preponderance of the evidence (or, in most cases, that the defendant agreed to in the plea agreement). That is probably close enough to make the calculation meaningful.

    Thanks for suggesting this.

    Jack Townsend

    ReplyDelete
  9. I have not finalized the action yet (actually, the client has not yet approved it because we don't have a final decision from the IRS). But, I think I would attach a reasonable cause statement or something like it.

    Keep in mind that a reasonable cause statement is not required because the QD returns will be qualified amended returns, thus avoiding the accuracy related penalty. But, since the IRS says it is screening at the Service Centers for returns reporting foreign financial account income and changing the no answer to the Schedule B question, I would add an explanation sufficient to summarize why the income omission was not willful.

    Delinquent FBARs require some explanation, so I would again state in summary why nonwillful.

    Jack Townsend

    ReplyDelete
  10. If you can get the data, it might be easier to simply track Title 26 "income" (taxes and tax-related penalties) with Title 31 "income" (non-tax related penalties).

    I suspect that in this case it was probably enough that they had him by the short hairs for fraud. With Title 31 to do the heavy lifting for fines, I would guess that nobody spent much time with the nitty gritty of actually computing the comparatively small amount of Title 26 taxes evaded and possible penalties.

    Too much effort for too little additional "income".

    ReplyDelete
  11. Latest Post in Forbes- in summary IRS denying cases where a taxpayer may not have disclosed foreign account to a tax preparer. Last paragraph deals with transition
    But how does a tax payer know foreign accounts NEED to be disclosed?

    http://www.acceleratedtaxsolutions.com/aggregator/sources/1

    GOVERNMENT PUSH BACK ON TRANSITIONAL TAXPAYERS. Taxpayers recently attempting to transition from the OVDP into the streamlined procedures are receiving some degree of pushback from the government. Transitional treatment has been denied for many on the basis of “willful blindness” where the government believes the return preparer likely inquired about the foreign account or where the taxpayer simply failed to advise their return preparer of the existence of an interest in a foreign financial account (whether or not the preparer inquired about such an account).

    ReplyDelete
  12. Hi Jack, Milan, After having done QD last month, I am thinking of taking the SDOP route. Am I still eligible to enter the program i.e. file my certification along with my 5% penalty?

    ReplyDelete
  13. So what if the taxpayer withdrew funds in Asher's example 2000 Euros?
    What has this to do with willfulness if the taxpayer thought he was compliant?
    I think you are creating a problem scenario out of imagination- granted you call it a 'corner case' in engineering speak but I think you are giving the IRS too much credit to think its that methodical and reasoned.
    My take is , the IRS like most Govt. Orgs, has a CYA mentality- the safe thing is to deny - let someone else take a decision. However I doubt even the IRS is illogical enough to deny a Streamlined because of a 2K withdrawal

    ReplyDelete
  14. Tax Walla,

    I think you are eligible. For example, I have had taxpayers join OVDP after making a quiet disclosure and everything worked out fine. Don't know why it would not be the same for SDOP.

    Jack Townsend

    ReplyDelete
  15. http://resumeservicereviews.blogspot.com

    Wow!! i am very impressed with your lovely post.. i am so glad to left comment on this..

    ReplyDelete
  16. Jack - What would be the worst case scenario in case one gets denied on SDOP? I am talking about a minnow here .. balance around 100K for around 10+ years

    ReplyDelete
  17. That is an open ended question requiring the consideration of a lot of fact. But in the theoretical with no facts, the worst case could be criminal prosecution, civil fraud penalties and open statutes of limitation and multiple 50% FBAR willful penalties.

    Your facts would indicate whether that is a likely result, but all of the facts would have to be considered and judgement then applied to the facts to determine what the practical exposure is.

    Keep in mind that, in SDOP, unless you make a patently false certification and the facts you have to disclose in the income tax returns and the delinquent FBARs are really ugly, there is no automatic audit and denial may not be likely.

    Jack Townsend

    ReplyDelete
  18. Hello Milian,
    Quoting point #2 (your comment) referenced in this article above- Could you share if you have heard/found anything more in the context of "straight" SDOP? Thx!

    "He said that no one has to necessarily "qualify" for SDOP or SFOP. Just
    follow the instructions and submit your returns & FBARS accordingly,
    along with the NW certification, penalty check, and income taxes with
    interest, and that would be it. There would be NO examiner assigned, NO
    906 closing statement, "nada.""

    ReplyDelete
  19. I think the IRS is doing some form of triage on the incoming filings. In a comment, someone posted a link to the characteristics they are looking to identify the ones that might need a further look. My recollection is that they had a magic number of 5 -- they simply count the offshore related forms -- Form 8938, 5471, 8938 etc. -- filed with the amended returns and if the number exceeds 5 for the 3 years, then someone looks at the returns and perhaps the FBARs to see if further audit work is appropriate. Keep in mind that, with three years returns required, the number will already be 3 for the 8938. So only two more are required for an automatic review at some level.

    It is not clear what level review will be given, but obviously this scoring system may be a proxy for picking up bad actors who should not have certified.

    Jack Townsend

    ReplyDelete
  20. I filed my 2013 Tax returns around 1st week of June and getting ready to file my SDOP in next few weeks.. Is there any chance for audit before that? Do I need to rush?

    ReplyDelete
  21. Correct Jack. That post shared this link to the IRM instructions/flowchart on streamlined http://www.irs.gov/pub//foia/ig/spder/WI-21-0814-1244_Redacted%5B1%5D.pdf

    Just curious if you have you gotten a chance to review this in fair detail?

    Assuming the package is complete/calculations all check out, Page 8 onwards talk about these "If then conditions", anyone failing seem to indicate that the submission is getting more eyes on it (forwarded to LB&I department) [layman interpretation here!]
    1. somehting about checking on a "z freeze" yes/no
    2. checking if "Any affected tax year is in AMDIS status 12 or greater" - imples person is already under investication
    3. And lastly the number of info returns being > 5

    ReplyDelete
  22. There is always a chance of audit. Keep in mind that the streamlined programs are for those who will likely get a good result on audit because they were non willful. So, if you have a strong nonwillful case and a good narrative, even joining SDOP may not be the best result for you. If you have a strong nonwillful case, you could come out OK from an audit. So, this certainly mitigates the risk from not rushing the process to file quickly.

    Also, there was some discussion about which years to include where you filed on extension and the extended due date has not yet passed. You might take a look at that and may want to time the SDOP to your best advantage.

    Jack Townsend

    ReplyDelete
  23. Hi Jack, Can you help explain what these mean in the PDF the other reader posted

    1. What is AMDIS and how do I find AMDIS for a tax year?

    If All affected tax years are in AMDIS Status less than 12 then

    Process all related amended returns as streamline

    2. What is Z freeze?

    Review the account for a -Z freeze. If there is a -Z freeze on the account, contact CI to determine whether an amended return filed using the Streamlined Foreign Domestic Compliance Procedures can be processed

    ReplyDelete
  24. Tax Walla,

    1. AMDIS. I do not know. Hopefully someone reading your question will know the answer.

    We could infer from the context that has something to do with whether a taxpayer is under audit or has been selected for audit. But that is an inference and a weak one at that.

    From the context, I could also infer that it is the type of information that is not available to taxpayers, but again that is an inference and a weak one at that.

    Jack

    ReplyDelete
  25. I have tried to figure it out but….I can offer only this cut and paste form the IRS website. Obviously it has to do with auditing systems. Go to the very sat paragraph to find AIMDS.

    4.4.1.2 (04-29-2005)

    Description of AIMS

    AIMS, the Audit Information Management System is a computer system used by Appeals, Examination, and TE/GE to control returns, input assessment/adjustments to Master File and provide management reports. This IRM covers Examination’s use of AIMS.

    While the return is charged to Examination, the AIMS data base tracks its location, age, and status.

    Information on the management reports can be found in IRM 4.4.27, AIMS/Processing Handbook - Reports.

    The AIMS base has been consolidated into one IMF data base and one BMF/NMF data base. It appears to the user that there is only one data base. You can view all returns on AIMS using CC AMDIS(A) without having to route the command code.

    ReplyDelete
  26. Hello everyone,

    We are trying to decide if we should request transitional treatment for our children. We are as a family in the 2012 program. One child is still a minor, the other became of age within the program covered years. As it is their accounts fall under the 5% penalty. The reasoning is that if for some reason the IRS would not accept our supporting evidence for the 5%, requesting the transition would be a sure bet. How can a child know about taxes and be willful? After amending the returns, they both had to file their separate return for 3 of the years vs being on our joint return. For the 8 years, the minor child doesn't owe any taxes, the other child owes less than $50 each for 2 years. Should they even stay in the program? If they don't send the rest of the docs (returns, etc.) and say they want out, what happens then? We as parents also don't owe any taxes but actually have refunds (due to deductions we didn't know we could take). Transition is out of the question for us since the bulk of the money is in non-income producing accounts that would bear a penalty under the 2014 program. Has anyone faced a similar situation and let us know of the outcome and choice we have?
    Very much appreciated

    ReplyDelete
  27. I'm looking for updated results for taxpayers going from OVDP to Transition.


    Based on the Forbes article (anecdotal), unless the taxpayer informed the CPA about foreign accounts and income and the CPA wrongly advised them that they were ok because they were paying taxes in a foreign country, (an almost impossibly high barrier), Transitions are being denied

    1. Jack, Catherine, anyone : Is this true ie. transition denied except in a slam dunk case where the taxpayer was wrongly advised by the CPA ?

    If the above is true, it implies that most taxpayers doing their own taxes would be denied transition.
    It means OVDP transition is a sham because the IRS will not accept anything but the MOST obvious case where the taxpayer was wrongly advised by his CPA . ( Most CPA s would not admit to giving bad advice)
    Unfortunate, because if true, as Guest, Title26 and others state, taxpayers who tried to do the right thing and enter OVDP are being punished, whereas those in SDOP are simply paying the 5% penalty (I have yet to hear of a single SDOP or QD being reviewed -seems the IRS is simply cashing the checks)

    ReplyDelete
  28. We had a case where TP checked box "no" on Schedule B. There was no wrong advice from tax preparer. TP wrongfully believed the income was non-reportable and did not know about TDF-90-22.1 (now rendered obsolete by FinCEN114a) and IRS approved our request for transition. It's a case-by-case situation. We did have some bad facts.

    ReplyDelete
  29. Guest Esq, in the case you mention above where the TP wrongfully believed the income was non-reportable and the transition was granted, was there any tax due for the 8 OVDP years?

    ReplyDelete
  30. Guest Esq
    Thank you for sharing your experience - it is encouraging to note that transition was approved
    a) Was there a tax preparer involved or was this a self filer?
    b) Assume foreign tax was paid in the foreign country ?



    Jack had a case approved as well or was told to fill out some form which indicates transition would be approved


    Anonymous,
    There was a case reported in this blog where the TP also had a child with foreign accounts and they opted out of OVDP. There was no Transition program at the time.

    The child was given no penalty, the parents paid NW for years open per the statute of limitations
    Given the kids owe <$50 each for 2 years, I think Opt out or Transition is almost certain


    if you don't owe US tax , I'm not sure why any of you are in OVDP

    ReplyDelete
  31. The evidence of actual processing of transition cases is slim, so I just don't think we can yet draw conclusions. I do think that the IRS is not likely to approve if the taxpayer's submission is weak. In such cases, the IRS will say opt out and we'll do a more thorough development of the facts so that, if we give relief, we will have done the work necessary to do so. The problem is trying to calibrate in any meaningful way just how week the request for transition relief must be for the IRS to deny transition relief.

    If indeed transition relief is a proxy for the results of an opt out (and I think in broad strokes it is such a proxy), then we should be able to take comfort from the fact that opt outs with the Schedule B question checked no and no discussions with the return preparer do get relief on opt outs. Hence, I would assume that, if those were the only bad facts and the package otherwise looks good, the IRS may grant transition relief. But that is a projection from my assumption as to the proxy status for transition relief. I don't have enough data points to draw that conclusion for future cases.

    Jack Townsend

    ReplyDelete
  32. There was a tax preparer involved with the original returns and there was tax owed in each year, although it was not substantial. The bank account balances did not exceed $100,000 in any year.

    ReplyDelete
  33. Thanks for pointing out this specific example. I just posted a speculation from the limited information to date that would have reached this conclusion where the facts are otherwise good.

    Jack Townsend

    ReplyDelete
  34. Thanks. Good info.

    Did you fill out elaborate reasons in the streamlined self-certification? Did you explicitly state a reason as to why the TP selected "no" to the sch.b question. Was the overarching reason as simple as he/she didn't know at all about foreign reporting needs.

    ReplyDelete
  35. You got transitional relief because the amounts involved did not make it worth the IRS time to deny the transition and spend the considerable amount of audit time for an opt out. I have similar facts, but because my balances was over 5 million in one year because of the sale of my house in a foreign country they are resisting allowing transition. This is all about revenue collection not equal justice.

    ReplyDelete
  36. Guest Esq,

    If possible, can you share the neighborhood of the taxes owed?

    ReplyDelete
  37. Blackseal, You may have a good point about low overall balance not being worth the IRS's time. At the same time, it is not logical to deny transition mainly because of a $5 million balance (including the sale of a property). This does stink of revenue collection. Having a high balance of $5M makes you no more, or less, willful than having accounts worth $500K, or $10M or whatever.
    The fact is, the ' presumed bad guys' are Swiss and Bermuda accounts and in your case, the Caymans, but nobody is talking about China- which has one of the largest immigrant populations and are buying million dollar + homes with cash. Duh- oh ?

    I can understand why Opt out is a scary thought for you but it may be your best option, specially given the behavior of your agent. The new SDOP suggests that the IRS realized it is losing credibility because of the OVDP programs, - you will atleast get a different (hopefully more savy ) set of IRS people on Opt out .

    If you have'nt been doing anything illegal, prima facie, it is morally wrong to coerce you to pay a 27% penalty, specially given you had the money and property before you even came to the US.
    I would hope that is not what America is about. I empathize with you.

    ReplyDelete
  38. Jack , have you ever dealt with an agent that continually makes mistakes in processing returns, fails to do what that agree to do and generally seems biased without bases? This is the agent I have. I have never been rude, never been late in getting anything requested. I just get frustrated that we agree to things over the phone and then he never delivers. e.g.. He may agree that a deduction should be allowed, asks me to resubmit another amended return, and then processes the return without recognizing the deduction. I have spent thousands in legal and accounting fees just trying to respond to all the IRS mistakes in processing amended returns. Have you ever requested an agent be removed because of incompetence?

    ReplyDelete
  39. No, I don't recall that I have ever had to request that an agent be removed. I have had serious differences with agents; sometimes the differences were resolved and sometimes not. In most controversies with agents or even with revenue officers, there is another day and venue to fight the battle. That is severely restricted in OVDI/P, however. Even in OVDI/P, I have not had major difficulties.

    Let me say, however, that most of the interaction where skirmishes or serious battles could occur are handled by the CPAs who do most of that type of work in my practice. Most of the time, my role is to strategic planning and advice. The work in responding to agents is handled by the CPA.

    Jack Townsend

    ReplyDelete
  40. Thank you Jack.

    ReplyDelete
  41. If having problems with an agent because of rudeness, bias, or simply becuse he misinterprets the law you have the right to ask for the name of his/her manager and speak with the manager. I had to persist a bit. It's just as you would do if having problems with an employee at a private business; the manager (usually) is more knowledgeable and well-mannered. Consider contacting TAS as well. You'll need a bit of persistence there too.

    ReplyDelete
  42. They need to look at the whole picture. You've cited a very good reason (sale of house) for balance jumping above the normal level.

    ReplyDelete
  43. But once the IRS enies the 5% streamline penalty, doesn't the TP have a legal right (through Privacy Act or otherwise) to the documents where the basis for the decision is laid out? That is the case with a trial, in which a judge gives a legal opinion, outlining the legal reasoning. Otherwise this is like Kafka's The Trial.

    ReplyDelete
  44. I am curious to know the same. If streamlined were to be denied, would IRS share details of what evidence they really got? Or would the tax payer have to shell out $$$ to litigate via an attorney and get the evidence?

    ReplyDelete
  45. Blackseal, although the facts of every case are different, we handled a case where we were able to successfully exclude the proceeds of a foreign home sale from the penalty base. The funds went into and out of the account within a short period of time and were brought to the U.S. Best of luck to you.

    ReplyDelete
  46. This is exactly the problem ...."Best of luck to you"...... I have been living and working over the last 30 years in 6 different countries on 3 different continents and in none of them I needed luck when dealing with the tax authorities. It was always pleasant either my errors were corrected with regards to employer stock option grants or vested stocks or the agent maximized my deductions, tax credits etc. when I missed something. I never had the feeling I get screwed. The IRS agents are flesh and blood as well but if they can get away with bullying someone into their interpretation of the law, they probably will . The US has one of the highest tax lawyer/taxpayer ratios in the world . Taxpayers with Legal Counsel are treated better. It’s unfair, even illegal, but it’s also human nature

    ReplyDelete
  47. Counsel1. It is encouraging to hear this. At some point I am going to have to argue that the proceeds from the home sale should not be included because they only stayed in the foreign account for 45 days before they were sent to my account in the USA. The problem is I was not aware that the capital gain on my foreign house was taxable in the USA. The property was purchased 25 years ago in my home country and I lived in it before I immigrated to the USA with my wife. I only lived in the USA for 3 years before selling the house. I considered it my primary home as I do not own a home in the USA , but I rented it while I lived in the USA. When I filed my amended returns it was determined that the capital gain was 3 million dollars, which created a huge tax burden. It is a shame because I could have easily sold the house before immigrating to the USA, or I could have cut my green card in 1/2 and gone home and sold the home. I could have legally avoided any capital gains tax with the proper tax planning. If I get any push back from the IRS in removing the amount from the FBAR penalty base I will reach out to you to see what specifics you had that I can use for argument.
    Thanks for your comments.

    ReplyDelete
  48. Last week the exam was initiated on my opt out case. The examiner established the non compliance as non willful and has assessed penalties based on mitigated guidelines capping it at 10K per year. My facts are quite good and there is reasonable cause for the foreign accounts. I was not aware of the streamlined penalty until yesterday, and was surprised to find out that the IRS examiner had faxed the streamlined agreement to my attorney last month asking if we were interested. My attorney never mentioned this to me, or respond back to IRS and due to the non-response the examiner went ahead and issued the exam letter to me. Now when I have inquired about the transition terms the IRS position is once the exam is initiated the case cannot be transitioned out.

    My question is isn't IRS supposed to copy the taxpayer in all correspondence, and in this case since I was kept in the dark about the transition offer, does it give me a good ground to appeal the higher FBAR penalties I am now looking at? I don't understand why the examiner never mentioned the fax sent to my attorney on my multiple contacts. My attorney tells me he was going through a personal situation at the time and that's why he may have been negligent about the IRS correspondence.

    Any guidance will be appreciated on whether I can do something to get IRS to reconsider transition after the exam has been initiated, as I feel my case is truly deserving of the streamlined process. What will be my chance of getting this reconsidered in appeals?

    ReplyDelete
  49. classic : "My attorney never mentioned this to me, or responded back to the IRS....."

    ReplyDelete
  50. According to the guidelines "theoretically" the IRS needs to send to you and separately any other account holder Notices or other correspondence. In practice
    http://www.irs.gov/irm/part25/irm_25-013-001.html
    http://www.irs.gov/irm/part5/irm_05-001-023.html

    ReplyDelete
  51. GlobalCapitalism and Guest, thanks for your comments. I know my attorney screwed up and he has done it once before. I am discussing with him later today to see if he can help me to move this forward to the right outcome with IRS.

    ReplyDelete
  52. Optedout you have got to be kidding!!! I have heard that the IRS sometimes forgets to send documents to the lawyers, but usually always send originals to the taxpayer. Your lawyer has done you a serious disservice . I suspect he knew it was more money in his pocket if he took you through opt out verses a quick streamlined out. I think you have cause to ask your lawyer for compensation resulting from his negligence. I would ask your lawyer to go hat in hand to the IRS and beg forgiveness for his failure to represent you and hope they will allow you into the streamlined. It is in their best interest to let you into streamlined. No audit etc.

    ReplyDelete
  53. Blackseal1234, they have already completed the review of my case and have sent the case to the OVDI Tech Adviser for review. I don't know if they have to do any more work in the audit as the tax portion just needs PFIC recalculation to be done.

    ReplyDelete
  54. Can you please share some more info on your case? With 18K for 5% penalty, I guess your asset value is ~360K? You said you had multiple accounts? About how many were PFICs? What was your tax obligation? What was the key elements for non-wilfullness?

    ReplyDelete
  55. I think it is quite obvious that your lawyer is guilty here of negligence, but more importantly negligence with a price tag of $22,000 ! Does he even realize that !?
    If yes and he has not made a concrete proposal to you how to fix this what are you going to do ? These stories are just another piece of the puzzle why tax lawyers has such a bad reputation.

    ReplyDelete
  56. Actually fax gives a confirmation of receipt, whereas the IRS sends everything out by regular mail, so if you don't get a notice kicking you out of OVDI, too bad. It's worth a try asking the IRS about streamline, though I wouldn't be too optimistic. But I do think your lawyer screwed up big time, and hope he does the right thing and reimburses you for the 22K difference, and does not charge for any attempts to get the IRS to let you get the 18K streamline penalty, since that would mean the attorney saves on the 22K he owes you.
    Getting a lawyer to sue another lawyer for malpractice ain't easy, though there are a couple of attorneys who specialize in legal malpractice. If you get nowhere with your attorney, a report to the bar association might help, but make sure you don't make any threats such as "If you don't pay me 22K I'll report you" which might be construed as blackmail.

    ReplyDelete
  57. Also found this about AMDIS: http://www.irs.gov/irm/part2/irm_02-008-003.html
    Apparently it's a command code that brings up a screen with summary of modules on AIMS.
    And what is AIMS? Audit Information Management System:
    http://www.irs.gov/pub/irs-pia/aimsr-pia.pdf
    (I searched on Google for AMDIS site:irs.gov)

    ReplyDelete
  58. Jack you are correct about Switzerland in recent years. But many years ago in Switzerland (and possibly today in other countries) it was possible to add a signatory without the person's identification, consent, or even knowledge. This was also possible in the US many years ago.


    All you had to do was give the other person's name and address, and could provide the person's signature by cutting it out and pasting it from a canceled check for example; sometimes the other person's signature wasn't even necessary.


    Later the requirement was changed in that the authorized signer had to sign the signature card, but that could be mailed in.



    In recent years banks in Switzerland and other countries typically require any signatories to come to the bank in person and show identification, which is photocopied.


    The eveolution to stricter requirements has been the case in the US as well.

    ReplyDelete
  59. Sorry I missed your question when it was posted three months ago. From your description it appears that you are a signatory who does not have a present financial interest in the account. (You may or may not inherit the account when your mother dies, but at this point the money isn't yours.) There is no FBAR penalty if you have no financial interest. Obviously you would have to show that is the case, since you can expect the IRS to be skeptical. Bank documents would probably show that the name was added without your knowledge but you never withdrew money for your own benefit.

    ReplyDelete
  60. Ignorant FBARviictim: I had 5-6 PFICS during some years. I will share specifics once my case is closed which should be in about 2 months.

    ReplyDelete
  61. Your attorney may owe you more than the 22K difference in order to make you whole, depending on whether such a reimbursement would be taxable to you.
    Also, at least you opted out and got a good result. Many in your situation would have stayed in OVDP, scared of opting out, and paid 27.5%.

    ReplyDelete
  62. Jack, I have received the Opt Out FBAR penalty and tax assessments from IRS and have 30 days to respond. I need professional advice on whether I have good grounds for appealing the FBAR penalty, and also the tax assessment on a closed year plus Accuracy related penalty assessed on the basis of John Doe. Could you provide me with a few practitioners names in the Boston area? Thanks.

    ReplyDelete
  63. I have inquiries out. I'll be back tomorrow.

    Jack Townsend

    ReplyDelete
  64. I thought accuracy plus FTF,FTP or FTD penalties outside of OVDP are standard procedure. But on what basis besides civil fraud has a closed year become open again ?

    ReplyDelete
  65. The Thorn Law group is one of the best.
    617-692-2989. Cost about $500 for top guy Kevin Thorn .

    ReplyDelete
  66. I have not yet heard back from inquiries for a Boston Attorney to recommend. One commenter did post a recommendation for a Washington DC lawyer. The lawyer the commenter recommended is a good lawyer. However, the recommendation was not responsive to the question that OptedOut asked, so I did not approve the comment.


    If others can recommend attorneys in the Boston area, please do so.


    Jack Townsend

    ReplyDelete
  67. On the basis of John Doe summons issued to HSBC where I had an account. I believe IRS has not been consistent in applying John Doe to closed years in all opt out cases.

    ReplyDelete
  68. Thanks for looking out, Jack.

    ReplyDelete
  69. As I recall, the HSBC John Doe Summons was to HSBC India (whatever the precise name of the entity was). So, assuming you were within the scope of the summons (in which case your statute of limitations could have been suspended) if there were no resolution of the summons by 6 month's after the summons date. Note in this regard that the person receiving the JDS is required to give notice to the utlimate persons (the John Does, so to speak) of the statute suspension by noncompliance after 6 months.

    So, if your HSBC account were within the scope of the summons, were you notified of the statute suspension? (It could be that HSBC fully complied quickly; I remember that there was some notion about that HSBC had already agreed to comply.)

    Jack Townsend

    ReplyDelete
  70. I have not received any notice from HSBC stating that my account was within the scope of the summon. I don't know if my account is within scope and have asked IRS for documentation to validate. They agreed at the last meeting to send me something to validate.

    ReplyDelete
  71. I also paused when I read Number 2 from Milan Madhani because I would expect a close examination of the disclosure concerning the NW circumstances.

    1) The definition of Willful vs. Non-Willful is never discussed. Is it defined anywhere?

    2) This sentence from the link RajNIL submitted seems to imply that everyone would exceed the 5 paper filings Jack refers to above since they require you file the forms even if they are not normally required with a properly filed form 1040. From table on page 5 and also appears later on page 6,

    " Submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with the required information returns (Forms 3520, 3520-A, 5471, 5472, 8938, 926, or 8621) even if these information returns would normally not be submitted with the Form 1040X had the taxpayer filed a complete and accurate original return."

    WHat does the sentence mean, everybody filing for SDOP needs to submit an 8938 even if they are well below the financial threshold and would not normally file the 8938 with an otherwise properly completed 1040?

    ReplyDelete
  72. OptedOut, though I don't have a recommendation in Boston, keep in mind that the 30 day deadline is not set in stone. In my case, I have been able to get an extension by asking and explaining the circumstance (you need to find a lawyer, discuss the matter, etc.) This may give you a bit more time to meet with one or two lawyers. Also it's better to travel to a good lawyer than meet locally with a not-so-good one.

    ReplyDelete
  73. Thanks. I asked for 30 days extension and it was accepted. Still looking for an attorney/CPA.

    Would it be considered ok to approach TAS to ask if I should appeal based on IRS inconsistency in applying penalties/assessing closed years?

    ReplyDelete
  74. Opted out. There is an excellent law firm in Boston that deals with the OVDP and related issues. The law firm is the Thorn Law Group. The head attorney (ex-IRS trial attorney) is Kevin Thorn. His partner is Mary Rinaldi just as could and also ex IRS trial attorney. He operates out of Washington, Boston and NJ. He works in his Boston office at 10 Post Office Square 3 days a week. He has handled at least 100 OVDP cases. He is $550 and hour. A no nonsense guy.Telephone number 617-692-2989. Jack dismissed him because he thought he did not operate out of Boston, just Washington.

    ReplyDelete
  75. Blackseal1234,

    Thanks for this post. I had not realized Kevin and his firm had a Boston office. I thought he worked out of DC. At any rate, I have not worked with him but can state that, by reputation, he is a very good practitioner in this area.

    I did send out some feelers for other practitioners in Boston that I might recommend and got no responses back. Sorry I could not make a recommendation, but I think Blackseal1234's recommendation is probably a good one.

    Jack Townsend

    ReplyDelete
  76. Just my 2cents.... stay away from ex-IRS anything incl. trial attorneys......the forever tainted. Financial motives amongst other things were the trigger for the "revolving door" career change and sorry to say but I am skeptical about a recommendation coming from you when I look at you legal mess and choice of legal representation .

    ReplyDelete
  77. Hi

    I am part of OVDP 2012 and I have very low income to report. I have been postponing sending documents to IRS and IRS has now sent me 4566 to remove me out of OVDP process. However - I would like to be part of it and get this over with. So I need to respond within 30 days to be reinstated and for that they are asking me to send a written letter with statements of facts, supporting documents for the facts and my suggested course of action. I am not sure what facts mean here. Has anyone dealt with this? Could you please let me know what the facts mean here? Thanks!

    ReplyDelete
  78. Ken, the facts are your position on willfulness. I.e. why did you have the foreign accounts? Did you have reasonable cause to not report these accounts and the income from these accounts.?. Were you intentionally trying to avoid taxes or hide money.? You want to present them with good facts about why you had these accounts. A good fact is that you inherited the accounts. A good fact is you had these accounts from working overseas. A good fact is you left these accounts overseas when you immigrated to the USA. A bad fact is that you funneled money out the USA and earned income from this money and never reported the income on your 1040. Have they issued a 906 ?And then if you do not accept the 906, you must formally opt out and provide a rationale for what penalties if any you should pay. They will then review your facts and your suggested penalty and get back to you. I would not allow them to kick you out, because once they do, you have no further protections from a criminal prosecution. Also if you are kicked out you can't ask them for consideration for a transition to streamlined. You usually get a 4566 because you have not responded to their request for additional information or the signing of the 906. If get removed from the OVDP you are a sitting duck, it is better to remove yourself via an opt out. If you have not consulted a lawyer now maybe the time to, unless you do not have much to lose in a worse case scenario. It sounds like your tax situation is not too bad, but the FBAR penalties might far exceed the income tax owed, and I assume you have already paid the income tax owed plus 20% accuracy penalty , plus interest when you joined the 2012 program.

    ReplyDelete
  79. Jack, Blackseal1234,


    In the case of Ken, since no documents have been submitted yet, can Ken opt out of OVDP? If he opts out now, will IRS frown because he did not submit the OVDP documents after many requests? What opt out risks should Ken be concerned about assuming that there are no bad facts or fraud?

    ReplyDelete
  80. Thanks Ken! I haven't got Form 906 because I didn't submit any documents yet. I spoke to the IRS agent working with me and she simply said to submit documents and I will be reinstated. I am planning to get that done this week! Based on the penalties I will decide to opt out. I will try for Streamlining as well. Thanks for the quick reply Blackseal1234.

    ReplyDelete
  81. Blackseal1234, thanks for the information. I will establish contact.

    ReplyDelete
  82. Any one has guidance on whether or not mortgage balances are considered when calculating the value of real estate for calculating the penalty?

    ReplyDelete
  83. I believe you cannot deduct the mortgage amount from the fair market value of the property when determining the value of the real estate for the 27..5% penalty. This seems wrong and you should push back, you might win out if you get a reasonable agent.

    ReplyDelete
  84. I have received different information
    When applying for transitional treatment from OVDP to streamline, if the request is approved you DO get a form 906 witht he 5% penalty.
    When I applied to transition I was told to fillout the streamline form as if I were going directl into streamline (meaning that of the past 3 years at the time I filled out the form I was FBAR compliant so I simpl wrote n/a with a one sentence explanation that I was FBAR compliant for that year. The 5% was calculated on the same highest balance that would have been used had I stayed in OVDI (in my case the 12/31 and highest balance for the year were the same, but I would have been allowed to use the 12/31 balance (as when going directl into streamline) if the balnce had been higher during that year.
    Seems that because of specific guidance different offices/managers are interpreting things differentl.

    ReplyDelete

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.