tag:blogger.com,1999:blog-1519969502186924526.post1760572307120339888..comments2023-10-24T08:00:53.865-05:00Comments on Federal Tax Crimes: Elimination of Duplications and Short Term Deposits in Miscellaneous Penalty Base - FAQ 37 and Extrapolations (9/10/13)Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-1519969502186924526.post-7103204636459312502013-09-13T21:33:50.730-05:002013-09-13T21:33:50.730-05:00Example 6:
"Same as Example 5 except that...Example 6: <br /><br /><br />"Same as Example 5 except that the real estate is compliant and thus not included in the miscellaneous penalty base."<br /><br /><br />Agree, but there is still the issue of the transfer of the real estate proceeds to FAC2, and the inclusion of that amount for penalty purpose for FAC2.<br /><br /><br />"Keep in mind that not a cent of interest is earned on the one day deposit."<br /><br /><br />Doesn't matter. The account is deemed noncompliant because it was not reported on the FBAR showing the $100K spike in value, assuming that the balance inclusive of the $100K is the highest account balance. If there was interest earned in the account, and the interest was not reported, then there would be two instances of noncompliance, failure to disclose the account on the FBAR and failure to declare income on the 1040 and pay tax on the interest.<br /><br /><br />"But, since the real estate is compliant, including the temporary deposit in the miscellaneous penalty base will not be a duplication."<br /><br /><br />Yes, no duplication, and the practical result is that the $100K would be counted in the penalty for FAC2 (in addition to the value of FAC1). The taxpayer committed no noncompliance with respect to the real estate, but having sold it, and depositing the proceeds into FAC2 for only one day, now the IRS would include that one-day account in the penalty calculation. Taxpayer should have sold the real estate, gotten a check, joined the OVDI/OVDP and then deposited the check into a US bank account after being accepted into the program.Asher Rubinsteinnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-85702579287795361592013-09-13T21:11:19.854-05:002013-09-13T21:11:19.854-05:00Example 5: Here there are three non-compliant ass...Example 5: Here there are three non-compliant assets to consider: (1) FAC1, the value of which we do not know, and which, according to the example, has no transfer to either of the other two assets. (2) The real estate. (3) FAC2, into which the proceeds of the sale of the real estate were deposited. All three assets would appear on the Penalty Calculation Worksheet in the OVDI/OVDP. (1) and (2), because the facts of the example tell us that they are noncompliant, and (3) because the deposit of $100K from the sale of the real estate into FAC2 presumably was not reported on the FBAR as the highest value of FAC2 for the one day prior to the transfer to the parents.<br /><br /><br />"Does the taxpayer then have to duplicate the same $100,000 'asset' - - the enhanced temporary $100,000 in FAC1 and the noncompliant real estate - - in the miscellaneous penalty base?" First, I think there may be an error in this question, inasmuch as FAC1 never saw the $100K proceeds of the real estate (FAC2 did). Would the penalty apply to the $100K value of the real estate and the $100K value of FAC2? The IRS would almost certainly argue yes, for the same reason as the paradox noted above in Example 4. However, I would fight hard on this, as it is unfair, contrary to the intent of FAQ 37, and twice penalizes the same noncompliant amount (first when it was in the form of real estate equity, and second when the same amount was deposited in FAC2).<br /><br /><br />As a side note, did the taxpayer file a gift tax return with respect to the $100K gift to the parents?Asher Rubinsteinnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-76302969665745003862013-09-13T20:49:41.797-05:002013-09-13T20:49:41.797-05:00Example 4: I agree fully that there is an unfair...Example 4: I agree fully that there is an unfair paradox at work here. A transfer from an account (FBAR reportable asset) to an account (FBAR reportable asset) would give rise to elimination for duplication. However, a transfer from an account (FBAR reportable asset) to real estate (not an FBAR reportable asset) would be counted twice for penalty purposes. Stated otherwise, two instance of FBAR non-compliance would lead to one penalty on $100K, but one instance of FBAR noncompliance (the account, not the real estate) would lead to a penalty on $200K.<br /><br /><br />However, what is really behind the penalty imposition in this example is not so much the FBAR non-compliance, but rather the income tax noncompliance with respect to the failure to report the $5,000 rental income from the real estate. If the $100K had been transfered from FAC1 to the real estate, and said real estate did not give rise to unreported rental income, then the real estate would not be a noncompliant asset, and the real estate would not be counted in the penalty calculation, and the penalty would only apply to the $100K in FAC1.<br /><br /><br />I will also point out that I have faced this scenario in my practice. My client in the OVDI transferred monies from a noncompliant foreign bank account to buy foreign real estate. The real estate, which did not throw off rental income, was not noncompliant. The funds transferred from the foreign account to purchase the real estate were not counted for penalty purposes. The value of the real estate was also not counted for penalty purposes. If the real estate had been noncompliant (whether because rental income went unreported, or because the real estate was sold and the profit not declared to the IRS), then the result would likely have been very different. In such a case, a sub-issue would have been: would the amount of the transfer for the purchase of the real estate have been deducted from the value of the real estate for penalty purposes, because the amount transferred had already been included in the penalty calculation of FAC1?Asher Rubinsteinnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-81055917484730022602013-09-13T20:31:37.210-05:002013-09-13T20:31:37.210-05:00Example 2: I agree.
Example 3: I agree, no dup...Example 2: I agree.<br /><br /><br />Example 3: I agree, no duplication, and not an FAQ 37 issue because no duplication.<br /><br /><br />"Is the temporary deposit in FAC1 included in the miscellanous penalty base[?]" Yes, for the reason that I stated in Example 1, above. Even if the $100K was in FAC1 for one day, that $100K spike in highest account value is reportable on the FBAR and, if it was not reported, the IRS would include the $100K in the penalty calculation.Asher Rubinsteinnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-49297269318849973352013-09-13T20:26:16.952-05:002013-09-13T20:26:16.952-05:00Example 1: I agree with the result (the transfer ...Example 1: I agree with the result (the transfer of the $100K will not be counted twice for penalty purposes). However, I disagree with the final statement ("it is logical to exclude it (the $100K) from FAC1 because there is no noncompliance with respect to the $100,000"). In fact, technically, there is noncompliance with respect to the $100K in FAC1 because that $100K deposit caused the highest value of FAC1 to increase by $100K, and said highest value would be reportable on the FBAR. If there was no FBAR reporting for FAC1 showing a highest value inclusive of the $100K, then FAC1 is noncompliant. In terms of penalty, though, the $100K would not be counted twice.Asher Rubinsteinnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-32241772041577449842013-09-12T22:34:51.139-05:002013-09-12T22:34:51.139-05:00In this context, I would again like to ask on this...In this context, I would again like to ask on this forum experiences regarding India Demat accounts. The Demat account hold securities in electronic format. It is not a brokerage account. The demat account is linked to a bank account. Dividends earned on securities related to the demat account are deposited into the bank account. Does the Demat account and bank account be included in the penalty base or only the bank account?<br /><br /><br />Does anybody have experience dealing with demat account with an IRS agent in the context of OVDI?Anonnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-22762944188577059722013-09-11T21:18:38.905-05:002013-09-11T21:18:38.905-05:00Somewhat off topic but an issue with the penalty b...Somewhat off topic but an issue with the penalty balance calculation.<br />I have an account. A PFIC sold in 2011. There are no distributions in the 2003-2010 OVDP window. So the tax due on this account in the tax returns for 2003-2010 is correct. It is zero. I would have had to sell in those years or file a mark to market form to change that. Of course I didn't know what a PFIC was.<br />Now the agent wants to assert the 27.5% balance penalty on this account because in the amended return it showed income. Her methodology seems to be to look at what accounts have had income added in the amended returns. Of course the income generated is purely a function of the OVDP M2M calculation. My 2011 return effectively assumes I will accept the OVDP offer though. Doh!<br />Similarly I had a small account that generated $3 in income and $1 in income in only two years on a few thousand dollars. Calculating the tax minus foreign tax credit drops the tax below 0.5c and so falls away. The FAQ says missing income so maybe this is on weaker ground than the first.<br />would you expect to be able to argue these should be removed?Neillnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-14559365981840227542013-09-10T16:53:19.264-05:002013-09-10T16:53:19.264-05:00This is hearsay reported to me by one of my lawyer...This is hearsay reported to me by one of my lawyers who handles OVDI, so I do not have the details. I was told of a case where there was a temporary spike to buy real estate (the money was in the account for 2 or 3 days) and they were successful in having the spike removed ... but it was not easy.<br /><br /><br />Separately, I have been told (in my case) that tax-compliant foreign accounts are not included in the penalty base, and specifically this would include non-interest-bearing accounts (since income was zero, the account was tax-compliant.) (Unfortunately my non-interest bearing account was so small as to not make much of a difference.) By extension, I would argue that if the spike occurred in an account used only to hold the money for/from the real estate transaction (in other words, not commingled with other funds) and the account earned no interest (not even a token amount) then one could argue that it should be excluded.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-23750594469015666492013-09-10T16:08:54.592-05:002013-09-10T16:08:54.592-05:00Jack...
In the OVDP, I was able to eliminate all ...Jack...<br /><br />In the OVDP, I was able to eliminate all long and short term duplicates between accounts.<br /><br />It took me a lot of work to create a spreadsheet flow chart to show each and every transfer that occurred between various accounts (mostly term deposits) that I had over 6 years. I then figured the aggregate without any duplicates. <br /><br />As I remember, the examiner took my aggregates as accurate, and only on one year, did I have to correct her aggregate amount where she had failed to follow my flow chart correctly. <br /><br />I don't recall that there were any issues with the shortness of the time of the transfer and sometimes I went from one account to another to another in the same day because of the way they rolled accounts when they matured... IE from Term Account to a Short Term Savings Acct to a Checking Account.<br /><br />So, long and short of it, with a LOT of preparation and would have hated to pay a CPA or associate attorney for the hours it took to do this. I had no issues other than, I still did not like the results, especially with her insistence my house had to be included in the total as shown in Number 4 FAQ example above. There was NO reduction for duplication of funds that went into the purchase of the home, as the home purchase was prior to the period of the OVDP 6 years look back. <br /><br />As you know, the TAS interceded on my behalf to negotiate a reduction to something I could live with, rather than be life alternating. I still feel like I shouldn't have had to pay anything other than get a "go and sin no more" letter, but so it goes. At the time I was so stressed by the $172K they wanted, that a $25K settlement came as a BIG relief to a nightmare without end. I took it. <br /><br /><br /><br />Now there really is no point on belaboring or second guessing my decision and acceptance back then, as it just P....es me off and would rather not go there. This was at a time that the Opt Out was just becoming available, and there was a LOT of uncertainty of how it would be administered. In the end, they took their pound of flesh, so they could waste it on payments to Raytheon for cruise Missiles that can launched at Syria.<br /><br /> In response to your question number 4, I don't recall this ever happening, unless I missed it.Just_Me_Alsonoreply@blogger.com