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Foreign Banks in 140 Countries Draw IRS Scrutiny

The U.S. Treasuryannounced the current results of the Tax Amnesty that was offered for 2011 with the extended deadline of September 9, 2011.

A total of more than 30,000 individuals have come forward under the amnesty programs for 2009 and 2011. The amount of additional revenue collected just on the 2009 amnesty program exceeded $2,200,000,000. Of the 2009 applications for amnesty, about 80% of the cases have been “closed”. It is unclear what Washington means by the word “closed” but may include applicants that were later found as not qualifying for the amnesty program.
For the 2011 amnesty program, the IRS has disclosed that more than 12,000 individuals applied for the tax amnesty and $500,000,000 has already been collected from the 12,000 applicants without penalties. It is doubtful that the $500 million represents any substantial percentage of the 12,000 applicants, since the period of time to work a particular complicated taxpayer case can take more than a year.

With penalties at a much higher level for 2011 amnesty as compared to 2009 amnesty, it is possible that the gross revenue netted from the 2011 amnesty will be more than $3,000,000,000.

The IRS says in a statement the latest data from the 2009 offshore program is just about 80% of the cases that it has closed for that year, involving bank accounts in 140 countries.

That has led to U.S. prosecutions, and a widening dragnet that includes a dozen banks, and now has shifted to Israel. U.S. Justice Department authorities are examining three of Israel's biggest banks over allegations they helped U.S. customers evade taxes, reports indicate. The banks reportedly under examination are Bank Hapoalim, Bank Leumi le-Israel BM and Mizrahi-Tefahot, the sources said.

The IRS adds in the statement that “people hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars.”

If you are one of the growing number of individuals that may be a part of this international dragnet and have not availed yourself of the amnesty programs, it is always wise to contact a competent tax attorney to discuss the totality of your situation and how best to protect yourself.

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Read more at: Tax Times blog

Newly Released Form 8938 – Statement of Specified Foreign Financial Assets

The IRS just released a new DRAFT of Form 8938 and a first DRAFT set of Instructions.

This Statement of Specified Foreign Financial Assets needs to be attached to and filed with the taxpayer's tax return (eg Form 1040) in addition to filing the FBAR (TDF 90.22.1) for all tax years starting after March 18, 2010.  Therefore calendar year taxpayer's are technically required to attach this form to their Form 1040, starting with their 2011 filing.

Foreign Financial Asset and PFIC Shareholder Reporting Requirements Are Temporarily Suspended by Notice 2011-55, 2011-29 I.R.B. (7/18/11). According to the notice, once previous hitForm 8938next hit and revised Form 8621 have been released, taxpayers for whom the reporting requirements have been suspended must attach Form 8621 or previous hitForm 8938next hit, as the case may be, for the suspended taxable year with their next income tax or information return.

For many each of the 7 million US persons overseas and hundreds of thousands back home in the States this new reporting immediately represents a significant increase in annual US tax data collection and reporting and will be highly complex to understand.
Here are some highlights from a first reading of the instructions:

  1. For unmarried taxpayers living in the United States, the new form must be completed if one had either more than $50,000 in foreign financial accounts on the last day of the tax year (usually December 31st) or if one had more than $100,000 at any time during the tax year. If married filing jointly, the amounts double (to $100,000/$200,000).
  2. Unmarried taxpayers living outside of the United States who are either bona fide residents of a foreign country or physically present abroad, must file this form if they had more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year. If married filing jointly, the numbers increase to $400,000/$600,000.
  3. As for the types of accounts and assets that are reportable:
    1. Any financial account maintained by a foreign financial institution; 
    2. Other foreign financial assets, held for investment but not maintained by a financial institution, including stocks not issued by a US person, interests in foreign entities, and various financial instruments issued by non-US persons. The words "for investment" appear to eliminate interests in active businesses even if not reportable on any other return, but the wording is slightly unclear as drafted.
    3. A foreign financial institution is a non-US financial institution that is a bank (or similar entity), hold financial assets for others, and is engaged in investing, holding partnership interests, or other financial roles.
    4. Foreign mutual funds, foreign hedge funds, and foreign private equity funds are covered.
    5.  Foreign pension plans are not specifically mentioned, but may well be foreign grantor or non-grantor trusts so may be covered or reportable elsewhere.
    6.  Foreign real property is not mentioned specifically.
The instructions are 11 pages long.
While for the sophisticated investor it is still possible to structure foreign assets in ways that minimise US reporting; this new filing obligation may create increasing confusion for the Average American living outside of the US as well as costing more in annual accounting fees.

The draft instructions for Form 8938 are available on the IRS website at The draft Form 8938 is available at

Read more at: Tax Times blog

IRS Chief Counsel Reissues Tax Levy Guidance

The IRS Small Business/Self-Employed Division Sept. 29 reissued interim guidance for issuing a notice of intent to levy/notice of a right to a hearing in a collection field function to a taxpayer.

In SBSE-05-0911-081, dated Sept. 26, the memorandum said after issuing Letter 1058 to a taxpayer, 15 extra days must elapse after the 30-day period before levying a taxpayer.
This is to allow for the possibility that the taxpayer mailed a request for a hearing on the 30th day of the period, the memorandum said.

The earlier guidance, SBSE-05-0910-051, was issued Sept. 27, 2010.

Read more at: Tax Times blog

HSBC India Client Indicted by U.S. Over $8.7 Million Account

Sept. 28 (Bloomberg) --  A Wisconsin neurosurgeon was re- indicted by a U.S. grand jury on new charges that he failed to declare an HSBC Holdings Plc account in India valued in 2009 at $8.7 million.

Arvind Ahuja was indicted again by a federal grand jury in Milwaukee, where he was initially charged June 28 with concealing accounts from the Internal Revenue Service. The nine- count indictment added a charge that Ahuja conspired with two HSBC India bankers to defraud the IRS from 2006 to 2009.

The charges against Ahuja come amid a widening U.S. crackdown on offshore tax evasion that includes grand jury investigations of eight foreign banks. Prosecutors have filed criminal tax charges against more than three dozen former U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC, Europe’s biggest bank.

Ahuja took steps to hide his offshore accounts, according to the indictment made public today. In 2007, an HSBC India banker told a colleague that Ahuja “has requested that he does not want any kind of mail at his US or India address,” according to the indictment. “He wants a HOLD on all his accounts.”

Prosecutors said Ahuja failed to report more than $1.2 million in interest income, pay taxes due or file Reports of Foreign Bank and Financial Accounts, or FBARs.

In New Jersey a businessman Vaibhav Dahake pleaded guilty in April to conspiring with five HBSC bankers to hide his Indian accounts from the IRS. His plea came four days after a U.S. judge in California gave permission to the IRS to serve a so- called John Doe summons on HSBC for information about Americans who may have banked in India to hide accounts from U.S. tax authorities.

In both the Dahake and Ahuja cases, prosecutors said HSBC ran a U.S. division called NRI Services that marketed offshore banking services to U.S. citizens of Indian descent. Through NRI, HSBC India “encouraged U.S. citizens to open undeclared bank accounts in India,” according to the Ahuja indictment.

If convicted, Ahuja, who lives in Greendale, Wisconsin, faces as long as 10 years in prison on the FBAR charges, five years on conspiracy and three years on charges of filing false tax returns.

Read more at: Tax Times blog