Tax Law Articles (with corresponding Videos) by Richard Lehman

Article&Video: Pre-Immigration Tax Planning

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Article&Video: The Ponzi Clawback

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

The Ponzi Clawback and the Value of the Mitigation Procedure. Scroll down to read the article. Click here to watch the corresponding video by Richard Lehman

Article&Video: Ponzi Scheme Losses

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Ponzi Scheme Losses – Has the Trump Tax Bill Made Business Theft Loss Deductions and Losses Less Valuable? Scroll down to read the article. Click here to watch the corresponding video by Richard Lehman.

Article&Video: Foreign Investors

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

The New Trump Bill and Foreign Investors – Foreign Investors General Taxation. America, a Tax Haven for International Investors. Scroll down to read the article. Click here to watch the corresponding video by Richard Lehman

Article&Video: The End of OVDP

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

The End of the Offshore Voluntary Disclosure Program (OVDP). Scroll down to read the article. Click here to watch the corresponding video by Richard Lehman

Article&Video: The Streamline Procedure

Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

The Streamline Procedure – Failure to Report Foreign Bank Deposits and Foreign Assets. Scroll down to read the article. Click here to watch the corresponding video by Richard Lehman

Article: Pre-Immigration Income Estate Tax Planning

TAKING ADVANTAGE OF LOWER RATES IN U.S. INCOME TAXES AND AVOIDING TAXATION ON ACCRUED WEALTH

By Richard Lehman, Tax Attorney


The United States under the new Trump Tax Bill has to some extent become a tax haven for the wealthy immigrating individuals.


More and more wealthy immigrants from strife torn or corrupt countries, can come to America and do business in America, under a tax regime that taxes profits and capital at lower rates.


Foreign investors from throughout the world are coming to the United States for increasing growth and opportunity for prosperity. Many of them are already wealthy.


U.S. INCOME TAXES


It is very important that wealthy immigrants to the U.S. understand the tax laws regarding (1) profits in the United States, (2) the tax laws that govern gifts of U.S. assets made by foreign taxpayers, and (3) transfers of US assets by nonresident aliens who die owning certain types of wealth in the United States.


The United States now has several categories of individual income tax payers that may make large amounts of income and grow their wealth significantly; sometimes at a 20% tax rate, depending on the type of income they earn in the U.S.


The maximum tax on corporations, both foreign and domestic is 21% on profits.


The highest tax rate in the U.S. now is 37% on individual incomes in excess of $250,000 and $600,000 for married couples.


Wealthy foreigners who are immigrating to the US and planning on a permanent move to the U.S. need to make sure that all of their accrued wealth earned over the years should not be subject to US income tax and/or a tax on capital gains, because these income and gains were accrued, when the taxpayer was not a U.S. person.


Avoiding U.S. Income and Capital Gains Taxes on Accumulated Wealth


It is extremely important that wealthy individuals who are going to become US taxpayers should recognize that all of their economic gains and income that accrued before they became US taxpayers do not need to be subject to U.S. income taxes or gift taxes or death taxes if they plan in advance. 


Nonresident alien individuals who plan on a permanent move to the U.S. do not have to risk paying US taxes on sales of assets or payments of income that have been earned over all the years before they became a U.S. taxpayer if they take the right steps to protect their accrued income and gains in advance of U.S. tax residency. 


In addition to planning to make sure that their accrued income and gains are not taxed; tax planning for the US immigrant must be planned in advance for the potential death of these wealthy individuals, who immigrate to the United States. 


U.S. ESTATE AND GIFT TAX


The U.S. taxes transfers by gift and at death (estate tax). It is possible to avoid paying “US estate taxes” and/or ”gift tax” unnecessarily. The US has greatly increased the size of gifts and/or estate that may be transferred throughout the generations free of a U.S. estate or gift tax. For U.S. taxpayers, the U.S. will permit those people who have wealth in excess of $11,000,000 to make transfers in advance of their U.S. residency to protect against estate and gift tax. In today’s U.S., each person who is taxed as a citizen or resident may leave $11,000,000 at death without paying any “death taxes.”


NONRESIDENT ALIENS who die owning certain U.S. assets can be taxed at extremely high United States tax rates.


There are numerous tax planning techniques that can totally avoid or greatly reduce taxes on immigrating foreigners with accrued wealth.


Nonresident aliens that wish to immigrate to the United States have great opportunities that have multiplied manifold as the unemployment rate has gone down and many good jobs have not been filled.


For Many Wealthy Individuals


In addition to preserving their wealth accumulated before coming to the U.S., the U.S. tax code includes many “tax favorable business oriented “deductions” that will decrease considerable taxes on business profits in the form of tax credits and/or deductions. U.S. taxpayers can count on a very favorable tax framework in the U.S. 


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Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Article: The Ponzi Clawback, Mitigation Procedure

Article&Video

A Ponzi Scheme Clawback of profits is typical in many Ponzi Schemes. Ponzi Scheme Trustees appointed to achieve fairness among defrauded investors have successfully recovered billions of dollars from Ponzi Scheme investors who withdrew funds from the Scheme even though there were indeed no real profits at all in a Ponzi Scheme. 


Everyone but the promoter eventually loses money. The promoter usually goes to jail and losses money. Those investors lucky enough to have escaped the Ponzi fraud and taken their profits early in the scheme, remained profitable until the Trustee CLAWED BACK their false profits. 


A Ponzi Scheme “Clawback” is accomplished when a Trustee obtains refunds from those who benefitted from the early “profits distributions” by the Ponzi Scheme.


Clawbacks of Ponzi Scheme profits from the innocent investor who first benefitted from the Scheme can receive a unique treatment from a tax standpoint. This is because of a special Internal Revenue Code Section that applies to clawed back profits.


There is a significant difference between refunds from a tax credit and a tax deduction. The refunds from a tax credit can amount to significant more dollars. The right to use Internal Revenue Code Section 1341 (the “Mitigation Section”), and seek a tax credit cannot be overlooked by Clawback victims.


The Mitigation Section


The Mitigation Section of the Internal Revenue Code is a unique Internal Revenue Code Section that permits a taxpayer to reopen a closed statute of limitations to claim a refund when the taxpayer has withdrawn profits from the fraudulent Ponzi scheme and later found out these were false profits that must be repaid to the Ponzi Scheme victims who lost money.


The Mitigation Section permits a taxpayer, who had withdrawn profits from a Ponzi Scheme and paid tax on those profits when the taxpayer was in a high tax bracket, to go back in time even though the statute of limitations has closed on the taxable year in which the false profits were made, and the taxpayer can claim a refund on the taxes paid in that year.


The taxpayer who must pay back the false profits can choose to take advantage of the right to reopen the previously closed statute of limitations and receive the refunds based on the prior years taxes if higher taxes were paid on those profits; instead of merely receiving a current deduction in the year that the business profits are repaid. 


The Trump bill eliminated the loss carryback rules, it did not eliminate the rules under the Mitigation Section.1/ Taxpayers who are forced to repay false profits may still reduce the income falsely reported in the prior years, if that provides a larger tax refund than the refund that would be available if the “clawed back” funds were only allowed to be deducted in the year of payment. 


This tax benefit cannot be overlooked. Starting in 2018, it is critical to compare the amount of refunds on a Clawback of profits with the value of deducting the Clawback amount in the year it is paid back.


However, the Mitigation Section only applies to reopen the statute of limitations and treat the false profits as if they were never earned when there is a Clawback of profits


The Treatment of a Clawback of Invested Principal (and not a Profits) Amount 


In many cases a Trustee can claim recovery (Clawback) of an investor’s principal amount invested in the Ponzi Scheme when these principal amounts were paid back to the investor shortly before the collapse of a Ponzi fraud. In this case, the clawed-back amounts of principal will not be able to reopen the closed years and the Clawback amounts of principal will be treated similar to the regular losses suffered by Ponzi Scheme victims.

___________________________

Footnote 1/  - In a separate section we discuss the deduction of Ponzi Scheme Theft Losses for those taxpayers who cannot benefit from the “Mitigation Section”. See PONZI SCHEME LOSSES – HAS THE TRUMP TAX BILL MADE BUSINESS THEFT LOSS DEDUCTIONS LESS VALUABLE?

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Richard Sam Lehman: The new Trump Tax Cuts affects Ponzi Scheme losses.

Article: Ponzi Scheme Losses

Has the Trump Tax Bill Made Business Theft Loss Deductions and Losses Less Valuable?

The new Trump Tax Bill affects Ponzi Scheme losses to one degree or another. It appears at first glance that one of the few areas of the new law that may have lost value due to the Trump Bill from a tax standpoint, is the Ponzi scheme deduction for losses incurred in the scheme. The new Trump Tax Bill will make Ponzi Scheme theft losses less valuable to many victims of financial thefts.


For many people their tax refunds from Ponzi Scheme losses may be limited. After having lost assets in the Ponzi Scheme, the victim of the Ponzi Scheme may be very likely to have a reduced fortune, in a lower tax bracket due to the effect of the theft loss. 


It could very well be that a Ponzi Scheme victim may have reported income in years prior to 2018 and paid a 50% tax on their false investment profits between city, state and federal income taxes. In the event these taxpayers lost money and have been injured, they now may be in a lower tax bracket and unable to take full advantage of the loss. This is because loss carrybacks have been eliminated as a potential deduction and tax rates from 2018 forward are greatly reduced in many cases. 


No Loss Carry Backs


Under the Trump Tax Bill, there no longer is the ability to carry back losses to prior years to obtain deductions and tax refunds. There no longer is a “loss carryback deduction”. Loss carry forwards are allowed ad infinitum. Under the new Trump Tax Bill, losses can be carried forward indefinitely. 


However, a taxpayer can no longer collect tax refunds from past Ponzi scheme losses that are first reported in 2018 and thereafter. 


Individuals who have had losses from financial thefts and other theft losses in 2015, 16 and 17 will need to be careful to take advantage of any tax loss carrybacks that still may be available to these taxpayers.


Not only will Ponzi Scheme losses not be available for use in prior years; taxpayers may have to wait far into the future to recoup Ponzi Scheme losses from tax refunds if their incomes have decreased and they cannot make present use of the otherwise valuable tax losses.


PONZI SCHEME THEFT LOSS


Ponzi Scheme Theft Losses may have become less valuable for tax purposes because of the Trump Bill that was signed into law in December of 2017. That tax bill lowered tax rates in the future and also reduced the value of Ponzi theft loss deductions by eliminating the right to carry back losses and receive tax refunds from earlier years. Loss carrybacks have been eliminated. There are only loss carry forwards available from 2018 forward. 


What this could mean, (for example) is the following:


The “Profits Years”


Assume a wealthy investor had profited from Ponzi Scheme income in one of the states with high taxes and in a tax year where that total income tax was more than 50% due to the effect of the combined top rates of say New York City, State and Federal income taxes on Ponzi Scheme $500,000 of earnings per year. 


Assume this occurred every year for three years starting in 2015. The Taxpayer will pay total taxes of $750,000 over the three-year period (2015 to 2017) on the profits.


Assume in 2021 that taxpayer learns that the $1,500,000 in profits for the years 2015, 2016, 2017 were illusory and never existed. Assume in 2021 that the taxpayer now has a theft loss deduction of $1,500,000 because the gross profits were left in the Ponzi Scheme and ultimately lost by that taxpayer. Now, assume that by 2021 the taxpayer has retired to one of the United States that has no city or state income taxes; and assume the retired taxpayer has a reduction in income and now pays taxes in the 20% tax bracket. 


As a result of the new tax bill, the Ponzi theft loss deduction that is allowed on the $1,500,000 loss may be worth only $300,000 in refunds at a 20% tax rate.


The taxpayer in this example will have paid taxes on taxable income equal to fifty cents on a dollar ($750,000), and will receive tax refunds at twenty cents on the dollar, ($300,000). Furthermore, the taxpayer may need to wait many years into the future since there is less taxable income in each of the later years upon which to collect the refund.


The Taxation of a Clawback of Principal (not Profits) from a Ponzi Scheme


In certain instances, profitable investors in a Ponzi Scheme can lose a portion of their original principal in a Clawback “of principal”. A portion of the investor’s principal may have been distributed to the investor shortly before the Ponzi Scheme was discovered. Often if the taxpayer has received their principal from the Ponzi Scheme shortly before it collapses, the law may permit a Trustee to clawback that investor’s principal investment. It is unusual but it does happen. 


Under these circumstances, a principal investment in a Ponzi Scheme is treated the same as a direct loss in a Ponzi Scheme. This means that taxpayers who suffer a Clawback of principal will only be allowed to treat their Clawback as a deduction. They will have no use of the “Mitigation Section”, since there will not have been a tax loss of profits.

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Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Article: The New Trump Bill and Foreign Investors

Foreign Investors General Taxation. - America, a Tax Haven for International Investors

The major new tax issue for foreign investors in the US is how the Trump Tax bill affected tax rates for nonresident individuals and foreign corporations. These tax rates have been greatly reduced and present a very favorable new tax regime. The tax rates for foreign investors in the US that are investing in corporate form could amount to a single tax of only 21%. Individual investors may have a US tax on US source income of less than 20% on their taxable income.


In order to take advantage of the multiple tax benefits that the US has to offer, the foreign investor will need to be aware of the fact that it is possible to pay just a single tax in the US on personal and corporate income and to avoid any US death taxes or gift taxes in their entirety. However, careful planning in advance of making U.S. investments is important.


America today is one of the lowest tax jurisdictions in the modern world. Not only are tax rates lower, in addition business deductions that also result in lower taxes have been increased for many U.S. industries. 


The number of available tax benefits and tax efficient investment and business vehicles and ways of doing business in the US today are a model for a capital-generating machine. These are rates being accomplished by many taxpayers. 


This generous new tax regime is extended to foreign investors who not only have almost all of the benefits of the U.S. taxpayer, but who in addition may enjoy tax benefits that are not extended to the American taxpayer. Often the foreign investor in the U.S. can pay much less in taxes than U.S. citizens and residents.


The foreign investor in the United States can still buy stock and sell it at a profit in almost every type of business (except real estate oriented U.S. corporations), without paying a single tax on “capital gains.”


The foreign investor in the United States may continue to make “portfolio loans.” These are unique loans that will permit the nonresident alien investor to enjoy tax-free interest income and not be subject the U.S. estate and/or gift tax so long as the foreign investor does not own 10% or more of the U.S. investment, which is the object of the loan.


The foreign investor can continue to invest in U.S. bank deposits without taxation on U.S. interest income and without being subject to the U.S. estate tax (“death tax”) if the nonresident alien passes away owning U.S. bank deposits.


The foreign investor can still invest in the United States and deduct all of the expenses related to the United States investment.


The United States of America today is the investor’s dream. However, realizing the benefits of this reduced tax environment often depends on highly skilled professionals to navigate the U.S. tax maze.

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Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Article: End of Offshore Voluntary Disclosure Program (OVDP)

THE OFFSHORE VOLUNTARY DISCLOSURE PROGRAM ENDED SEPTEMBER 28, 2018

THE OFFSHORE VOLUNTARY DISCLOSURE PROGRAM ENDED SEPTEMBER 28, 2018. THIS WAS THE LAST OPPORTUNITY FOR “WILLFUL PARTIES” WHO ARE UNITED STATES TAXPAYERS, TO CLEAR THEIR TAX ISSUES WITH THE UNITED STATES OF AMERICA IN THE EVENT THEY HAVE UNREPORTED BANK DEPOSIT INCOME OR INCOME FROM CERTAIN TANGIBLE FOREIGN ASSETS.


The IRS will no longer give US taxpayers, that have not reported their foreign bank accounts and certain other foreign assets; the opportunity to report these foreign assets without facing possible fraud penalties, both civil and at times, criminal and numerous other penalties.


After September 28, 2018, a taxpayer will no longer be able to submit their name to the IRS for clearance in advance assuring the taxpayer; that the taxpayer will not be subject to several major penalties that may otherwise apply to these taxpayers. 


It is extremely important for taxpayers to take advantage of clearing their unreported foreign bank deposits and other assets in the waning days of the Offshore Voluntary Disclosure Program.


The civil and the criminal penalties that the IRS may enforce on taxpayers that have willfully failed to report their foreign and other assets are:


Depending on a taxpayer’s particular facts and circumstances, the following penalties could apply:

· A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. 

Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

· There is a penalty for failing to file form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities and interests in foreign entities.  The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

· There is a penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts. This return also reports the receipt of gifts from foreign entities under section. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

· There is a penalty for failing to file Form 3520-A, Information Return of a Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts. The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

· There is a penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

· There is a penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC.  The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

· There is a  penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

· There is a penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

· There are fraud penalties imposed where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, essentially amount to 75 percent of the unpaid tax.

· There is a penalty for failing to file a tax return. Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

· There is a penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2). If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

· There is an accuracy-related penalty on underpayments imposed under IRC § 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.


There are possible criminal charges related to tax returns that include tax evasion, filing a false return and a failure to file an income tax return. Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties.


A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.


Under the Offshore Voluntary Disclosure Program, U.S. taxpayers had the opportunity to self-report and avoid the severest of tax penalties. 


After September 28 of 2018, a taxpayer will no longer be able to submit their name to the Internal Revenue for clearance in advance. This clearance assured the taxpayer that the taxpayer would not be subject to several major penalties that may otherwise apply to taxpayers who did not report foreign assets.

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Explanatory Video By Richard Sam Lehman, Tax Lawyer in Boca Raton, Florida.

Article: The Streamline Procedure

The Streamline Procedure – Failure to Report Foreign Bank Deposits and Foreign Assets

The Offshore Voluntary Disclosure Program will no longer be available after September 28, 2018 to taxpayers who have not reported their omitted foreign bank accounts and certain foreign assets. However, the Streamline Procedure, which applies only to those persons who have not willfully failed to report their foreign bank accounts, is still available.


However, like the Offshore Voluntary Disclosure Program, the Streamline Program can be rescinded at any time, leaving the taxpayer who has not reported their foreign bank deposits at the mercy of the individual I.R.S. examiner.


The Streamline Program has received a big boost from a fairly recent case that has taken a very broad view of “willfulness” as it applies to the U.S. taxpayer that has not reported his or her foreign bank deposits.


Those who are interested in the Streamline Program need to take an extended look at the Bedrosian case. 


The Bedrosian case exemplifies the facts necessary for a finding of non “willfulness”.  The mental state required is proof that the defendant knew of a duty imposed on him or her by the law and that he or she voluntarily and intentionally violated that duty. It is necessary to find that a taxpayer meets this standard in order to hold the taxpayer responsible for the omission of an account in a foreign bank. 


The court in Bedrosian stated that if the government proves the actual knowledge of the pertinent legal duty, that fact without more, satisfies the “knowledge” component of the willfulness of the defendant. If there is a good faith belief that a taxpayer was not violating any of the provisions of the tax laws, there is no willfulness.


The issue in the Bedrosian case was straight forward. That issue was whether, based on all of the evidence, the I.R.S. could prove that a party was aware of the duty to report certain bank deposits. The Bedrosian court held that the taxpayer cannot be shown to have been a wrongdoer if there is a good faith misunderstanding and belief regarding what this duty was, whether or not the claimed belief or misunderstanding is objectively reasonable. 


The Court commented as follows: “Congress passed the Bank Security Act in 1970 in order to target the problem on the “unavailability of foreign and domestic bank records of customers thought to be engaged in activities entailing criminal and civil liability.”


The Act was intended to require the maintenance of records and the making of certain reports which have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. To that end, the Secretary of Treasury was granted authorization to promulgate regulations prescribing certain recordkeeping and reporting requirements for domestic banks as well as individuals. One such reporting requirement is the FBAR, which arises out of the mandate and its corresponding regulations that all US citizens must report on an annual basis to the IRS any “financial interest in, or signature or other authority over a bank, securities or other financial accounts in a foreign country.”


Failure to timely file an FBAR for each foreign financial account in which a taxpayer has an interest of over $10,000 results in exposure to a civil money penalty that varies depending on the taxpayer’s level of culpability.  


The Internal Revenue Service provides mitigation guidelines for reducing the penalty that would otherwise be assessed against a taxpayer for violation of the FBAR requirements. 


“It is clear that the intent behind the guidelines is to differentiate those individuals who have no criminal tax history or prior FBAR violations, who don’t sustain a fraud penalty, and who cooperate with the investigation from those who do not.”  


It is a fine line that has to be met by many taxpayers who wish to avoid the “willfulness” label. However, for those who are truly innocent of a bad intent when they failed to report their foreign bank accounts, there still is much help and a clear path to avoiding the much more significant penalties of the “Offshore Disclosure Program.” 

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