Relaxed Restrictions for Tough “Innocent Spouse Relief” Rules

Taxpayers who are unfairly pinned with spousal tax liabilities may soon be met with relaxed filing restrictions for “innocent spouse relief,” a recent USA Today article reports. After public outcry against the strictly enforced filing deadline and its ramifications in sensitive cases, the IRS is reconsidering the rule and plans to announce changes in the coming weeks.

Currently, the IRS offers three forms of relief from joint and several liability for spouses who filed joint returns: innocent spouse relief, separation of liability relief, and equitable relief.  However, due to the inherent controversial nature of innocent spouse relief claims, they tend to raise the most problems. 

Under the current IRS guidelines, you must meet the following conditions to qualify for "innocent spouse relief":

  • You filed a joint return, which has an understatement of tax, directly related to your spouse’s erroneous items. Any income omitted from the joint return is an erroneous item. Deductions, credits, and property bases are erroneous items if they are incorrectly reported on the joint return ;
  • You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax;
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax; and
  • You request relief from the IRS no later than two years from the first date the IRS attempted to collect tax from you.

Perhaps in an attempt to combat fraudulent or frivolous claims, the IRS has set a notoriously high bar for granting innocent spouse relief.  In particular, the IRS has been unyielding with respect to the two-year deadline.  A taxpayer may have one of several legitimate reasons for missing the cutoff”including domestic abuse, divorce, fraud, and death”to no avail.  The IRS’ staunch refusal in a number of especially sensitive situations triggered an outcry of criticism from lawmakers and legal aid attorneys.  Critics argue that the strictly-enforced deadline is especially unfair to domestic abuse victims, who are often kept in the dark about their spouses’ finances.

The sensitive issue garnered bipartisan support in Congress.  Minnesota Rep. Michele Bachman, a Republican presidential candidate and former tax attorney, introduced legislation in the House that purports to remove the two year time limit for innocent spouse relief.  Similarly, House Democrats Pete Stark and Jim McDermott urged IRS to revoke the rule in a letter signed by 48 representatives, including all Democrats on the House Ways and Means Committee.  In the Senate, Finance Committee Chairman Max Baus, D-Mont, also called on the IRS to evaluate the rule. In response, the IRS acknowledged that their procedures need to be revised.  The Service says that it is “reviewing the innocent spouse rules” and plans to announce changes soon.

The attorneys at Fuerst Ittleman are adept and efficient in resolving tax refund and relief matters.  If you have a potential tax issue on your hands, contact an attorney at contact@fidjlaw.com.

New Excise Tax for Medical Devices and Prescription Drugs

On March 23, 2011, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). On March 30, 2011, he signed the Health Care and Education Reconciliation Act of 2010, amending the PPACA (collectively “the Act”). The Act provides for a new excise tax on the sale of taxable medical devices and certain branded prescription drugs.

Medical Device Excise Tax

The Act amends Chapter 32 of the Internal Revenue Code establishing a new excise tax on manufacturers or importers of taxable medical devices. The tax is equal to 2.3% of the sale price of medical devices sold after December 31, 2012. Certain medical devices, such as contact lenses and hearing aids purchased by the general public at retail stores, are exempt.

Some members of Congress believe the medical device tax does not meet the health care reform objective to reduce consumer health care costs. Health care consumers may have to bear the burden of the tax because of the inelastic demand for medical devices. Currently, there are three bills in the House and two bills in the Senate seeking to repeal the new medical device excise tax. You can read the full text of the bills and track their status here.

Prescription Drug Excise Tax

Additionally, the Act provides for a new prescription drug excise tax. The $2.5 billion excise tax is an aggregate annual fee imposed on branded prescription drug manufacturers and importers with gross receipts over $5 million from sales to specified government programs.

The IRS issued Notice 2011-9, 2011-6 I.R.B. 459 in December of 2010, describing the proposed fee calculation method and the pharmaceutical manufacturers subject to the tax. The IRS has recently issued new guidance outlining an error dispute resolution for the calculation of the fee.

Prior to May 16, 2011, the IRS mailed a notification of the proposed fee to individual entities. If the company believed that the notification contained an error in the mathematical calculation, it was required to submit a written error report to the IRS postmarked by June 1, 2011, in order for the correction to be considered. Error reports must detail how the entity determined an error occurred and a proposed correction.

The attorneys at Fuerst Ittleman, PL are knowledgeable in both tax and food and drug law. If you have questions regarding the medical device excise tax, prescription drug excise tax, or the error dispute resolution procedure described above, please contact us at contact@fidjlaw.com.

IRS Struggles to Deal with Increasing Tax Related Identity Theft

As we previously reported here, National Taxpayer Advocate Nina Olson reported numerous problems with the Internal Revenue Services (IRS) reliance on automated customer service available through Taxpayer Assistance Centers (TACs). Among the consequences of this reliance is the IRSs inability to effectively respond to tax related identity theft. Olson noted that the IRSs Identity Theft Protection Specialized Unit is struggling to manage theft cases. In fiscal year 2009, the unit handled approximately 80,000 cases while during October 1 through May 7 of fiscal year 2010 it handled more than 127,000 cases.

Government officials told Congress on May 25th that although curbing identity theft is a top priority for the IRS, there are several other obstacles in fighting tax fraud, including “fiscal constraints and balancing taxpayer impact.” Among other steps taken to prevent tax related identity theft, the IRS has created a system that flags known identity theft victims and a centralized unit to give aid to those affected. According to the IRS Deputy Commissioner for Operations Support, Beth Tucker, the IRS has developed “a comprehensive identity theft strategy that is focused on preventing, detecting, and resolving instances of tax-related identity theft crimes.”

Senator Bill Nelson (D-FL) initiated a hearing for the Subcommittee on Fiscal Responsibility and Economic Growth after considering several cases in his state. He hoped the hearing would help lay the foundation for congressional action. At the hearing, victims testified about how their identities were stolen and how the IRS and other agencies handled the processes. The witnesses discussed problems in communicating with multiple government workers and how the cases were deemed irresolvable. Senator Nelson also sent a letter to the Treasury Inspector General for Tax Administration to launch an investigation into the issue, which has since begun.

According to James White, Director of Tax Issues for the GAO, the IRS does not learn about the crime until after fraudulent returns have been filed, long past the initial theft. In the case of employment tax fraud, the IRS and victims may not know about the theft until over a year later. As discussed by Tucker, “by the time we detect and stop a perpetrator from using someone else’s personal information for his own benefit, the taxpayer-victim’s personal data has already been compromised outside the tax filling process.”

The IRS referred 41 cases dealing with approximately 55,000 individual accounts to the Department of Justice for criminal action in 2010. However, IRS criminal investigators have other areas to investigate, limiting the amount of resources dedicated to identity theft. Privacy laws can also prevent the IRS from alerting law enforcement officials to scams because tax returns and IRS information are confidential.

In January of 2011, the IRS started issuing personal identification numbers (PINs) to taxpayers who had been flagged as identity theft victims. About 56,000 taxpayers received PINs. As discussed by Tucker, the IRS will evaluate the success of the program. The program is meant to avoid delays in filing and processing tax returns. If the program is successful, it will be expanded to include more taxpayers beginning next filing season.

On June 9, the IRS said it is expanding its ability to flag identity theft used to file fraudulent tax returns or employment forms and is moving toward a “forward-looking approach to the problem.” Following IRS Commissioner Douglas Shulman’s remarks at the National Press Club in April, David Knight, the manager for the Pre-Refund Program Office for Earned Income Tax Credits, said that the IRS is attempting to integrate an approach that would “get information from third parties before individuals file tax returns so that it can reject forms with information that does not match.”

In 2010, identity theft overtook credit card fraud as the most common type of fraud. There were more than 470,000 incidents of identity theft that affected more than 350,000 taxpayers. The Pre-Refund Program Office coordinates and oversees pre-refund activities across all IRS functions in order to stop fraudulent returns from being issued. The Pre-Refund Program Office created the Identity Protection Specialized Unit as a central unit to handle identity theft victims.

The IRS has also begun to work with prisons after discovering that a large amount of identity thefts were originating from prisons. The IRS hopes to have disciplinary hearings for prisoners who commit these crimes. The IRS is also working with the Department of Justice to prosecute these cases.

If you are a victim of identity theft, have any questions regarding IRS procedures, or any tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

Swiss Officials Address Previous Fiscal Issues while Discussing the Implementation of the FATCA

Switzerland is seeking to resolve “past fiscal problems” with the US while discussing the implementation of the new U.S. Foreign Account Tax Compliance Act (FATCA). Mario Tuor, the spokesman for the Swiss Federal Department of Finance’s State Secretariat for International Financial Matters (SIF), indicated that the goal of the talks is to look for a broad resolution of outstanding tax matters concerning Swiss financial institutions rather than negotiating individual agreements. Tuor said that “[t]he objective is to achieve legal security and to keep the bureaucratic workload as low as possible.”

Tuor’s comments followed a June 10 Reuters report which stated that the US and Switzerland are in negotiations on a deal that would allow several Swiss and European banks to engage in a common settlement to avoid potential US prosecution for helping US taxpayers hide accounts. Tax practitioners said that if such an agreement was reached, it would push many taxpayers into the IRSs Offshore Voluntary Disclosure Initiative (OVDI) so that “individuals [may] disclose their offshore assets in return for a set penalty structure and the chance to avoid prosecution at the individual level.”

Michael Abhul, the head of the SIF and Switzerland’s Chief Negotiator on International financial and Tax Issues, leads Switzerland in its discussions with the US. He led the Swiss team that negotiated the handing over of more than 4,000 secret accounts held by US taxpayers in UBS in order to settle proceedings that could have led to the loss of the bank’s operating license in the US for facilitating tax fraud. Ambuhl has no plans to visit the US in the near future, indicating that an agreement may not be approaching.

US officials said earlier that the settlement with UBS was not the end of their attempts to crack open Swiss banking secrecy and find undeclared funds of US taxpayers. On February 23, four managers and bankers with Credit Suisse Group AG, Switzerland’s second largest bank, were charged with conspiring with other Swiss bankers to help US customers use secret accounts to evade income tax.

Tax authorities are also believed to be exchanging information on stolen bank data from secret accounts at Julius Baer, a major private Swiss bank and the Geneva-based private banking arm of HSBC. Julius Baer announced earlier this year that it has agreed to pay German officials 50 million Euros in exchange for avoiding legal proceedings in Germany over accusations that the bank helped German clients evade taxes. HSBC has admitted that the identities of thousands of account holders were compromised by the theft of client data later passed on to French tax officials.

As we previously reported here, FATCA will impose a 30 percent withholding tax on certain payments from US sources, including investment income and capital gains, paid to foreign financial intermediaries or their clients. These foreign intermediaries have the capability to avoid taxes by reaching agreements with the IRS requiring the intermediary to disclose information on US taxpayers that have accounts with the institution. FATCA will have a major impact on Switzerland’s financial sector and its investments in the US. The Swiss Federal Department of Finance noted that SIF was “instructed to explore with US authorities the possible application of simplified rules for complying with FATCA,” but a large number of uncertainties remain regarding the application of the legislation.

Practitioners have indicated that they are not specifically aware of a potential common agreement between the US and Switzerland regarding multiple banks. Notably, however, development of such an agreement would be a blow to bank secrecy and would encourage more people to disclose their assets to the IRS.

If you have any questions regarding FATCA, OVDI, or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

IRS Guidance on the Offshore Voluntary Disclosure Program Likely to Increase Participation

Tax practitioners recently commented on the IRS’s guidance regarding the benefits of its second Offshore Voluntary Disclosure Initiative (OVDI). Several tax practitioners said that the 2011 initiative will likely encourage more taxpayers to enter into the program.

According to tax practitioners, the provision permitting taxpayers to request a 90-day extension of the August 31 application deadline is a “helpful and positive step in the right direction.” As discussed by Mark Matthews, former Chief of IRS Criminal Investigations

The possibility of an extension comes as a great relief to practitioners who want to help the clients come into compliance, but were fearful that delays in obtaining bank records, for example, might cause them to miss the deadline and then get into an unnecessary dispute about penalties. It is rarely the taxpayer’s fault that the bank records take a while to obtain.

The IRS clarified that it is possible that taxpayers who opt out of the program could receive a better deal on civil penalties if they have acted in good faith. The IRSs previous approach provided for blanket sanctions, regardless of whether a taxpayer was willfully evading taxes or simply made a mistake.

According to Matthews, “probably more than anything, the tone of the guidance was helpful, because it did not carry the threat that an opt-out was a sure way to a retaliatory audit.” He emphasized that advising clients is still difficult because there is no track record and the potential penalties are high.

Additionally, tax practitioners commented on the provision that allows taxpayers living abroad who earned less than $10,000 annually in US source income and complied with the tax reporting and payment rules in their country of residence to qualify for a five percent penalty instead of the 25 percent penalty mandated by the program. As discussed by Matthews, the IRS is

sending a message that there are situations when mitigation is appropriate, that there are circumstances that don’t warrant a 25 percent penalty. Nether long-term non-US residents nor their global tax advisers could conceive of a penalty of 25 percent of their net worth when many clients had no US tax liability.

If you have any questions regarding the IRSs Offshore Voluntary Disclosure Initiative or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

Consumer Financial Protection Bureau Seeks Public Comment To Help Shape Nonbank Supervision Program

On June 23, 2011, the Consumer Financial Protection Bureau (“CFPB”) announced a Notice and Request for Comment regarding the expansion of its nonbank supervision program. A copy of the U.S. Department of the Treasury press release can be read here.

Created with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, CFPB, which begins operations on July 21, 2011, was tasked with the responsibility of regulating both banks and nonbank institutions which offer financial products or services to ensure that these institutions comply with federal consumer financial protection laws. Under the Dodd-Frank act, CFPB is authorized to supervise all banks with more than $10 billion in assets as well as all sizes of nonbank mortgage companies, payday lenders, and private education lenders.

Dodd-Frank also grants CFPB the power to regulate nonbank institutions in other consumer financial services markets. However, prior to the expansion of the nonbank supervision program into other financial services markets, the agency must first define by regulation who qualifies as a “larger participant” in the market, thus making them subject to regulation. Dodd-Frank requires that CFPB promulgate its initial rule defining which “large participates” of nonbank consumer financial market services it intends to regulate by July 21, 2012.

In its Notice and Request for Comment, CFPB seeks comments on the six nonbank financial services markets it intends to regulate: 1) debt collection; 2) consumer reporting; consumer credit and related activities; 4) money transmitting, check cashing, and related services; 5) prepaid cards; and 6) debt relief services. CFPB also seeks comment on the criteria to be used to determine whether a company will qualify as a large participate including: 1) the thresholds for inclusion, 2) what data should be used to set these thresholds, and 3) whether a single test or market specific tests should be adopted to determine a large participant. A copy of the Notice and Request for Comment can be read here. The initial comment period will run for 45 days from the date of publication in the Federal Register.

Fuerst Ittleman will continue to closely monitor this issue for the latest developments from CFPB. If you have questions pertaining to how Dodd-Frank and the creation of CFPB will affect your business or how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.

Former Jenkens & Gilchrist Attorneys, Former BDO Seidman CEO, and Deutsche Bank Broker Found Guilty of Multi-Billion Dollar Tax Fraud Scheme

Four tax and banking professionals were convicted on May 24, 2011 in Manhattan federal court for their roles in a tax shelter scheme, sending a clear message that dishonest tax professionals will be held accountable for their crimes. The verdict found former Jenkens & Gilchrist attorneys Paul M. Daugerdas and Donna M. Guerin, former BDO Seidman CEO Denis M. Field, and Deutsche Bank broker David Parse guilty of designing, marketing, and implementing fraudulent tax shelters used by the wealthy to avoid paying taxes to the IRS. According to the Justice Department, Daugerdas, Guerin, and Field collectively made $130 million in profits from the 10-year scheme.

According to the evidence, the defendants”who are all certified public accountants”undertook to prevent the IRS from detecting their clients use of the tax shelters. The defendants also created and assisted in creating transactional documents that fraudulently described their clients motivations for entering into the tax shelters. The entire scheme lasted from 1994 through 2004 and made the defendants millions of dollars in fees, commissions, and bonuses. Daugerdas, Field, and Parse also utilized the tax shelters for themselves to evade tax liabilities for their illicit income. For example, Daugerdas used the shelters to cut his tax liability on his $95 million income from over $32 million to less than $8,000.

Chief of IRS-Criminal Investigation Victor S.O. Song stated,

Promoting and marketing tax shelter transactions intended to conceal the true facts from the IRS isnt tax planning; its criminal activity. People trust their attorneys and Certified Public Accountants to hold the highest standards when dealing in financial transactions. Todays conviction reinforces or commitment to every American taxpayer to identify and to prosecute those who devise illegal tax shelters.

The Justice Department reported that Daugerdas, Guerin, and Field were all convicted of “conspiring to defraud the IRS to evade taxes, and of corruptly endeavoring to obstruct and impede the internal revenue laws,” in addition to mail fraud and multiple counts of tax evasion. Parse was convicted of mail fraud and obstructing internal revenue laws. The defendants face prison time and, for all counts except mail fraud, fines of the greater of $250,000 or twice the gross gain to the defendant or twice the gross loss to the IRS. Sentencing is scheduled for October 14, 2011.

Several other defendants implicated in the case have already pleaded guilty. At least four additional defendants are former BDO partners or executives. In December 2010, Deutsche Bank agreed to pay $553,633,153 to the United States in connection with the transactions engineered by the defendants.

The attorneys at Fuerst Ittleman, PL are committed to providing ethically and legally sound tax advisory and litigation services. For a private consultation regarding your companys tax planning or tax issues, email us at contact@fidjlaw.com.

Federal Judge Permanently Enjoins HedgeLender From Promoting Its Stock-Loan Arrangement Which Allegedly Assisted Customers Evade Nearly 30 Million in Income Taxes

On June 14, 2011, a Virginia federal judge granted a permanent injunction barring HedgeLender, LLC (“HedgeLender”) from promoting a stock-loan tax scheme that allowed owners of appreciated stock to obtain cash without paying capital gains tax through the use of purported income.

In 1999, Daniel Stafford started an unincorporated entity named the “SAS” group in Reston, Virginia. He incorporated the entity in 2001 in Delaware as HedgeLender Corporation and maintained its principal place of business in Reston, VA. In August 2001, HedgeLender entered into a joint venture agreement to design, produce, sell, and deliver no-margin call, no-contingent-liability stock loan products. HedgeLender coordinated all marketing efforts and advertised the transactions to customers outside the insurance industry.

Specifically, HedgeLender advertised HedgeLoans as a means for consumers to transfer their securities to certain lenders as collateral for a loan against the value of those securities. Specifically, they advertised the loans as “non-recourse, non-callable loans for up to 90% of the value of a customer’s securities.” The customers then transferred the securities to a specific as collateral for the loan. HedgeLender promotions also stated that capital gains from the HedgeLoans were not income, but tax free loan proceeds. Other marketing tactics included:

  • A term of two to seven years;
  • An above-market interest rate;
  • Any dividends issued on the securities during the loan were credited against the accrued interest;
  • Prepayment of the principal and interest was prohibited during the term of the loan; and
  • The customer can receive the full value of his securities at maturity if he repaid the balance of the loan, regardless of how much the securities had appreciated.

Once a customer entered into a HedgeLoan transaction, HedgeLender gave the customer a Master Loan Agreement (“MLA”). The customer would then be told to transfer his securities to a lender, which essentially also transferred the securities legal title. HedgeLender, however, told customers that they still had “beneficial ownership” of the securities for the term of the transaction. HedgeLender also told customers that once the securities were transferred, the lender would enter into “hedges” with the customers’ securities. According to the MLA, the lender had no responsibility to transfer the loan proceeds to a customer until it hedged the securities.

As discussed by the Court,

The defendant [was] aware that the “hedge” [was] actually a sale of the customers’ securities in the open market. Because the lender [sold] the securities, they are not collateral for a loan. Regardless, the lender in the joint venture with the defendant sends statements to the customers that describe the value of the customer’s collateral securities, the amount of accrued, and any dividends received on the securities. But, because the securities are sold, no dividends are issued on them and no interest is accrued. The lender also does not issue IRS form 1099 to customers or to the IRS when it sells the securities.

United States v. HedgeLender LLC, No. 10-cv-01054-TSE-IDD, (E. Dist. Va. 2011).

In 2007, several customers whose loans matured chose to repay the loans; the lender, however, did not have enough funds to buy back the securities or return the cash equivalent to the customers. The lender, thus, defaulted on its obligations under the MLA. Consequently by 2008, more than $268 million in securities and more than 350 customers had transacted in the scheme.

After conducting audits of some HedgeLoans customers, the IRS has determined that the HedgeLoan schemes have helped customers to evade taxes and hindered the Agency’s efforts to administer federal tax laws. Furthermore, between 2001 and 2008, Defendant’s promotion of HedgeLoans caused more than $268 million in taxable sales of securities for more than 350 customers. The IRS has determined that the average amount of under-reported income for HedgeLender customers has resulted in an average deficiency of $85,641 in income tax owed per customer. As a result, the Agency estimates a total loss in income tax in the amount of as much as $30 million.

Id. As discussed above, the Court deemed HedgeLoans a tax shelter within the meaning of IRC §6700. As further discussed by the Court:

Since the Defendant promoted the HedgeLoans transactions as “loans,” which has tax implications for customers, then the transactions have some connection to taxes and are a “plan or arrangement” within the meaning of IRC §6700.

When considering whether injunctive relief was appropriate under IRC §§7402(a) and 7408, the Court considered the following:

  1. The gravity of harm caused by the offense;
  2. The extend of the defendants participation and his degree of scientor;
  3. The isolated or recurrent nature of the infraction and the likelihood that the defendants customary business activities might again involve him in such transactions;
  4. The defendants recognition of his own culpability; and
  5. The sincerity of his assurances against future violations.

With regard to HedgeLender, the Court found that permanent injunctive relief was appropriate after weighing the above factors.

Specifically, Defendant has promoted and marketed HedgeLoans, and as a result, hundreds of customers have engaged in transactions. Through audits of some HedgeLoans customers, the IRS has determined that these customers have failed to report income, which on average, results in $85,641 in income tax deficiency per customer. In total, the IRS estimates that it has lost income in the approximate amount of $30 million in unpaid taxes involving all HedgeLoans customers. In addition, the Agency will have to utilize significant resources to continue audits of HedgeLoans customers. This is a significant harm to society because it promotes noncompliance with federal tax laws and is a great cost to the public.

Id. (emphasis added).

The attorneys at Fuerst Ittleman, PL have extensive experience with the complex regulatory provisions governing the reporting of transactions including the tax treatment of loans as well as the sale of securities. You can contact an attorney by emailing us at contact@fidjlaw.com.

Notice 2011-55: IRS Partially Suspends FATCA Information Reporting Requirements

The IRS announced today that information reporting requirements under new Code Sections 6038D and 1298(f) are suspended until the release of new Form 8938 and revised Form 8621. Notice 2011-55, which comes only one day after the IRS released its draft Form 8938, provides a short respite for U.S. taxpayers subject to the barrage of foreign asset reporting requirements.

FATCA Reporting Requirements

The suspended requirements were initially enacted in 2010 with the Foreign Account Tax Compliance Act (“FATCA”), which plays a revenue support role in the larger Hiring Incentives to Restore Employment Act (“HIRE”). Code Section 6038D mandates U.S. taxpayers with foreign financial assets valued over $50,000 to file new informational Form 8938 with their annual return. Code Section 1298(f) requires shareholders of a passive foreign investment company (“PFIC”) to file an annual information report, later deemed to be a revised Form 8621. Both requirements are effective for tax years beginning on or after March 18, 2010; the Treasury intends to release regulations clarifying each provision.

Interim Guidance: Notice 2011-55

Because individuals may be subject to reporting requirements under 6038D and 1298(f) before the appropriate forms are released, the IRS issued interim guidance in Notice 2011-55. Scheduled to be published on July 18 with Internal Revenue Bulletin 2011-29, Notice 2011-55 provides the following:

  • Form 8938 reporting requirements under 6038D are suspended before the IRS releases Form 8938;
  • Pending the release of revised Form 8621, Section 1298(f) reporting requirements are suspended for PFIC shareholders who are not otherwise required to file Form 8621 under the forms current instructions. PFIC shareholders with Form 8621 obligations per the forms current instructions must continue to file the form with an income tax or information return filed before the IRS releases revised Form 8621.
  • Following the release of each form, individuals subject to the respective reporting requirements will attach the appropriate form(s) to their next income tax or information return to be filed with the IRS. Notice 2011-55 states,
  • A Form 8938 or 8621 filed for a suspended taxable year with a timely filed income tax or information return as required by this notice will be treated as having been filed on the date that [the return] for the suspended year was filed. Failure to file as required by the notice may result in the extension of the period of limitation for the suspended taxable year under section 6501(c)(8), and penalties may apply.


    • No FBAR Relief

    Compliance with Code Sections 6038D and 1298(f) does not relieve a taxpayer of the obligation to file a Report of Foreign Bank and Financial Accounts (“FBAR”).

    The attorneys at Fuerst Ittleman, PL have extensive experience with the complex regulatory provisions governing foreign asset reporting and PFICs. Contact an attorney by emailing us at contact@fidjlaw.com.

    U.S. Cracks Down on UBS Clients in California

    Our continuing coverage of the U.S. governments attack on hidden offshore assets brings us the two latest cases against UBS clients, both surfacing in California district courts. Robert Greeley of San Francisco and Sean and Nadia Roberts of Tehachapi were charged with filing false 2008 income tax returns that failed to disclose their foreign accounts. Since 2007, the government has accused more than two dozen former UBS clients of tax crimes.

    On June 14, Greeley was charged with filing a 2008 tax return that failed to report two UBS accounts and the interest income earned on the accounts. Greeley allegedly held both accounts in the name of Cayman Islands entities that he controlled”one from 2002 through at least 2008, and the other from 2004 through at least 2008.

    On June 20, the Justice Department announced that Sean and Nadia Roberts pleaded guilty to filing a false tax return that failed to disclose, among other foreign accounts, a secret UBS bank account. The charges culminate a string of transactions by the Robertses which effected a sham aircraft loan and filtered cash from their domestic business through various foreign accounts and entities. The Robertses admitted to the following:

  • Filing returns for tax years 2004 through 2008 that concealed their interest in the foreign accounts
  • Failing to report income on the accounts,
  • Falsely deducting transfers from their business to the accounts, and
  • Failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”) disclosing their interests in same.

    • The couple agreed to pay $709,675 of restitution to the IRS, and a 50 percent penalty for the one year with the highest offshore balance to resolve their failure to file FBARs.

    The IRS implemented an Offshore Voluntary Disclosure Initiative in 2009”and again this year”whereby taxpayers avoid prosecution by disclosing their offshore accounts. Read our coverage of the Second Offshore Voluntary Disclosure Initiative here.

    The attorneys at Fuerst Ittleman, PL are adept in the complex regulatory requirements of the Bank Secrecy Act, foreign bank accounts, and the Internal Revenue Code. You can contact an attorney by emailing us at contact@fidjlaw.com.