Posted on September 22, 2009 in Business Law
As experienced tax lawyers and business attorneys in San Francisco, at Lerner Veit & Stanaland we have seen how changes in tax law, such as the regulation of offshore accounts, can significantly affect business, estate, and personal transactions. The United States taxes the worldwide income of its citizens and residents. Most industrialized nations cooperate with the U.S. and with each other to ensure that all income is reported to the various taxing agencies. Switzerland has been a notable exception to this. The Swiss banking industry has long been known as a vehicle for maintaining secret accounts. That may be changing.
In 2008 a U.S. District Court in Florida approved an IRS summons that requires the Swiss bank UBS to provide records of U.S. taxpayers who hold accounts at the bank. It is likely that other Swiss banks will be served with summons requiring the same disclosure. If the Swiss institutions do not comply, they will be subject to sanctions in the U.S. Any U.S. taxpayers who have not disclosed the existence of foreign accounts will be subject to criminal prosecution as well as the standard civil penalties assessed for underreporting of income.
U.S. taxpayers are required to disclose to the IRS any foreign bank or brokerage accounts if the taxpayer has signature authority and the account has a balance of more than $10,000. It is not necessary that the taxpayer be the owner of the account, mere signature authority on the account triggers that disclosure requirement. This means that disclosure is required if a parent sets up an account and gives a child signature authority for purposes of convenience (the child as well as the parent must disclose). The Report of Foreign Bank and Financial Account, or FBAR, is made by using IRS Form TD F 90-22.1. The penalty for failure to file a disclosure is generally $10,000 for each year a disclosure was required but not made. Depending on the circumstances the penalty may run as high as $50,000 per year. In addition, the IRS may bring a criminal action against a non reporting person. Similar disclosure is required by U.S. taxpayers who own certain foreign corporations, transfer property to foreign corporations or have an interest in a foreign trust.
The IRS has announced an amnesty program for U.S. taxpayers who want to come clean and avoid criminal prosecution. If adequate disclosure is made, the taxpayer will have to report and pay tax on all unreported income for the six year period ending with the 2008 tax year. Presumably, the unreported income for years prior to this will not be subject to tax. There will also be that standard penalties for not reporting the income as well as interest on the entire amount due. There will also be a penalty equal to 20 percent of the highest balance in the unreported offshore account. There will, however, be no criminal prosecution.
The IRS originally set a deadline of September 23, 2009, as the last day they would accept voluntary disclosure. This deadline has been extended to October 15, 2009, due to a large volume of requests. To make an effective voluntary disclosure and avoid criminal prosecution, it is not necessary to have all information necessary to calculate the tax due. It is only necessary to report the existence of an offshore account and the identity of the taxpayers. Anyone who has signature authority on a foreign account should take this amnesty program very seriously and consult a tax attorney immediately.
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San Francisco business attorney and tax lawyer, Russell Stanaland of Lerner Veit & Stanaland, discusses tax law and possible changes in regulations affecting amnesty for offshore accounts.