offshore voluntary disclosure
DESCRIPTION
Gray's summary of the IRS Offshore Voluntary Disclosure Program. Gray International (Gray) is an international network of public accounting and consulting firms based in the U.S., Hong Kong, China and Europe. Gray was started over 10 years ago in the U.S. (via its predecessor) and took the form of Gray International in 2013 as the result of the networking of multiple independent practices and professionals. Gray provides international accounting and compliance solutions in the U.S., Americas, Asia and Europe. Gray focuses on U.S. accounting, tax, and governmental compliance for multinational companies, investors, U.S. persons living overseas and foreign investors and companies investing in or moving to the U.S. Gray also consults on compliance with U.S. laws for businesses and financial institutions overseas such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA), the IRS Offshore Voluntary Disclosure Program, and the Program for Non-Prosecution Agreements or Non-Target letters for Swiss Banks. Grays principals, partners, and employees have served clients worldwide. Gray has offices in Geneva, Hong Kong, Seattle, Shanghai and plans to open an office in Singapore in late 2013. Grays U.S. public accounting firm (Gray CPA, PC) is registered with the U.S. Public Company Accounting Oversight Board and is a member of the American Institute of Certified Public Accountants and the Center for Audit Quality. For more information about us, please visit us at: www.grayintl.comTRANSCRIPT
U.S. OFFSHORE VOLUNTARY DISCLOSURES
Overview of the 2012 U.S. IRS OVDP
GENEVA | HONG KONG | SEATTLE | SHANGHAI
International
Accounting &
Compliance
International Accounting & Compliance
IMPORTANT LEGAL INFORMATION PLEASE READ
LEGAL NOTICE This presentation is prepared for general guidance only, and does not constitute the provision of accounting, legal or tax advice in any manner, written tax advice under U.S. Internal Revenue Service Circular 230, or any professional advice of any kind. “Gray International” or “Gray” refers to Gray CPA, PC (a U.S. CertiIied Public Accounting Iirm) and Gray International Ltd (a Hong Kong Limited Company). The information provided in this presentation should not be a substitute for consultation with qualiIied professionals who understand your situation, as it will differ from others. In addition, when making any tax planning decisions you should consult with your own legal, tax, accounting and other professional advisors. This presentation has been provided as a courtesy, and therefore while care has been executed in the preparation of this information Gray CPA, PC (U.S.), Gray International, Ltd. and all of their afIiliates make no representations as to its completeness, accuracy or the timeliness of the information and takes no responsibility to update this information, such information is being provided without warranty of any kind. IRS Circular 230 notice: Tax advice, if any, included in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code or by any other governmental tax authority. © 2013 Gray CPA, PC and Gray International Ltd. with all rights reserved, this document shall not be reproduced or distributed without the express written permission of Gray CPA, PC or Gray International, Ltd. For more information about us, please visit us at www.grayintl.com.
International Accounting & Compliance
WHO WE ARE OUR PROFILE
Gray International (“Gray”) is an international network of public accounting and consulting Iirms based in the U.S., Hong Kong, China and Europe. Gray was started over 10 years ago in the U.S. (via its predecessor) and took the form of Gray International in 2013 as the result of the networking of multiple independent practices and professionals. Gray provides international accounting and compliance solutions in the U.S., Americas, Asia and Europe. Gray focuses on U.S. accounting, tax, and governmental compliance for multinational companies,
investors, U.S. persons living overseas and foreign investors and companies investing in or moving to the U.S. Gray also consults on compliance with U.S. laws for businesses and Iinancial institutions overseas such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA), the IRS Offshore Voluntary Disclosure Program, and the Program for Non-‐Prosecution Agreements or Non-‐Target letters for Swiss Banks. Gray’s principals, partners, and employees have served
clients worldwide. Gray has ofIices in Geneva, Hong Kong, Seattle, Shanghai and plans to open an ofIice in Singapore in late 2013. Gray’s U.S. public accounting Iirm (Gray CPA, PC) is registered with the U.S. Public Company Accounting Oversight Board and is a member of the American Institute of CertiIied Public Accountants and the Center for Audit Quality. For more information about us, please visit us at: www.grayintl.com
International Accounting & Compliance
OUR SERVICES
WHAT WE DO
WWW.COMPANYSITE.COM | [email protected] | +123 456 789 | THIS STREET 321, CITY, COUNTRY
AUDIT AND ATTEST SERVICES
INTL. FORENSIC ACCOUNTING
U.S. TAX COMPLIANCE
U.S. FATCA COMPLIANCE
INTL. TAX STRUCTURING
U.S. FCPA COMPLIANCE
International Accounting & Compliance
WHAT WE DO OUR PRACTICE AREAS
U.S. FCPA COMPLIANCE
AUDIT AND ATTEST SERVICES INTL. FORENSIC ACCOUNTING
No single piece of U.S. legislation will have a larger impact on foreign Iinancial institutions and intermediaries in the next 5 years as FATCA. Let us help you assess how this will impact your organization and how to implement a practical, affordable solution.
In today’s global landscape international tax structuring and planning has never been more important. From transfer pricing, treaty compliance, withholding minimization, estate planning and domiciliation, to pre-‐residency tax planning Gray is ready to help you navigate this difIicult terrain.
Widespread globalization brings increased risks of corrupt practices, and correspondingly, an increase in FCPA enforcement, penalties and prosecutions. Let Gray help you prepare and implement appropriate controls to protect your organization from violations.
Our experienced auditors provide extensive experience auditing public and private companies in the developed and developing markets. Let us put our extensive experience operating in the U.S., Asia, Europe and the Americas to work for you.
Our forensic accounting services are designed to providing vigilance before the fact, reconstructing and tracing records after the fact, and preparing for trial once the Iindings are made. Our team of experts are available for worldwide engagement.
Gray provides extensive U.S. tax compliance solutions to clients worldwide. We work with individuals, family ofIices, investors, Iinancial institutions, multinational companies and domestic (U.S.) businesses. Let us guide you through the maze of complex U.S. tax compliance.
U.S. TAX COMPLIANCE
U.S. FATCA COMPLIANCE INTL. TAX STRUCTURING
International Accounting & Compliance
GEOGRAPHIC AREAS OF EXPERIENCE
WHERE WE WORK
WWW.COMPANYSITE.COM | [email protected] | +123 456 789 | THIS STREET 321, CITY, COUNTRY R. Congo
Zambia
Yemen
Westsahara
Vietnam
Venezuela
U.A.E
Uzbekistan
USA
Uruguay
Ukraine
Uganda
Chad
Tunisia
Turkey Turkmenistan
Togo
Thailand
Tanzania
Taiwan
Tajikistan Syria
Swaziland
South Korea
South Africa
Spain
Zimbabwe
Suriname
Sudan
Somalia Sierra Leone
Senegal
Sweden
Saudi Arabia
Russia
Romania
Portugal
Poland
Philippines
Peru
Paraguay
Papua New Guinea
Panama
Pakistan
Oman
Norway
North Korea
Nikaragua Nigeria
Niger
New Zealand
Nepal
Namibia
Myanmar
Mozambique
Mongolia
Morocco
Mexico
Mauritania Mali
Malaysia
Madagascar
Libya
Liberia
Lebanon
Lesotho
Laos
Kyrgysistan
Kenya
Qatar
Kazazhstan
Cambodia
Japan
Jamaica
Israel
Italy
Ireland
Iraq Iran
Indonesia
India
Iceland
Honduras
Guyana Guinea
Guatemala
Greenland
Greece
Great Britain
Ghana
Germany
Gabun Fr. Guyana
France
Finland
Ethiopia
Eritrea
El Salvador
Egypt
Ecuador D. R. Congo
Dom. Rep. Cuba
Columbia
Cote d‘Ivoire
Costa Rica
China
Chile
C.A.R.
Canada
Kamerun
Burkina
Brazil
Botswana
Bolivia
Bhutan
Belize
Belarus
Bangladesh
Bahamas
Australia
Argenena
Angola
Algeria
Alaska
Afghanistan
International Accounting & Compliance
THE 2012 U.S. IRS OFFSHORE VOLUNTARY DISCLOSURE
PROGRAM
A BRIEF OVERVIEW
International Accounting & Compliance
THE 2012 PROGRAM
The 2012 Offshore Voluntary Disclosure Program (“OVDP”) is a limited federal income tax amnesty program for U.S. taxpayers who have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax. Once a taxpayer successfully completes the program, the taxpayer escapes certain severe civil and criminal penalties. Without the program potential civil penalties penalties can far exceed the balance of the foreign assets or accounts, and the criminal penalties can result in federal prosecution and jail time. The taxpayer completes the program by fully and truthfully reporting the offshore assets and income, Iiling amended returns, foreign account and asset declarations (and other disclosures) and paying the following penalties (note: certain circumstances may qualify a taxpayer for reduced penalties): The OVDP Penalty based on 27.5% of the highest combined value of the taxpayer’s previously unreported foreign Iinancial accounts and certain other assets (in limited cases this may be reduced to 15% or 5%):
• Pay all previously unpaid taxes associated with the undisclosed Iinancial accounts and assets
• Pay IRC § 6662(a) accuracy-‐related penalty of 20% of the amount of the unpaid tax
• Pay IRC § 6651(a)(1) failure to Iile penalties (if applicable)
• Pay IRC § 6651(a)(2) failure to pay penalties (if applicable)
• Pay interest on unpaid taxes
International Accounting & Compliance
WHY MAKE A VOLUNTARY DISCLOSURE?
Taxpayers with undisclosed foreign accounts or entities should (in most cases) make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and information return penalties which may exceed the value of the account, and an increased risk of criminal prosecution. The Internal Revenue Services (“IRS” and “Service”) and U.S. Department of Justice (“DOJ”) have ever increasing access to foreign account information via treaties and legal action, that and the implementation of the Foreign Account Tax Compliance Act (“FATCA”) and Foreign Financial Asset Reporting (new IRC § 603D) will mean more and more undisclosed accounts will be subject to discovery and reporting. Recent DOJ wins in countries like Switzerland, Lichtenstein and other jurisdictions known for bank secrecy (that was legally protected) means that more and more foreign account information is being actively disclosed and made available to U.S. authorities.
International Accounting & Compliance
POTENTIAL CRIMINAL PENALTIES
Taxpayers with undisclosed foreign accounts or entities and income, can face prosecution for the following criminal matters if the IRS examines them: • Tax evasion (26 U.S.C. § 7201). This can carry a prison term of up to Iive
years and a Iine of up to $250,000. • Filing a false return (26 U.S.C. § 7206(1)). This can carry a prison term of up
to three years and a Iine of up to $250,000.
• Failure to Iile an income tax return (26 U.S.C. § 7203). This can carry a prison term of up to one year and a Iine of $100,000.
• Criminal penalties for FBAR violations (31 U.S.C. § 5322). This can carry a prison term of up to ten years and criminal penalties of up to $500,000.
International Accounting & Compliance
POTENTIAL CIVIL PENALTIES Taxpayers with undisclosed foreign accounts or entities and income, can face the following civil penalties if discovered: • Penalty for failure to Iile the Form TD F 90-‐22.1 (Report of Foreign Bank and Financial Accounts), as high as the
GREATER of $100,000 or 50% of the value of the total balance of the account – PER VIOLATION (31 U.S.C. § 5321(a)(5)) [note: non-‐willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation].
• Beginning with the 2011 tax year, a penalty for failing to Iile form 8938 reporting the Taxpayer’s interest in
certain foreign Iinancial assets, including Iinancial accounts (I.R.C. § 603D) – $10,000 PER Violation and $10,000 added per month for each month the failure continues beginning 90 days after the taxpayer is notiIied of the delinquency, up to a maximum of $50,000 per return.
• A penalty for failing to Iile form 3520, Annual Return to Report Transaction with Foreign Trusts and Receipt of Certain Foreign Gifts – the GREATER of $10,000 or 35 percent of the gross reportable amount, and in the case of gifts, an additional penalty of 5% of the gift per month up to a maximum penalty of 25% of the Gifts.
• A penalty for failing to Iile Form 3520-‐A, Information Return of Foreign Trust With a U.S. Owner (I.R.C. § 6048(b) – the penalty for each one of these returns is the GREATER of $10,000 or 5% of the gross value of the trust assets determined to be owned by a United States person.
• A penalty for failing to Iile Form 5471, Information Return of U.S. Returns with Respect to Certain Foreign Corporations I.R.C. §§ 6035, 6038 and 6046) – $10,000 per violation and $10,000 each month after 90 days that the taxpayer is notiIied of the delinquency, up to a maximum of $50,000 per return.
• A penalty for failing to Iile Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation (I.R.C. § 6038B) – 10% 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.
International Accounting & Compliance
POTENTIAL CIVIL PENALTIES (cont.) • A penalty for failing to Iile Form 8865, Return of U.S. Persons With Respect to Certain
Foreign Partnerships. (I.R.C. §§ 6038, 603B and 6046A) -‐ $10,000 penalty for failure to Iile each return, with an additional penalty of $10,000 added per day 90 days after the taxpayer is notiIied of the delinquency, up to a maximum of $50,000 per return and 10% of the value of any transferred property that is not reported subject to a $100,000 limit.
• Fraud penalties imposed under IRC §§ 6651(f) or 6663. Where an underpayment of tax, or a failure to Iile a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated different, essentially amount to 75% of the unpaid tax.
• A penalty for failing to pay the amount of the tax shown on the return under IRC § 6651(a)(2) of 5% of the balance due plus and additional 5% for each month of a fraction thereof during which the failure continues may be imposed, not to exceed 25%.
• A penalty for failing the pay the amount of tax shown on the return under IRC § 6651(a)(2) of .5% of the amount of the tax shown on the return, plus an additional .5% for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25%.
• An accuracy-‐related penalty on underpayments imposed under IRC §§ 6662, depending on which component of the accuracy penalty is applicable the penalty can be 20 to 40% of the tax.
International Accounting & Compliance
ELIGIBILITY Taxpayers (both individuals and entities) who have undisclosed offshore accounts or assets and meet the requirements of IRM 9.5.11.9 are eligible to apply for IRS Criminal Investigation’s OVDP. In general terms, Taxpayers with the following characteristics are NOT eligible:
• Taxpayers whom the IRS has initiated a civil examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entitles.
• Taxpayers whose accounts or assets were funded through illegal sources. • Taxpayers that the IRS or DOJ have obtained (under a John Doe Summons, treaty request, or
similar action) evidence of the Taxpayer’s non-‐compliance (note: a Taxpayer concerned that a party subject to a John Doe summons, treaty request or similar action, will provide information about him/her to the IRS should apply to make a voluntary disclosure as soon as possible.
• A Taxpayer appeals a foreign tax administrator’s decision authorizing the providing of account
information to the Service and fails to serve the notice as required under existing law (see 18 U.S.C. 3506).
• The IRS may announce that certain taxpayer groups that have or had accounts at speciIic
Iinancial institutions will be ineligible due to U.S. government actions in connection with the speciIic Iinancial institution.
International Accounting & Compliance
WHAT IS REQUIRED? For the 8 year disclosure period (note: speciIic rules apply to instances whereby a Taxpayer was compliant in some years during the disclosure period) the Taxpayer must do the following (note: among other disclosures and submissions):
• Disclose the previously unreported foreign assets and income.
• Disclose persons who helped hide the foreign assets and income, such as advisors, bankers, attorneys, accountants, business associates and family members.
• File amended federal income tax returns.
• Pay previously unpaid taxes and penalties as detailed earlier.
• File amended, or corrected information returns and disclosures (such as the Treasury Department’s Report of Foreign Financial Accounts TD F 90-‐22.1, IRS form 8938 (statement of speciIied foreign Iinancial assets), IRS form 8621 (for investments in passive foreign investment companies), IRS form 926 (for transfers of cash or other property to foreign corporations), IRS form 8865 (for investments in foreign controlled partnership), and IRS form 5471.
International Accounting & Compliance
WHAT IS THE PROCESS? 1. Pre-‐clearance: Information about the Taxpayer is provided to the IRS Criminal
Investigation Division (“IRS CI”) along with a request for pre-‐clearance to make an application under the program. The IRS then notiIies that Taxpayer if they are preliminarily eligible (this is NOT a binding position of the IRS and may be revoked at any time). The Taxpayer then has 45 days from the receipt of the pre-‐clearance letter to submit the information required under Step 2.
2. Criminal Review: The Taxpayer then submits an offshore disclosure letter and
attachment (for each group of offshore accounts or assets) to the IRS CI which provides details about the location and range of value of the account, the individuals and entities involved in the custody, management and promotion of the account as well as the source of funds for the account (in particular interest to the IRS is whether these were obtained from lawful means). If preliminarily accepted IRS CI will then notify the taxpayer to submit the required information and payment (or proposal for installment agreement) required under Step 3.
3. Civil Review: Substantial additional information is then provided to a civil
examiner. This information includes amount other things, payment of the penalties and interest associated with the application, amended returns for the disclosure period, consents to extend time to assess tax and penalties, extensive foreign account records, amended or original information returns and treasury department foreign account and asset disclosures.
International Accounting & Compliance
MAJOR CONSIDERATIONS A decision to participate in the process should be made carefully and with the assistance of qualiIied professional advice. Some (but not all) major considerations for a Taxpayer considering the OVDP program are listed below:
• Penalties are high and can equate 50% or more of the current account value (note: in some cases can equal or exceed the account value due to Iluctuations in asset value, market losses in the account, bad investments, foreign currency exchange rates and other variables).
• The compliance costs are high. Program submission requires signiIicant work to prepare
amended returns, corrected or original disclosures, calculation of penalties and interest, and in some cases forensic work to reconcile the foreign accounts.
• The Taxpayer will be required to identify persons who facilitated the offshore account and this can be friends, family and business partners.
• The process may take a long time, it is not unusual for an OVDP application to take 1 or 2 years.
• Applying does not guarantee approval. While most timely Iiled and truthful applications are accepted (the taxpayer inspector general indicates that the approval rate is more than 90%) it is not guaranteed that they will be. If the application is rejected then the Taxpayer would not have any protection against an assertion of civil or criminal penalties by the IRS.
• It may be difIicult to obtain the required documents, and it may require legal action in the
domicile of the account or asset.
International Accounting & Compliance
A NOTE ABOUT QUIET DISCLOSURES
The IRS is aware that some Taxpayers made so-‐called “quiet” disclosures by Iiling amended returns and reporting the income from their foreign assets and accounts, paying the interest and penalties, but did not make a formal OVDP application. These Taxpayers are still eligible (given that they also Iit the general eligibility guidelines) to take advantage of the OVDP by submitting an application.
The IRS strongly encourages these Taxpayers to come forward under the OVDP to make timely, accurate and complete disclosures. Those Taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.
International Accounting & Compliance
GRAY CAN HELP
If you are considering making a voluntary disclosure Gray can help. Our experienced tax professionals are focused on helping Taxpayers through the Offshore Voluntary Disclosure Process. If you are concerned that you are at risk of IRS action related to your undisclosed accounts contact us today, if not disclosed and discovered, the penalties and potential criminal liability is signiIicant. Since the IRS is obtaining more and more information about foreign account the time to take the decision to enter the OVDP is now.
WWW.COMPANYSITE.COM | [email protected] | +123 456 789 | THIS STREET 321, CITY, COUNTRY
FULL PROGRAM REPRESENTATION
PREPARATION OF ALL RETURNS AND FILINGS
FORENSIC ACCOUNTING/RECORD RECONSTRUCTION
CALCULATION OF PENALTIES AND INTEREST
PREPARATION OF SUBMISSION FILING
International Accounting & Compliance
CONTACT US
Website www.grayintl.com
E-mail [email protected]
Addresses U.S. International OfIice Attn: Jeremy Stobie, CPA, CFE 10900 NE 8th Street Suite 1000 Bellevue, WA 98004
Phone + 001 425.999.3685 xt 10
Gray welcomes your questions, comments and inquiries and would like the opportunity to serve you.
WWW.COMPANYSITE.COM | [email protected] | +123 456 789 | THIS STREET 321, CITY, COUNTRY