Current Issue - Do you have $10,000+ overseas?

ONGOING CASE: HSBC India Client (Dr. Arvind Ahuja of Greendale, Wisconsin) Indicted for Filing False Tax Returns and Failing to Report Foreign Bank Account. Click here for Department of Justice, Press Release. (June, 2011)

RECENT INDIA ABROAD PUBLICATION: "The Battle Lines Are Drawn" (Aug 5, 2011). In response to this on-point article, I wrote the following Letter to the Editor. My letter in its entirety is below:

Dear India Abroad Editor – The cover article, "The Battle Lines Are Drawn" (India Abroad, Aug 5, 2011), paints a picture of doom and gloom for U.S. persons who have undisclosed financial interests in overseas financial accounts that exceed USD equivalent of $10,000 in aggregate. The article falsely chooses to suggest that all cases are treated the same. In fact, the opposite is true - each case must be evaluated independently. The article goes on to suggest that U.S. persons have only two choices: 1) apply for the 2011 Offshore Voluntary Disclosure Initiative (OVDI) which is available only through August 31, 2011 or 2) take a "monumental" risk in the form of "harsher penalties and even jail time." This is absolutely not true. While the OVDI is an option, it is not the only option that U.S. persons have.

            The OVDI program, at a glance - If accepted into the OVDI program, then taxpayers become compliant while avoiding substantial civil penalties of prior noncompliance of reporting of foreign bank and financial accounts and generally eliminate the risk of criminal prosecution. The OVDI comes with a cost; in lieu of other penalties that may apply, taxpayers may need to pay a penalty equal to 25% of the highest aggregate balance in foreign bank accounts during the period covered by the program, calendar years 2003-2010.

            My name is Neeraj L. Shah, and I am based in Rochester, NY. I am a licensed CPA and attorney. We serve clients nationwide. My practice area is focused in estate planning, business law, and tax law. I am very well versed in the subject matter herein. The information in this letter does not constitute legal advice, but is merely an attempt to calm the readers of this publication and inform them that they still have options; options which may include minimal or even no penalties for prior noncompliance of reporting foreign bank and financial accounts. Penalties and interest with respect to unreported income on individual income tax returns are still likely to be assessed.

My message is clear: each case requires an individual assessment of its facts and circumstances (this includes but is not limited to the source of funds, foreign income relative to U.S. adjusted gross income, and your intent). It is to your benefit to consult a professional in the area who can duly provide you with your options. You will have more options today, than you have tomorrow - the August 31, 2011 deadline for applying for the 2011 OVDI is approaching fast. Contrary to what was implied in the article that was published in the Aug 5, 2011 issue, you should consider other options available to you.    

Neeraj L. Shah, Esq., MBA, CPA

RECENT DAILY RECORD PUBLICATION: The Daily Record is Western New York’s daily publication with a focus on law, real estate, and finance. In its cover article published on September 6, 2011, “IRS Offshore Deadline is Friday,” Neeraj L. Shah was interviewed: 

• “It’s (business) really picked up over the last two months,” said Rochester accountant and attorney Neeraj L. Shah, who assists clients locally and nationally with OVDI reporting requirements.
• Shah said, “many articles on the subject make it seem like you have to (automatically) pay up; there is still a lot of misinformation on this.”
• “In general, I think the (non-compliance) penalties are egregious and if you’re aggregating the total penalty it can be more than your principal in some situations,” Shah explained.
• Despite the IRS prodding, Shah said “it’s not a doom and gloom picture” and every case should be looked at individually to determine if the IRS OVDI program is the best option.

Q. Do you have over $10,000 overseas?

A. If not disclosed to the IRS, you may be liable, both civilly and criminally. There was a August 31, 2011 deadline that the IRS imposed to apply for a voluntary disclosure to reduce substantial penalties that you may face; but this is no longer available.

Q. Reporting of Foreign Bank and Financial Accounts (FBAR)?
A. A U.S. person that has a financial interest in or signature authority over foreign financial accounts (FFA) must file an FBAR, IRS Form TD F 90-22.1 if the aggregate value of the FFAs exceeds $10,000 at any time during the calendar year. This form must be received by June 30th of the year immediately following the calendar year being reported. The June 30th filing date cannot be extended. The reporting is necessary even if the account produces no taxable income. A U.S. person includes U.S. citizens, U.S. residents; entities, including but not limited to, corporations, partnerships and limited liability companies; and trusts or estates. 
    Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both. Civil penalties for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50% of the total balance of the foreign account per violation. Criminal charges can subject a taxpayer to a prison term and a significant monetary fine. Call our office to ensure that you comply fully with this mandate.

Q. Have you reported Income generated from those foreign accounts?
A. The US government requires you to report all income "from whatever source derived." This included worldwide income. US persons need to be especially aware of their foreign accounts and the income generated therefrom. Taxpayers who are not in compliance can be assessed accuracy-related penalties or worse, fraud-related penalties.

Q. The IRS 2011 Offshore Voluntary Disclosure Initiative (OVDI) - NOW EXPIRED
A. The IRS is offering people with undisclosed income from offshore accounts an opportunity to participate in a new, voluntary disclosure initiative in order to get current on their tax returns. The 2011 Offshore Voluntary Disclosure Initiative (OVDI) will be available only through Aug. 31, 2011. Calendar years 2003 through 2010 in which a taxpayer has undisclosed foreign accounts are included in the 2011 OVDI disclosure period. 
    Taxpayers with undisclosed foreign accounts or entities may want to consider applying for the voluntary disclosure. It is one way that U.S. persons can become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. It is important to note that taxpayers who do not submit a voluntary disclosure may still have other viable options available to them, or run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

Q. Is there anything I can do considering that the OVDI option is now expired?
A. Yes! There are several options available to become compliant and minimize your risk of civil penalties and criminal prosecution. There is still time to put yourself in a better position. You need to be proactive, and address the situation instead of remaining passive. It is to your benefit to contact a qualified professional who understands both the tax issues and the legal implications. Neeraj L. Shah is one of very few that is licensed as an attorney and a CPA, as well. Our office is in Rochester, NY, and we work with clients nationwide to solve their legal and tax issues! This procedure takes time; it is imperative that clients wishing to engage our firm act now. Call us today!

Q. Can I do anything about undisclosed funds overseas?

A. Neeraj L. Shah is a licensed CPA and attorney. He is one of few that understands both the tax laws and legal issues. You may want to consult our office to discuss the fall-out of this new regulation. Remember, in addition to properly reporting your funds to the government, it may be necessary to amend prior income tax returns, file gift tax returns, and comply with other requirements. Don’t miss a step, call our office today and schedule your appointment.