Offshore Financial Assets and Accounts

Whether you have foreign-based businesses or investments, live overseas, or have family or personal interests abroad, there are many reasons to own, control, or have access to foreign assets and financial accounts.  As the international economy continues to grow and individuals, assets, and knowledge become more mobile, it is necessary for individuals and businesses to have connections outside of the United States.  Unfortunately, the existing regulatory framework, recent scandals involving widespread abuses of offshore vehicles, and recent enforcement initiatives have made these necessities a fearful and costly issue for many individuals and businesses.  The experienced advisors at Crepeau Mourges are well-versed in this area and can help properly plan to minimize tax, avoid potentially costly penalties and, if necessary, to devise a proactive response to address prior non-compliance.  For those taxpayers with significant non-compliance, Crepeau Mourges will advise on the appropriate compliance program, can help to navigate a potentially costly civil audit, and can provide needed counsel for those facing a criminal investigation or prosecution related to offshore assets or accounts.

For a majority of taxpayers and tax professionals, the reporting and procedural requirements of the Internal Revenue Code that applied to foreign assets and accounts were already too complicated a decade ago.  These complications are over and above the complex nature of inbound and outbound international transactions and their impact on the timing and nature of income recognition.  However, with the implementation of the Foreign Account Tax Compliance Act and an increased emphasis on reporting required by the Financial Crimes Enforcement Network (FinCEN), things have only become more complicated, and the potential consequences of missteps more devastating, for taxpayers.

For example, for the willful failure to properly report a foreign financial account, the penalties can be applied at the greater of over $100,000 per account or 50% of the value of the unreported account for each violation within the statute of limitations (up to 6 years).  While administrative provisions lessen this to some extent, statutory penalties can exceed the value of an unreported account.  Penalties for failing to report a foreign account on a Report of Foreign Bank and Financial Accounts (FBAR or FinCEN Form 114) can be stacked or combined with penalties for failing to report the same items on other reports.  The stakes can be very high and frequently exceed the maximum tax, interest, and penalties that might apply to an unreported account.

Although not limited to these particular transactions or conditions, the following can implicate one or more of these reporting requirements and the corresponding penalties:

• Ownership, control, and/or signatory authority over foreign financial accounts
• Ownership, control, or receipt of income from foreign financial assets
• Ownership, control, and/or conducting transactions with certain types of foreign entities
• Ownership, control, and/or conducting transactions with certain foreign trusts
• Receipts of gifts or inheritances from foreign persons
• Certain transfers of funds and assets in certain amounts or from certain countries

To make matters even worse for taxpayers, many of these reports involve complicated definitions and numerical thresholds.  For instance, a “financial account” for purposes of making a FinCEN Form 114 includes not only checking accounts, savings accounts, and investment accounts, but may also include pension accounts, prepaid debit card accounts, trust accounts, and many others.  Moreover, the definition of ownership or control may vary depending upon the type of entity and account involved.  And, finally, the interpretation of these definitions and requirements may not be the same across different required reports.  For instance, items that may not need to be reported on an FBAR may still need to be reported on a Statement of Specified Foreign Financial Assets (Form 8938).  The issues and complexity continue to grow as fast as well-meaning legislators can make laws and their administrations can create rules and regulations.  These laws frequently do not consider that other countries do not operate on a tax system consistent with the United States, that information might not be easily available, and that other practical considerations make such reports unnecessary or burdensome.  Crepeau Mourges can help you or your business navigate this seemingly unending array of forms and reports, whether it involves an FBAR, Form 8938, Form 5471, Form 3520, Form 8865, Form 8621, Form 1116, or other form.  Aside from compliance, we can also help to identify planning opportunities and to explain the ever-changing tax environment impacting both international individuals and businesses.

Furthermore, for those taxpayers that have, unfortunately, not complied with offshore reporting requirements, Crepeau Mourges can adeptly explain the potential risks and consequences and can assist in devising a plan to appropriately address these issues.  While all taxpayers have different circumstances and each case must be considered on its own, we have employed the following techniques to address these issues:

• Offshore Voluntary Disclosure Initiative
• Offshore Voluntary Disclosure Program
• Voluntary Disclosure Practice
• Streamlined Filing Compliance Procedures (Domestic and Foreign)
• Delinquent FBAR Submission Procedures
• Delinquent International Information Return Submission Procedures
• “Quiet” disclosure (proactively addressing compliance outside of these programs)
• Advising on related civil tax examinations
• Representation of individuals charged with related criminal offenses

Our significant knowledge of these options is explained in detail in our prior publications.  Further, while some of these options have closed and others seem appropriate, it is important to consult with a tax attorney prior to engaging with the Internal Revenue Service and other agencies.  For instance, eligibility requirements have changed over the years and subjective interpretations of these requirements can have dire consequences.  Certain programs may come at a higher cost than is necessary for certain taxpayers – e.g., the Voluntary Disclosure Practice would likely not be appropriate for someone with an inheritance of a previously unknown and small foreign account.  And, even if the correct option is chosen, significant experience is needed to achieve the best results possible.  In the past, attorneys of Crepeau Mourges have achieved significant reductions in proposed assessments by opting out of the OVDP, by devising strategies to cause the statute of limitations on assessment to expire, by arguing for application of the maximum application of the mitigation guidelines, and by establishing reasonable cause.  These nuanced strategies have reduced proposed assessments of penalties by millions of dollars in many cases.

Finally, where proactive strategies are not possible, the attorneys of Crepeau Mourges have defended audits and civil and criminal defendants facing significant penalties.  Our attorneys have been involved in high-profile prosecutions against the Department of Justice relating to unreported accounts and assets in Switzerland, Hong Kong, and many “tax haven” jurisdictions.  Our guidance has helped our clients avoid or minimize significant financial penalties and incarceration.  For other clients beset with civil tax examinations, we have guided our clients to a resolution where criminal referral is avoided.  We have also successfully applied available statutory and administrative authority to substantially reduce proposed penalties.  Whether you have spotted a problem relating to offshore assets, accounts, and income or you have been notified of a civil or criminal investigation by the government, you should contact Crepeau Mourges to review your legal options in detail.