Category Archives: Offshore Assets and Accounts Disclosure

FACTS MATTER! TAXPAYERS CAN WIN WILLFUL FAILURE TO FILE FBAR CASES IN COURT!

FACTS MATTER! TAXPAYERS CAN WIN WILLFUL FAILURE TO FILE FBAR CASES IN COURT!

By Coleman Jackson, Attorney, CPA

March 16, 2023

Under United States law an annual reporting and disclosure responsibility is placed on any United States person with any financial interest in or signatory authority over, a bank, brokerage, stock, or any other financial account in a foreign country. See 31 U.S.C. Sec. 5314(a) and regulation 31 C.F.R. Sec. 1010.350(a). The Bank Secrecy Act (“BSA”), U.S.C. Sec. 5311, et seq., requires U.S. persons to keep records and file reports with respect to their foreign bank account holdings. United States Person is defined in the statute and regulations as U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold under the statute. The reporting threshold is bank account(s) with balances of $10,000 at any time during the calendar year in either one financial account or any combination of financial accounts. U.S. citizens and lawful permanent residents of the United States are included in the definition of U.S. persons regardless of where they actually reside in the world, so long as, their U.S. citizenship has not been forfeited, or LPR’s Green Card status has not been administratively or judicially revoked or abandoned. Moreover, resident aliens of U.S. territories and U.S. territory entities are also subject to FBAR reporting.

Currently the FBAR is filed on Form 114 each April 15^th with the Financial Crimes Enforcement Network. The civil penalties vary depending upon whether the U.S. person who failed to timely file Form 114 acted in a non-willful manner or whether they acted in a willful manner. Non-willful violations of the FBAR filing requirements result in a maximum penalty of $10,000. However, the penalty for willfully violating the FBAR reporting requirements can result in a civil penalty of the greater of $100,000 or fifty percent of the highest balance in the account at the time of the violation. See 31 U.S.C. Sec. 5321(a) for a full discussion of permitted penalties that can be exacted on U.S. persons who violate the FBAR reporting requirements. The U.S. Congress has written the FBAR statutes in such a way, well the best way to describe it is like this—strict liability. In the case of willful violation; upon conviction it is strict liability for sure because there is no reasonable cause defense available to a taxpayer who willfully violates the FBAR disclosure requirements. But as we disclose later in this blog, facts and circumstances matter in willful failure to file cases. But as for the non-willful cases, let’s make clear right now: Reasonable Cause is a possible defense for non-willful violations of the FBAR statutes. If the U.S. person did not fail to file or the failure to timely file was attributable to a reasonable cause (such as reliance on accountants or professional tax preparers or other credible reasons), there should not be an FBAR penalty and any attempts by the IRS to collect a penalty would be a violation of the statute. See White Mountain Apache Tribe, 537 U.S. 465, 477 (2003) and 31 U.S.C. Sec. 5321(a)(5)(B)(ii)(I).

In this blog, we will focus on the alleged willful violation of the FBAR reporting requirements. First the taxpayer need to remain silent because the Courts have said the burden of proof is on the Internal Revenue Service to prove that the taxpayer willfully violated the FBAR reporting requirements. MAKE NO ADMISSONS that you had the requisite intent to violate the law. An admission to an IRS examiner, agent or officer will be difficult to overcome even with the most skillful legal team. So the best thing is to remain silent, seek legal counsel and fully cooperate with the IRS. That does not include making uninformed admissions. The law governing FBAR (when is actions non-willful, inadvertent as opposed to willful) is complex and what the taxpayer may think is an honest statement or rendition of facts, may not be the whole truth and nothing but the truth. It is hard and perhaps impossible to unravel half-truths, errors, misunderstandings or outright lies without unintended legal consequences. Lies tumble into more lies and unless the taxpayer is into gymnastics, its best to leave the tumbling to the experts.

What is willful behavior in federal tax law? Willful conduct is clearly something more than negligence or inadvertent actions. The United States Supreme Court stated over ten years ago that “where willfulness is a statutory condition of civil liability, it is generally taken to cover not only knowing violations of a standard, but reckless ones as well.” The U.S. Supreme Court case of Safeco Ins. Co. of Am. v Burr, 551 U.S. 47, 57 (2007) controls what the IRS must prove if they hope to prevail in a civil ‘willful violation of the FBAR reporting requirements case’. Note that negligence or inadvertent actions are not included in the U.S. Supreme Court’s ‘willful’ definition. Negligent and inadvertent failure to comply with the FBAR reporting requirements are classified as ‘non-willful violations’; and in those cases the offending U.S. person should raise all reasonable cause defenses that might be plausible under the circumstances. The taxpayer should not pay any more penalty than they lawfully owe after considering all the facts and circumstances. Beware: repetitive violations of the FBAR reporting requirements could possibly be construed as ‘willful behavior’. Multiple inadvertent errors may not pass the smell test—this reckless behavior could be the stench of willful snubbing the tax system, and could very likely lead to a ‘willful violation’ charge and even possibly a tax evasion charge. If those are the facts and circumstances, a reasonable cause defense is seriously jeopardized. Recklessness is but a few steps from intentional. The more education U.S. persons have regarding the things discussed in this blog; the closer on the ‘decision continuum’ they come to ‘recklessness and intentional’ when their subsequent behavior doesn’t conform to their level of knowledge. Good moral character matters in tax law- and everywhere else in a civil society.

The best way to look at this is in what I refer to as a “decision continuum “; in the case of ‘failure to timely comply with the FBAR reporting requirements’ that decision continuum – goes from negligence to one or more inadvertent actions on to many more inadvertent actions to intentional actions resulting in failure to comply with the FBAR reporting requirements. The proper civil penalty, if any, depends upon the U.S. person’s culpability in failing to comply with the law. The actual penalty paid could range from zero dollars in the case of a successful reasonable cause defense in a non-willful violation case to millions or more dollars in high dollar foreign bank accounts with willful violation of the FBAR reporting requirements. A penalty based on a percentage of the foreign bank account balance can become enormous quickly! In reality the FBAR penalties coupled with other tax penalties and interest could erase a taxpayers’ wealth and upon conviction take away their liberty. Taxpayers should never concede anything in these cases because the monetary exposure can be extremely high! There are also potential criminal exposures for FBAR violations; we have written about criminal exposures resulting from FBAR violations in one or more of our previous blogs; the standards of proof and burdens in criminal matters are different than in those civil cases. We will skip that discussion here. Best initial strategy in FBAR cases is silence until the U.S. person and their legal team can figure out what they are dealing with and develop the ideal legal strategy under the circumstances.

If the IRS attempts to impose the ‘willful violation penalty’ which is the greater of $100,000 or fifty percent of the account balance at the time of the violation, remember; in a civil penalty case the government must prove your actions were ‘willful’. They must prove by a preponderance of the evidence (more likely than not) that you willfully did something other than sign your tax return. Nor does checking the box “NO” concerning foreign bank accounts on the tax return constitutes prima facie evidence of ‘willful intent to violate the FBAR reporting requirements’. Often in the past the IRS has made these arguments about the signature and the checked boxes on the taxpayer’s tax return. But Courts have repetitively stated that “a taxpayer’s signature on a return does not in itself prove his knowledge of the contents”. A competent court will examine all the facts and circumstances then apply the applicable laws which mean that there is room for argument and putting forward a vigorous defense. In a case United States v Mohney, 949 F.2d 1397 (6^th Cir. 1991), the Court describes the nuance that courts goes through when analyzing these types of tax cases. By the way, these cases can be tried in federal district court, federal claims court or in the U.S. Tax Court. Cases can be tried in the tax court without first paying the penalty; however, in the district courts or federal claims court, taxpayer’s must first pay the civil FBAR penalty and any other related tax penalties and interest.

An FBAR penalty case decided in April 2017 in the United States District Court for the Eastern District of Pennsylvania ( Case 2:15-cv-05853-MMB, Arthur Bedrosian v The United States of America, Department of the Treasury, Internal Revenue Service) should give taxpayer’s struggling through IRS allegations of willful violation of FBAR reporting requirements heart. In Bedrosian case, the taxpayer won against the U.S. government’s willful failure to file FBAR allegation in court! Taxpayers can win willful failure to file FBAR cases in court! As reported by the Court in the Bedrosian case, Bedrosian, a Chief Executive Officer in the pharmaceutical industry was a United States citizen who had two foreign bank accounts. For years on the advice of his accountants, he failed to disclose these accounts on his tax return and he did not file the required FBAR reports for either account although the reporting threshold of $10,000 was met in those years. In 2007 after going to another accountant for his tax work, he was advised that he had FBAR filing issues. He disclosed one of the accounts but not the other in his 2007 FBAR filings. To be brief: the IRS sent him a letter on July 18, 2013 stating that it was imposing a penalty for his willful failure to file TDF 90.22.1. The FBAR reporting Form in 2007 was Form TDF 90.22.1; it is now Form 114. Anyway, the IRS proposed to access a penalty of $975,789.17 which was 50% of the maximum value of the account ($1,951,578.34) which is the largest permitted penalty under the statute. Bedrosian filed suit in federal district court in October 27, 2015. The thing to note in the Bedrosian case is that the Court said facts matter in willful failure to file FBAR cases! The government must prove Bedrosian willfully failed to submit an accurate FBAR report in 2007; Bedrosian’s knowledge concerning his FBAR reporting requirements are relevant facts, and his relationship with his accountants are also relevant facts; even though, there are no reasonable cause defense in ‘willful failing to file FBAR cases’. FACTS MATTER! TAXPAYERS CAN WIN WILLFUL FAILURE TO FILE FBAR CASES IN COURT! The point of this case is U.S. persons may have hope in court in willful failure to file FBAR cases because the IRS must prove that the taxpayer willfully violated the FBAR statute. This is true even though ‘a reasonable cause’ exception only exist for non-willful violations as shown in 31 U.S.C. Sec. 5321(a)(5(C)(ii). Intent to violate the statute or reckless disregard of the disclosure requirements (don’t give a hoot attitude) must be proved; what someone’s intent is can be proven by direct evidence; such as an admission against interest, credible witness testimony, contemporaneous letters or documents; but most likely, the courts will decide these type of cases on all the facts and circumstances. The government must prove that the taxpayer violated the statue willfully, which has been defined by the U.S. Supreme Court and subsequent courts as ‘knowing intent or reckless behavior’. If the facts are on the U.S. person’s side, taxpayers can win willful failure to file FBAR cases in court.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

THE U.S. SUPREME COURT OPINED THAT THE REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS MAXIMUM NONWILLFUL VIOLATION PENALTY IS $10,000 PER FBAR NOT PER ACCOUNT

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THE U.S. SUPREME COURT OPINED

THAT THE REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS

MAXIMUM NONWILLFUL VIOLATION PENALTY IS $10,000 PER FBAR NOT PER ACCOUNT

By: Coleman Jackson, Attorney & Certified Public Accountant

March 6, 2023

The Bank Secrecy Act (BSA) and its implementing regulations require certain individuals to file annual reports with the federal government about their foreign bank accounts. The statute imposes a maximum $10,000 penalty for nonwillful violations of the law. But recently a question has arisen in the U.S. Supreme Court. Does someone who fails to file a timely or accurate annual report commit a single violation subject to a single $10,000 penalty? Or does that person commit separate violations and incur different $10,000 penalties for each account not properly recorded within a single report? Because the Ninth Circuit read the law one way and the Fifth Circuit the other, the U.S. Supreme Court took the case and recently decided in favor of the taxpayers.

BSA simply requires those who possess foreign accounts with an aggregate balance of more than $10,000 to file an annual report on a form known as an “FBAR”—the Report of Foreign Bank and Financial Accounts. 31 U. S. C. §5314; 31 CFR §1010.306 (2021). These reports are designed to help the government “trace funds” that may be used for “illicit purposes” and identify “unreported income” that may be subject to taxation separately under the terms of the Internal Revenue Code.

9^th Circuit case: Jane Boyd, an American citizen, held 13 relevant accounts in the United Kingdom. Because the aggregate amount in Ms. Boyd’s accounts exceeded $10,000 in 2009, she should have filed an FBAR in 2010. Neglecting to do so, she corrected the error in 2012, submitting a complete and accurate report at that time. The government acknowledged that Ms. Boyd’s violation of the law was “non-willful”, and imposed a $130,000 penalty—$10,000 for each of her 13 late-reported accounts. Ninth Circuit vindicated Ms. Boyd’s view, holding that the BSA authorizes “only one nonwillful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts.” 991 F. 3d, at 1078.

5^th Circuit case: Alexandru Bittner was born and raised in Romania, but immigrated to the United States at a young age in 1982 and became a naturalized citizen. After the fall of communism, Mr. Bittner returned to Romania in 1990 where he launched a successful business career. Like many dual citizens, he did not appreciate that U. S. law required him to keep the government apprised of his overseas financial accounts even while he lived abroad. Shortly after returning to the United States in 2011, Mr. Bittner learned of his reporting obligations and engaged an accountant to help him prepare the required reports—covering five years, from 2007 through 2011. Under governing regulations, filers with signatory authority over or a qualifying interest in fewer than 25 accounts must provide details about each account, but individuals with 25 or more accounts need only check a box and disclose the total number of accounts. 31 CFR §1010.350(g). Mr. Bittner and his new accountant volunteered details for each and every one of his accounts—61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. 19 F. 4th, at 738. Because the government took the view that nonwillful penalties apply to each account not accurately or timely reported, and because Mr. Bittner’s late-filed reports for 2007–2011 collectively involved 272 accounts, the government thought a fine of $2.72 million was in order. Mr. Bittner challenged his penalty in court, arguing that the BSA authorizes a maximum penalty for nonwillful violations of $10,000 per report, not $10,000 per account. The district court agreed with Mr. Bittner’s reading of the law, United States v. Bittner, 469 F. Supp. 3d 709, 724–726 (ED Tex. 2020), but the Fifth Circuit upheld the government’s assessment, 19 F. 4th, at 749.

U.S. Supreme Court decision: To resolve who has the better reading of the law, U.S. Supreme Court begins with the terms of the most immediately relevant statutory provisions, 31 U. S. C. §5314 and §5321. Section 5314 (Secretary of the Treasury “shall” require certain persons to “keep records, file reports, or keep records and file reports” when they “mak[e] a transaction or maintai[n] a relation” with a “foreign financial agency.”) does not speak of accounts or their number. The word “account” does not even appear. Instead, the relevant legal duty is the duty to file reports. Whether a report is filed late, whether a timely report contains one mistake about the “address of [the] participants in a transaction,” or whether a report includes multiple willful errors in its “description of . . . transaction[s],” the duty to supply a compliant report is violated. As a baseline, §5321(a)(5) authorizes the Secretary to impose a civil penalty of up to $10,000 for “any violation” of §5314. The law still does not speak of accounts or their number. Also, the law authorizes the Secretary to impose a maximum penalty of either $100,000 or 50% of “the balance in the account at the time of the violation”—whichever is greater. §§5321(a)(5)(C) and (D)(ii). So here, at last, the law does tailor penalties to accounts. But the statute does so only for a certain category of cases that involve willful violations, not for cases like ours that involve only nonwillful violations. When Congress includes particular language in one section of a statute but omits it from a neighbor, we normally understand that difference in language to convey a difference in meaning (expressio unius est exclusio alterius). The government’s interpretation defies this traditional rule of statutory construction. Therefore, the Supreme Court held that the BSA’s $10,000 maximum penalty for the non-willful failure to file a compliant FBAR should be calculated on a per report, rather than a per account, basis. The decision, which was issued on February 28, 2023, was a close vote, 5-4, with Justice Barrett writing in the dissent, “The most natural reading of the statute establishes that each failure to report a qualifying foreign account constitutes a separate reporting violation, so the Government can levy penalties on a per-account basis. Nevertheless, the Supreme Court reversed the Fifth Circuit and remanded the case back to district court.

What does the Supreme Court’s Decision in Bittner Mean to Foreign Bank Account Holders:

What is not clear is what this means for taxpayers who have paid civil fines for unintentional account violations in the past. The ruling also raises the question of whether the IRS will be more aggressive in characterizing violations as willful now that differences in penalty calculations will be more significant.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

THE IRS COLLECTION PROCESS AND TAXPAYER’S OPTIONS

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Coleman Jackson, P.C. | Transcript of Legal Thoughts

LEGAL THOUGHTS: THE IRS COLLECTION PROCESS AND TAXPAYER’S OPTIONS | Published November 28, 2022

Listen:

Legal Thoughts is an audiocast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This episode of Legal Thoughts is an audiocast where the Attorney, Coleman Jackson is being interviewed by Johana Powell, Tax Legal Assistant of Coleman Jackson, P.C. The topic of discussion is “THE IRS COLLECTION PROCESS AND TAXPAYER’S OPTIONS.” You can listen to this podcast by clicking here: https://anchor.fm/coleman-jackson/episodes/THE-IRS-COLLECTION-PROCESS-AND-TAXPAYERS-OPTIONS–ENGLISH-VERSION-e1ooft6

If you enjoy this podcast, make sure to stay tuned for more episodes from the taxation, litigation, and immigration Law Firm of Coleman Jackson, P.C. Be sure to subscribe. Visit the taxation, litigation and immigration law firm of Coleman Jackson, P.C. online at www.cjacksonlaw.com.

TRANSCRIPT:

ATTORNEY: Coleman Jackson

LEGAL THOUGHTS

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Legal Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts litigation and immigration law firm based in Dallas, Texas.
Other members of the law firm are Alexis Brewer and Johana Powell – Tax Legal Assistants, Leiliane Godeiro – Litigation Legal Assistant, and Gladys Marcos – Immigration Legal Assistant.
On today’s “Legal Thoughts” podcast, our Tax Legal Assistant, Johana Powell, will be interviewing me on the important topic of: “THE IRS COLLECTION PROCESS AND TAXPAYER’S OPTIONS.”

INTERVIEWER: Johana Powell, Tax Legal Assistant

Hi everyone, my name is Johana Powell and I am a Tax Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon, Attorney; thank you for agreeing to sit with me as I interview you with respect to this interesting topic: “THE IRS COLLECTION PROCESS AND TAXPAYER’S OPTIONS.”

Let’s get started!

Question 1:

Attorney what is likely to happen when a taxpayer files a tax due return with the IRS?

Attorney Answer – Question 1:

Good afternoon, Johana.

When a taxpayer files a tax return with the IRS, they can expect the following to happen in short order: If a balance is due on the return;

the IRS will— Put the balance due on its books; technically that step is called ‘tax assessment’ under tax law;

the IRS will— Send the taxpayer a bill requesting full payment by a certain date;

In the event the taxpayer fails to pay the first bill in full or contact the IRS to make payment arrangements, the IRS will send the taxpayer a second bill requesting full payment of all taxes, penalties and interest due by a certain date;

In the event the taxpayer fails to pay the second bill in full or contact the IRS to make alternate payment arrangements, the IRS will pull tools out of its collections tool box and rachet up the heat on the recalcitrant taxpayer.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Okay attorney; how much heat can the taxpayer expect to be coming their way if they fail to voluntarily pay that tax debt!

QUESTION 2: Explain what collection tools are in the IRS collection’s tool box?

Attorney Answer – Question 2:

Johana, taxpayers who owe the IRS need to understand that the law gives the IRS broad authority and awesome powers to collect delinquent federal taxes, penalties and interest without any involvement of the courts. In fact, injunctive relief is not available to the taxpayer. Taxpayers cannot get any court to enjoin the IRS in its collection efforts. Taxpayers may have the right to seek that federal courts review and quash some of these collection tools that I am about to discuss; but extremely strict rules apply to quashing an IRS action. The IRS is authorized under the provisions of the Internal Revenue Code; which is codified in 26 United States Code, to collect taxes by use of its collection tools:

1. The IRS is authorized to apply all refunds due to any delinquent tax debt owned by the taxpayer until the delinquent taxes, penalties and interest are paid in full;

2. The IRS is authorized to file a federal tax lien in the property records wherever the taxpayer has property. The IRS tax lien attaches to all property owned by the taxpayer at the time the lien is recorded in the records and it also attaches to all property of any kind the taxpayer may have in the future until the taxes, penalties and interest are paid in full or the lien is lawfully released;

3. The IRS is authorized to assign a Revenue Officer to physically contact the taxpayer at home or at the taxpayer’s business without notice in an attempt to collect the taxes, penalties and interest owed;

4. The IRS is authorized to summon the taxpayer or third party to appear in the IRS offices to give testimony and produce relevant documents to an IRS Officer;

5. The IRS is authorized to serve a levy on third parties to collect the taxes, penalties and interest owed by the taxpayer. For example, the IRS levy and seize the taxpayers bank accounts, wages and other monies owed the taxpayer or held on behalf of the taxpayer; and

6. The IRS collections division is authorized to make criminal referrals to the IRS Criminal Division for criminal investigation and potential criminal tax charges against the taxpayer and others aiding and abetting the taxpayer in violation of U.S. Tax Laws; and finally;

7. The IRS is authorized to file a declaration with the U.S. Department of State declaring the taxpayer’s account seriously delinquent; thereby, informing the U.S. Department of State that the seriously delinquent taxpayer’s U.S. Passport should be revoked or the taxpayer’s passport renewal should be denied.

Let me point out clearly here; all of the collection tools that I have discussed here can be used by the IRS without any court involvement or supervision what-so-ever!

INTERVIEWER: Johana Powell, Tax Legal Assistant

Well with all that potential heat! What are the actions that the taxpayer should take when they receive a tax bill from the IRS?

Attorney Answer – Question 3:

The taxpayer should immediately open the correspondence from the IRS as soon as they receive it. That is the very first thing the taxpayer should do. Time is of the essence because critical deadlines to act are often in IRS correspondence. By failing to act, taxpayers can forsake very important rights. For example, the right to seek relief in the U.S. Tax Court without first paying the taxes, penalties and interest due comes in a 90-day letter from the IRS. Failure to act within 90 days and you lose that right forever.
Second, the taxpayer should read the correspondence carefully; and if they don’t understand it, they should either contact the IRS and arrange to discuss it with them; or, contact an attorney, accountant or IRS enrolled agent and schedule an appointment and bring the IRS correspondence with them to their initial meeting.
Third thing that needs to happen is that the taxpayer will need to decide what further actions they need to take; that is going to depend upon the following
1. What actions are the IRS requesting the taxpayer to take in the correspondence, if any;
2. If it’s a tax bill or notice of tax adjustment where the IRS is requesting a payment by a date certain-
  1. In the event the taxpayer agrees that they owe the taxes, penalties and interest, the taxpayer either needs to pay in full or negotiate some kind of payment arrangement with the IRS;
  2. In the event the taxpayer disagrees with the balance owed or any part of it; the taxpayer needs to exercise its collection due process rights, or the taxpayer’s right to challenge the assessment in court within the deadlines set forth in the IRS correspondence, or exercise any number of other rights the taxpayer may have depending upon all the facts and circumstances.

Taxpayers dealing with the IRS should seriously seek professional representation; especially, if they are certain about what the tax issues are or they are in great civil and criminal exposure.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Question 4: Attorney Jackson, what happens if the taxpayer cannot pay the taxes, penalties and interest in full?

Attorney Answer – Question 4:

Again, the particular options available to a taxpayer is going to depend on all the facts and circumstances. Facts matters, such as, the type of tax debt; such as, income taxes, business taxes, payroll taxes, excise taxes and things like that. The amount of the tax debt is very important as to what options are going to be available to resolve the matter. The taxpayer’s history with the IRS also can matter a lot. Anyway, all the facts and circumstances matter as to what options are available. Some of the options that might be available are

Negotiate a full pay or partial pay installment payment arrangement with the IRS. Again, depending on all the facts and circumstances the taxpayer may be able to apply for an installment agreement at irs.gov, on the phone, by mail or by visiting an IRS local office. Again, whether this can be done is going to depend upon the amount of the tax debt, the tax payer’s prior history, the taxpayer’s current tax compliance, and a lot of other things. The taxpayer may want to consult and attorney or other professional whenever they are dealing with large tax debts, unfiled tax returns and other times when they have criminal exposure due to their actions or inactions as far as it goes in terms of compliance with U.S. federal tax laws.
The fresh start or offer in compromise might be available for some taxpayers. There are some options for these taxpayers but they must act promptly once they receive their bills. The taxpayer that cannot pay in full may apply for an installment agreement, which consists in a payment plan so the IRS will allow you to make smaller periodic payments according with your financial capacity. Usually, you can apply for the installment agreement online, by phone, by mail, or in person in one of the local offices, however, this is just possible when it is early in the process. When a taxpayer has a big tax debt or it is past due from several years and has interest and penalties accrued for a long period of time, you should consult with your tax attorney. An offer in compromise is sought to settle unpaid taxes for less than the full amount owed, the IRS may accept an OIC when the Service believe that the taxpayer’s tax debt might not be accurate, or when the taxpayer has proven to the OIC division of the IRS that the taxpayer does not have sufficient assets and income to pay the tax debt, or because paying the debt would cause the taxpayer undue hardship. In recent years, not many offers in compromise request are approved. The IRS is more likely to accept a partial pay installment agreement or put the taxpayer’s account in uncollectable status and review it in subsequent years to determine whether the tax debt is collectible.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Attorney, thank you for siting with me today to inform us about the IRS collection process and taxpayer’s options, it is very important for the taxpayers to be aware of this information. In United States all individuals and businesses must prepare tax returns, it is important to maintain records of this returns, and to make them accurate to avoid issues with the IRS.

Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody takes care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers: 214-599-0431 | Spanish callers: 214-599-0432 |Portuguese callers: 214-272-3100

Attorney Closing Remarks

This is the end of today’s Legal Thoughts!

Thank you for giving us the opportunity to inform you about: “THE IRS COLLECTION PROCESS.”

If you want to see or hear more taxation, contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

Stay tuned! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Foreign Bank Account Penalty Issue: Fifth Circuit Court of Appeals Taking a Per-Account View

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By: Coleman Jackson, Attorney & Counselor at Law and Certified Public Accountant
December 21. 2021

The Fifth Circuit:

The United States Court of Appeals for the Fifth Circuit is the federal court that hears appeals from federal court decisions issued by the federal district courts in Texas, Louisiana and Mississippi. That means that the court decisions of the 5^th Circuit is binding on the federal courts located in these three states. Fifth Circuit court decisions are binding on residents of Texas, Louisiana and Mississippi.

The Court Decision Discussed in this Blog:

Recently in an appeal from the United States District Court for the Eastern District of Texas, The Fifth Circuit ruled that the penalty on a taxpayer who fails to report interests in foreign bank accounts applies on a per-account basis, not a per-form basis. See U.S. v Bittner (5^th Cir. 2021).

Brief of the Law:

The United States Congress enacted the Bank Secrecy Act in 1970. The Bank Secrecy Act (BSA) is codified as amended at 31 U.S.C. § 5311. The BSA as implemented requires specified persons, which includes United States Citizens and Green Card Holders, with a financial interest in a financial account in a foreign country to report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists. The specified person (U.S. Citizen or Green Card Holder) is considered as having a financial interest in a foreign account in which the person owns or have signatory authority; or any foreign account of any corporation in which the person has an ownership interest greater than fifty percent. The BSA also applies to beneficiary ownership and other interest in foreign trusts.

The prescribed reporting form is currently Form 114 which is required to be filed on or before April 15^th of each calendar year with respect to foreign financial accounts with balances exceeding $10,000 at anytime during the preceding calendar year. The $10,000 balance can be in a single foreign account or a combination of multiplesmaller foreign accounts.Form 114 is commonly referred to as the FBAR. The FBAR is filed with the Financial Crimes Network. The Financial Crimes Network is an agency of the U.S. Department of Treasury. FINCen is not the Internal Revenue Service. The FBAR is not filed with the IRS.

The Bank Secrecy Act empowers the Secretary of the Treasury to “impose a civil money penalty on any specified person (U.S. Citizen and Green Card Holder) who violates, or causes any violation of, any provision of 31 U.S.C. § 5314.” The penalty regime and authority are set forth in 31 U.S.C. §5321. Different penalties apply depending upon whether the violation of the BSA is determined to be non-willful or willful. The maximum penalty for a non-willful violation is $10,000. See 31 U.S.C. §5321(a)(B)(i). The maximum penalty increases to the greater of $100,000 or fifty percent of the amount of the transaction when the violation involves a transaction; or the balance in the account at the time of the violation when the violation involves failure to report the existence of the foreign account. See 31 U.S.C. §5321(a)(5)(C)(i) and §5321(a)(5)(D). In the event the taxpayer properly reported the foreign account a reasonable cause defense is sometimes available for non-willful violations of the BSA.

Brief of the Facts in the case—U.S. v Bittner (5^th Cir. 2021):

Bittner the defendant in the case before the 5^th Circuit. He was born in Romania in 1957 and became a naturalized citizen of the United States in 1987. In summary, he returned to his native Romania in 1990, became a very successful businessman and investor. He maintained dozens of bank accounts in Romania, Switzerland, and Liechtenstein using numbered accounts “[t]o hide [his] name” according to the court record. Further, the court’s record shows that Bittner used accountants to maintain financial records and ensure compliance with Romanian tax laws. According to the Court’s findings of facts, Bittner was unaware that as a United States citizen he had to report his interests in certain foreign bank accounts to the United States government. Bittner never filed FBARs while living in Romania.

Bittner returned to the United States in 2011 and learned that he was suppose to file FBARs while residing in Romania. He hired a Certified Public Accountant who prepared and filed his delinquent FBARs in May 2012. The court record shows that Bittner hired a second Certified Public Accountant who amended his original filings and disclosed each unreported account from 2007 through 2011 indicating that he had 61 accounts in 2007, 51 in 2008, 53 in 2009, 53 in 2010 and 54 in 2011. It’s not clear from the court’s decision how the Internal Revenue Service learned of these late FBAR filings and the related amendments, but let it be clear; however, that the privacy enjoyed by federal tax returns under U.S. Federal Tax Law are not bestowed on FBARs. FBARs filed with the Financial Crimes Network are routinely available to federal law enforcement agencies. Congress enacted the Bank Secrecy Act with the primary purpose of curbing “serious and widespread use” of foreign financial accounts to evade U.S. taxes. These laws are also designed to combat money laundering, nefarious financial activity and other unlawful financial activity across international borders. So, it is not surprising that the IRS would learn of these delinquent FBAR filings. Regardless of how the IRS learned of the violations, “the IRS assessed $2.72 million in penalties against Bittner for non-willful violations of section 5314– $10,000 for each unreported account from 2007 to 2011, specifically 61 accounts in 2007, 51 in 2008, 53, in 2009, 53 in 2010, and 54 in 2011.” A lawsuit ensued where the U.S. government sought a judgment on the assessed FBAR penalties. Bittner argued at the trial court level that no penalty was due because his violations were due to a reasonable cause and therefore, he could not be penalized for a non-willful violation. He also argued in the U.S. District Court for the Eastern District of Texas that the non-willful penalty should be assessed per-form and not per-account as the IRS assessed. In summary, the district court ruled in Bittner’s favor stating that the $10,000 maximum penalty for a non-willful violation applies on a per-form basis,butthe court rejected several other arguments that Bittner made to the Court. The parties appealed to the Fifth Circuit Court of Appeals.

What the 5^th Circuit Said:

This is in brief how the Fifth Circuit Court of Appeals ruled as to whether the FBAR penalty for a non-willful violation of the BSA is assessed on a per-form basis or per-account basis:

The BSA’s “penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone. “It is the failure to file an annual FBAR that is the violation contemplated” by section 5321(a)(5)(A).

Analysis and Decision of the 5^th Circuit: Neither the BSA ‘s “text nor structure separates the excuse from the violation. On the contrary, if the exception of non-willful breaches applies on a per-account basis, then logically, the violations the exception forgives must arise on a per-account basis too. Framed in terms of “the transaction” and “the account,” the reasonable-cause exception most naturally reads as excusing the failure to report a transaction or account, not the failure to file an FBAR. This reading supports our view that the underlying “violation” in section 5321(a)(5)(A), cannot be read on a per-form basis. The text, structure, history, and purpose of the relevant statutory and regulatory provisions show that the “violation” of section 5314 contemplated by section 5321(a)(5)(A) is the failure to report a qualifying accountnot the failure to file an FBAR. Therefore, the $10,000 penalty cap applies on a per-account, not a per-form, basis.”

What Are Some Lessons and Take Aways from the Bittner Case?

As I stated in the beginning of this blog, the United States Court of Appeals for the Fifth Circuit hear appeals from federal courts with jurisdiction over U.S. Citizens, Green Card Holders and others residing in Texas, Louisiana and Mississippi. Therefore, the court’s ruling that the IRS is permitted under the regulations of the BSA to assess FBAR penalties on a per-account basis is binding on all of the federal courts within the 5^th Circuit. The failure to report a qualifying foreign bank account is subject to the $10,000 penalty cap on a per-account basis for non-willful violations of the BSA by residents of Texas, Louisiana and Mississippi.

FBAR matters carry potentially criminal exposures that are not discussed in this particular blog because this case was a civil law matter. Perhaps foreign bank account and assets reporting is more of a legal matter than accounting matter that Certified Public Accountants are used to handling since the Financial Crimes Network is more of a law enforcement agency of the U.S. Department of Treasury than the Internal Revenue Service. Both agencies work together on foreign account matters; but, remember—Form 114 is filed with the Financial Crimes Network.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Reporting Foreign Bank and Financial Accounts | LEGAL THOUGHTS

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Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published June 14 ,2021

LISTEN:

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, Public Relations Associate of Coleman Jackson, P.C. The topic of discussion is “Reporting Foreign Bank and Financial Accounts“. You can listen to this podcast by clicking here:

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TRANSCRIPT:

ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, government contracts litigation and immigration law firm based in Dallas, Texas.
Our topic for today is: “Reporting Foreign Bank and Financial Accounts”.
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Reporting Foreign Bank and Financial Accounts.”

Interviewer: Mayra Torres, Public Relations Associate

Good afternoon everyone. My name is Mayra Torres, and I am the public relations associate at Coleman Jackson, P.C. Coleman Jackson, P.C. is a law firm based right here in Dallas Texas representing clients from around the world in taxation, litigation, and immigration law.
Attorney, thank you for joining us today to discuss the laws that require certain individuals, businesses and other entities to timely report Foreign Bank and Financial Accounts. A very important topic anyone with foreign bank accounts and other assets abroad.
Question 1:
Could you give us a general overview of the legal source of these legal rules obligating certain individuals to disclose their foreign bank, financial accounts, and other offshore asset holdings. I mean what law requires this; who does it apply to and what are the penalties for failing to comply? These are all questions everyone with foreign assets probably needs the answer to. So, Attorney could you explain this in terms easy to understand?

Attorney Answers Question 1:

Good afternoon Mayra. Yes, I can give a general overview as to what laws impose these requirements foreign bank accounts disclosures, why Congress say they enacted these statutes, who these disclosure rules apply to and what penalties are imposed on those who fail to timely disclose their foreign holdings.
Answer No. 1:
The Bank Secrecy Act (BSA) was enacted into law in 1970. The Bank Secrecy Act is codified in 31 USC Sections 5311 et seq. The law authorizes the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCen) to administer and enforce the law. The BSA gives FinCen authority to collect information from a U.S. person who have financial interests in or signatory authority over foreign bank and financial accounts. The BSA also gives FinCen numerous powers to enforce the law as it relates to financial institutions as well; but that is beyond the scope of this particular podcast. I am only going to talk about the application of the law to certain U.S. persons as defined in the BSA.
The Report of Foreign Bank and Financial Accounts (FBAR), which is FinCen Form 114 required to be filed by April 15^th annually to report certain foreign bank and financial holdings by U.S. persons. A timely FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is also a tool used by the United States government to identify persons who may be using foreign financial accounts to circumvent United States law. Information contained in FBARs can be used to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad. So, this explains what Congress is getting at in terms of certain U.S. persons. The law is designed to detect tax fraud, money laundering, and other nefarious financial criminal activity.
In April 2003, the Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority regarding the FBAR to the Internal Revenue Service (IRS). The IRS is now responsible for:
Investigating possible civil violations;
Assessing and collecting civil penalties; and
Issuing administrative rulings.
But let’s it be clear, Form 114, the annual FBAR filed with FinCen not the Internal Revenue Service. The April 2003 delegation of enforcement authority to the IRS had absolutely no impact on who must file an FBAR (Form 114), or where the Form 114 must be filed or when the FBAR is required to be filed. FBAR disclosure are filed on FinCen’s website.

Interviewer: Mayra Torres, Public Relations Associate

Question 2:

Attorney it is abundantly clear why disclosing foreign bank accounts and other offshore assets and financial holdings annually in an FBAR is so important.

Please explain in more detail exactly who is required to file the FBAR?

Attorney Answers Question 2:

Under the Bank Secrecy Act, a United States person must file an FBAR under certain conditions that I will explain in a minute. U.S. person is defined in the BSA as: a citizen of the United States, a resident of the U.S., Business structured under the laws of any state or territory of the United States; such as, a corporation, partnership, limited liability company, trust and estate. A U.S. person must file an FBAR with the Financial Crimes Network on FinCen Form 114 to report:
a financial interest in or signatory or other authority over one or more financial accounts located outside the United States if
the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a “foreign financial account” for FBAR purposes. But you don’t need to report foreign financial accounts that are:
Correspondent/Nostro accounts,
Owned by a governmental entity,
Owned by an international financial institution,
Maintained on a United States military banking facility,
Held in an individual retirement account (IRA) you own or are beneficiary of,
Held in a retirement plan of which you’re a participant or beneficiary, or
Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.
You don’t need to file an FBAR for the calendar year if:
None of your foreign financial accounts, either singularly or combined exceeded $10,000 at any time during the calendar year reported.
All your foreign financial accounts are reported on a timely filed consolidated FBAR.
All your foreign financial accounts are jointly-owned with your spouse and your spouse and you authorized your spouse to file the jointly held accounts on a timely filed Form 114 by executing Form 114a. If you own separate foreign accounts, you must file a timely Form 114.

Interviewer: Mayra Torres, Public Relations Associate

I see, so if a taxpayer has foreign financial accounts and the aggregate maximum value exceed $10,000 at any time during the calendar year then they must file Form 114 with the Financial Crimes Network.
Question 3:
Attorney, what is the due date for filing Form 114 with the Financial Crimes Network to report foreign bank account holdings?

Attorney Answers Question 3:

Mayra, that is an excellent question because there are potential grave civil fines and potential criminal consequences for U.S. persons who fail to timely file Form 114 with the Financial Crimes Network. The FBAR is an annual report filed on FinCen Form 114. The FBAR is due April 15^th following the calendar year reported.
Taxpayers are allowed an automatic extension to October 15^th if they fail to meet the FBAR annual due date of April 15^th. You don’t need to request an extension to file the FBAR by October 15th. The October 15^th extension is automatic.
If you are affected by a natural disaster, the government may further extend your FBAR due date. It’s important that you review relevant for complete information.
If a filer does not have all the available information to file the return by the automatic extension date of October 15^th, the filer should file as complete a return as possible and amend the report when additional or new information becomes available.

Interviewer: Mayra Torres, Public Relations Associate

Question 4:

Attorney, what could happen to a taxpayer who fails to file their required FBAR by the extended filing deadline of October 15^th?

Attorney Answers Question 4:

If a required FBAR is not filed by the appropriate date the U.S. Person in violation of the Bank Secrecy Act may be subject to civil monetary penalties and/or criminal penalties, or both, for FBAR reporting and/or recordkeeping violations. The exact penalty imposed will depend on all the facts and circumstances of each case. The current maximum penalties for failing to file required FBARs or delinquent FBARs are as follows:
For Non-Willful Violations: U.S. persons who inadvertently violate the law are subject to civil penalties up to a maximum of $12,921 for each negligent violation. The 9^th Circuit Court of Appeals ruled earlier this year that 31 U.S.C. Section 5341 permits the IRS to impose only one non-willful penalty when an untimely FBAR is filed, no matter the number of foreign bank accounts are held by the taxpayer; but this issue is not settled in all the Circuits. I don’t think the 5^th Circuit Court; which is the Circuit Court of Appeals with federal court jurisdiction over Texas; have not as far as I know addressed this issue as to whether the delinquent FBAR penalty can be imposed based on the number of unreported accounts or whether it is to be imposed on each untimely Form 114. Taxpayer’s need to understand that the IRS takes a very aggressive posture when imposing the penalties authorized under the Bank Secrecy Act. I am merely warning U.S. persons with unreported foreign accounts. The penalties for violations of the Bank Secrecy Act are very severe and are aggressively pursued by the IRS. The courts tend to decide matters regarding whether the taxpayer acted non-willfully or willfully in kind of mechanical manner; in the sense that, the annual tax return specifically asks the question as to whether the taxpayer owns, has signatory authority over or control foreign accounts. That question on the Form 1040 tax return must be answered yes or no. The Form 1040 tax return instructions cautions the taxpayer to consult the form’s instructions before answering the question. With that said, let’s talk about penalties for willful violations of the Bank Secrecy Act because proving that a taxpayer’s actions were inadvertent or non-willful can be challenging.
For Willful Violations: U.S. persons who fail to file Form 114 or fail to retain records of the foreign accounts willfully may be subject to civil penalties of up to the greater of $129,210, or 50% of the amount in the account at the time of the violation.
For a Negligent Violation by Financial Institutions or Non-financial Business or Trade: These types businesses who negligently violate the Bank Security Act’s FBAR requirements may be subject to a negligence civil penalty up to $1,118. This penalty does not apply to individuals who violates the BSA.
For a Pattern of Negligent Activity by a Financial Institution or Non-financial Trade or Business: These types of businesses who engages in a patter of negligent violations of the FBAR rules may be subject to civil penalty for Negligent Violation of $1,078 with respect to any such violation, not more than $86,976. These pattern of negligent activity penalties does not apply to individuals; they apply to businesses.
These penalties will be applied if an FBAR is filed late or not at all. If the taxpayer has not been contacted by the IRS about the late FBAR and are not under investigation by the IRS, they may file a late FBAR. To keep penalties to a minimum, this should be done as soon as possible.
When filing a late FBAR, it gives the option to provide further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program. If the foreign financial account is properly reported the late-filed FBAR, and the IRS determines that the FBAR violation was due to reasonable cause, no penalty will be imposed.
Taxpayers can be audited by the IRS. Taxpayer’s can file Form 2848, Power of Attorney and Declaration of Representative to authorize a lawyer or other professional to represent them in delinquent FBAR matters and IRS investigations regarding foreign bank accounts and foreign assets and unreported earnings. Sometimes the IRS discover FBAR issues during routine audit examinations of the taxpayer’s tax returns. Sometimes delinquent FBARs are discovered during BSA/ Anti-money laundering examinations, counter-terrorist investigations and during informal and formal financial crimes enforcement actions by the Financial Crimes Network and the Office of Foreign Assets Control. Further, banks must also make regular Suspicious Activity Reports under the Bank Secrecy Act. So as you can see there are a lot federal agencies involved with enforcement of the Bank Secrecy Act and there are numerous ways the United States government can learn about taxpayer’s foreign accounts. There are potentially substantial civil penalties that could be assessed against non-compliant taxpayers with unreported foreign accounts and even potentially criminal exposure for FBAR violators.

Interviewer: Mayra Torres, Public Relations Associate

Wow, Attorney, hearing about all those penalties; it is obvious that the IRS and other law enforcement agencies of the U.S. government has a lot of power to enforce these rules against people who don’t follow the Bank Secrecy Act exactly right! The government doesn’t take this matter lightly. It is very important for FBARs to be filed accurately and by the appropriate due date.
Question No. 5
So Attorney, explain how and where does a taxpayer file an FBAR?

Attorney Answers Question 5:

An FBAR must be filed electronically through the Financial Crimes Enforcement Network’s (FinCen) BSA E-Filling System . You access FinCen’s BSA E-Filing Web Portal by going to fincen.treas.gov.
I mentioned this fact once before during this presentation; but let me say it again; FBARs are not filed with the taxpayer’s annual tax return. Form 114 is used to file FBARs. Form 114 is not a tax form.
If the taxpayer desires to file Form 114 in paper format, the taxpayer must call FinCEN’s Regulatory Helpline at 800-949-2732 to request an exemption from e-filing. If FinCEN approves the request, FinCEN will send the paper FBAR form to complete and mail to the IRS at the address in the form’s instructions. FinCen will not accept paper-filings on TD F 90-22.1, which is obsolete and was replaced by Form 114 several years ago now) or a printed FinCEN Form 114, which is currently used for e-filing only.
If the taxpayer would prefer to have someone else file their FBAR on their behalf, they must sign a Record of Authorization to Electronically File FBARs, to authorize that individual or law firm to electronically file Form 114 on their behalf. FinCEN Report 114a; which I mentioned a while back in this discussion when I was talking about joint-holders of foreign accounts, are not filed with FinCen. Form 114a is for recordkeeping purposes only. The joint-account holders must present this form for examination in the event FinCEN or IRS ask for it.
I would like to note that the law requires that these records be kept for five years from the due date of the FBAR.
Records must be kept for each foreign account that are required to be included on Form 114. The records must establish the name on the account, the account number, name and address of the foreign bank, type of account, and maximum value during the year. The Bank Secrecy Act does not precisely mandate the type of document that must be kept by the taxpayer. It could possibly be bank statements or a copy of the filed FBAR. Whatever document the taxpayer use to substantiate this required information, must be kept for five years after the due date of the FBAR.
In the case of an officer or employee who files an FBAR to report signatory authority over their employer’s foreign financial accounts; the employee is not required to personally keep records on these accounts. But their employer must keep the required records for these foreign accounts.

Mayra Torres’s Concluding Remarks:

Attorney thank you very much for this very comprehensive and informative presentation on the topic: “Reporting Foreign Bank and Financial Accounts.”
Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast. You can follow our blogs by going to our law firm’s website at cjacksonlaw.com. Everybody take care for now! Come back in about two weeks, for more taxation, government contract litigation and immigration Legal Thoughts from Coleman Jackson, P.C., which is located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
English callers: 214-599-0431; Spanish callers: 214-599-0432 and Portuguese callers: 214-272-3100.

Attorney’s Concluding Remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

Thanks for giving us the opportunity to inform you about the “Reporting Foreign Bank and Financial Accounts”.
If you want to see or hear more taxation, government contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! Watch for a new Legal Thoughts podcast in about two weeks and check our law firm’s website at www. cjacksonlaw.com to follow our blogs. We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Here’s Why People Filing Taxes Should Be Careful When Selecting A Professional Tax Return Preparer | LEGAL THOUGHTS

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Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published March 10, 2021.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Reyna Munoz, Immigration Legal Assistant of Coleman Jackson, P.C. The topic of discussion is ““Here’s why people filing taxes should be careful when selecting a professional tax return preparer.” You can listen to this podcast by clicking here:

TRANSCRIPT:

ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
Our topic for today is: “Here’s why people filing taxes should be careful when selecting a professional tax return preparer.”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: Here’s why people filing taxes should be careful when selecting a professional tax return preparer.”

Interviewer: Mayra Torres, Public Relations Associate

Good morning everyone. My name is Mayra Torres and I am the public relations associate at Coleman Jackson, P.C. Coleman Jackson, P.C. is a law firm based right here in Dallas Texas representing clients from around the world in taxation, litigation and immigration law.
Attorney today we are discussing a very important tax topic because filing taxes is on folks minds these days. Many people may be filing taxes for the first time this year because of the recovery rebate credit issues involving their economic impact payments and other Covid-19 relief received during 2020.
In this Podcast, we will be discussing the safest, easiest and perhaps cheapest way folks can file their tax returns.

Question 1:

Attorney let’s start with the cheapest way folks can file their taxes for 2020! What options exist for people who do not want to pay a professional tax return preparer? I mean, can people file their tax returns for free?

Attorney Answers Question 1:

Good morning Mayra.
First people can always prepare and file their tax return themselves without hiring and paying anyone.
Second people can go to IRS.gov and select a number of brand-name tax software providers who will permit certain eligible taxpayers to use their software to prepare and electronically file their individual tax return for absolutely free. This particular free tax preparation option might be an excellent option for some taxpayers. Typically, the software providers require people to meet certain income, age and state residency requirements. The software vendors’ individual qualifying requirements can be found at IRS.gov. Most of the free vendors software is in English, but a few are in Spanish. This free file option is certainly an option that taxpayers should explore.
Third people can use possibly find free tax preparer clients hosted by various accounting and legal societies throughout the community. Some churches and business and law schools also provide minimum fee tax advice and counsel. People should contact the professional schools in their communities to inquire whether students in tax law training provide such services to the community. When I attended SMU School of Law, I participated in their tax clinic that provided free or minimum fee tax controversy services by enrolled students under the supervision of the tax clinic professor. People should make inquiries at professional societies, schools, and places of worship to see what’s available.
So to summarize; Mayra, as you can see there are a number of options available for people to get their tax returns prepared at little to no costs.

Interviewer: Mayra Torres, Public Relations Associate

That is an excellent summary of the free or low-cost tax return preparation and filing options that might be available to people this year:

people can prepare and file their returns without using anyone to help them;
People can go to IRS.gov and select a brand-named software provider to prepare and file their return if they meet the provider’s qualification requirements, and
People can search for a free or low-cost professional tax return preparer at local places of worship, or professional accounting or law societies or local law school tax clinics and accounting schools.

Question 2:

Attorney, some people can’t qualify for one of these free or low-cost tax preparation services. Some people just think taxes are very complex; they can’t prepare these complicated tax returns themselves, and they just want to hire someone to prepare the return and file it for them. What characteristics and qualifications should people look for when hiring a tax return preparer?

Attorney Answers Question 2:

Mayra, that is a very good question since people are responsible for the accuracy of their tax return regardless of whether they prepare and file it themselves or hire someone else to prepare and file their return.
These are some of the things that people might should consider when selecting a tax return preparer:
1. Indicial of educational training in tax law and tax accounting. This might be evidenced by a degree from college in taxes, accounting, law, finance, or some related business degree. Return preparer might be qualified with only certificates but with increasing complexity of the tax issues involved, should cause taxpayers to exercise more exacting screening of a tax return preparer before they hire them to work on their return.
2. Professional Tax Identification Number (or PTIN). The PTIN is an annual credentialing issued by the Department of Treasury to professionals authorized to practice before the Internal Revenue Service as paid tax return preparers. To obtain a PTIN, a tax professional must be an attorney in good standing with a State Bar Association, a licensed Certified Public Accountant in good standing with a state CPA licensing authority, an enrolled agent in good standing with the Internal Revenue Service, or a registered tax return preparer under the defunct IRS Registered Tax Return Preparer Program. Taxpayers should look for these types of credentialing when selecting a tax return preparer. In recent years, the annual PTIN fee has been suspended due to Court challenges regarding the IRS’ attempt to regulate tax practice. The IRS’ stated goal when instituting the PTIN program was to improve the integrity and quality of the tax preparation industry. Some tax professionals challenged this attempt in Court. Nevertheless, PTIN credential could be a good metric for the public to use when selecting a tax return preparer. The bottom line is this— when the professional does not have a current PTIN Card; It is possibly a bright red alert to the taxpayer that they could be taking unnecessary risk by hiring an unqualified tax return preparer. Taxpayers are responsible and liable for the accuracy of their tax returns regardless of who prepares or files the return for them.
3. Experience in tax return preparation is critical factor when selecting a tax return preparer. Tax law is constantly changing from year to year, and it is very important that the tax return professional maintains competencies in tax law on an annual basis. The more experience that the tax return preparer has with the type of return involved the better. For example, if you have foreign accounts, you should think long and hard before hiring any return preparer who has never worked with taxpayers with foreign accounts or offshore assets. Over the years, our law firm has seen many taxpayers who have been greatly harmed by tax return preparers who failed to properly counsel and advise them with regards to proper tax accounting for offshore assets and accounts.
4. So to summarize: taxpayers should look for relevant tax law and accounting education, IRS Tax Professional PTIN certificate and tax experience relevant to tax issues related to their particular situation when selecting a tax return preparer.
It is very important to make a wise selection choosing which tax return preparer to hire because taxpayers can be subject to civil penalties and even criminal exposure for inaccuracies and materially false statements and tax positions taken on their tax returns and in their claims for refunds.

Interviewer: Mayra Torres, Public Relations Associate

Bright Red Alert! Before hiring anyone to do your tax return, look at the tax return professional’s educational background… like where did they go to school and where did they learn tax and accounting; look at whether they have a current IRS Tax Professional PTIN certification, and look at whether they have the right type of tax experience to prepare your tax return!
If any of these three things are missing; it’s a bright red alert folks! Attorney, thanks for answering my question so clearly concerning what characteristics people should look for when selecting a tax return preparer.
Did I get the bright red alerts right, Attorney?

Question 3:

Attorney, it sounds like taxpayers can get in very serious trouble on their taxes if they hire an unqualified, incompetent, or dishonest tax return preparer.

Is there any where a taxpayer can turn for help when they suspect that they have been harmed by their tax return preparer?

Attorney Answers Question 3:

The Internal Revenue Service has been given the authority by Congress to maintain the public’s confidence in the federal tax system. Under that authority the IRS maintains advisory committees who establish practices, procedures and policies of the oversight offices designed to enforce regulations governing those authorized to practice before the IRS. The IRS is required under these regulations to maintain a list of individuals and companies who have been disbarred from practice before the IRS; list practitioners with monetary sanctions, and a list of practitioners who have otherwise been sanctioned by the IRS.
In addition to the IRS oversight that I have mentioned; professionals such as attorneys and certified public accountants are accountable to their respective professional licensing authorities in their states. These various professional licensing boards have specific complaint procedures where injured taxpayers can file an official complaint.
Finally, taxpayers harmed by tax return preparers can also turn to the courts for redress by filing a lawsuit for professional liability or other claim.
I should caution here that every tax position taking on a particular tax return may not rise to the level incompetence or malfeasance on the part of the tax return preparer. Judgment is an inherent part of being a tax professional. That intangible characteristic of confidence and trust in your tax professional cannot be overstated.

Interviewer: Mayra Torres, Public Relations Associate

Question 4:

What about the people that have an approved family-sponsorship petition outside of the United States?

Attorney Answers Question 4:

The Internal Revenue Code imposes an entire laundry list of civil penalties and criminal penalties on Tax Return Preparers who are incompetent or engage in disreputable conduct. The names and descriptions of these various penalties can be very informative as what goals the IRS is attempting to achieve in terms of protecting the public, protecting the public’s confidence in the tax system, and maintaining the overall integrity of the U.S. federal tax system. So that I don’t overly complicate this for our none-tax professional listeners, I am going to leave out any references to the specific Internal Revenue Code Section or Treasury Regulation where these penalties are codified. Most of our listeners probably don’t really care to know the actual tax code section and treasury regulation reference numbers for these penalties.
This is a list of some of the types of penalties that the IRS can impose on Tax Return Preparers. Taxpayers should just thing about the item on the list and look beyond what is right in front of them to what the IRS is trying to accomplish by imposing these penalties on incompetent preparers or those engaged in disreputable conduct:
1. Civil Penalties imposed on tax return preparers for failure to meet due diligence requirements for determining eligibility for certain tax benefits, such as, child tax credit, head of household, and earned income credit. Often times, taxpayers take these tax positions in error or with bad advice from tax preparers.
2. Penalties imposed on tax return preparers for failure to sign the return and penalties for failing to supply identifying numbers such as, PTIN etc. Again, often, returns prepared by paid tax preparers appear to be self-prepared.
3. Various penalties imposed against tax preparers for giving false or misleading information to the Department of the Treasury or any of its officers, employees, or agents.
4. Various penalties imposed against tax preparers for aiding, advising or abetting others in violating federal tax law by suggesting or aiding in an illegal plan to evade the proper application and administration of U.S. tax laws or payment of U.S. taxes.
Items three and four can result in civil negligence and civil accuracy related penalties; and willful or reckless violation of U.S. Tax laws could lead to criminal referrals and prosecution of the tax return preparer and the taxpayer.

Penalties imposed on tax return preparer for failure to give the taxpayer a copy of their tax return.
Penalties imposed on the tax return preparer for failure to maintain a copy of the prepared tax return.
Penalties imposed on the tax return preparer for failure to maintain a record of who prepared the return.

Items five through seven is designed to create a contemporary record and to provide a chain of responsibility. Tax return preparer operations are subject to IRS examination and investigation.
These are only a few of the penalties that the IRS could impose on incompetent tax return preparers and those engaged in disreputable conduct.
Taxpayers must be careful when tax return preparers over promise, make claims of abilities to obtain certain refund amounts or tax results, or seek to negotiate taxpayer refund checks. Sometimes dishonest preparers claim that the taxpayer has companies, farms, and factories that the taxpayer themselves never knew they had. Remember you are responsible for the numbers and data on your tax return and the IRS will look for you first to timely pay the correct amount of taxes. Your tax return preparer may or may not ever be held accountable. So, a word to the wise: be careful when you select your tax return preparer.
All these penalty areas that I have mentioned in this podcast should help taxpayers to exercise wisdom and discretion when selecting a tax return preparer. Look for professionals with character and experience even though it might cost you more to have your taxes done. It may cost more in the long run if you choose an incompetent tax preparer, or one engaged in disreputable acts.

Interviewer: Mayra Torres, Public Relations Associate

Attorney, thanks for such a thorough response to my questions about characteristics, qualifications, and other things that people should consider when selecting a tax return preparer. Character and experience always matter!
That’s all the questions I have for now with respect to being wise and prudent when selecting a tax return preparer. It sounds like it’s very dangerous to select the wrong person or firm to prepare your tax return.

Attorney Comment:

Well, those were all excellent questions, Mayra. And I am glad we were able to discuss the importance of exercising wisdom and being prudent when selecting a tax return preparer.

Mayra Torres’s Concluding Remarks:

Attorneys thank you for this comprehensive and informative presentation on selecting a tax return preparer.
Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast. You can follow our blogs by going to our law firm’s website at cjacksonlaw.com. Everybody take care for now! Come back in about two weeks, for more taxation, litigation and immigration Legal Thoughts from Coleman Jackson, P.C., which is located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
English callers: 214-599-0431; Spanish callers: 214-599-0432 and Portuguese callers: 214-272-3100.

Attorney’s Concluding Remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

Thanks for giving us the opportunity to inform you about the “why people filing taxes should be careful when selecting a professional tax return preparer.
If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! Watch for a new Legal Thoughts podcast in about two weeks and check our law firm’s website at www. cjacksonlaw.com to follow our blogs. We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Podcast – The Long-Arm of the United States Tax Code | LEGAL THOUGHTS

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Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published November 24, 2020.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Reyna Munoz, Tax Legal Assistant of Coleman Jackson, P.C. The topic of discussion is “What does the Long-Arm of the United States Tax Code Mean?” You can listen to this podcast by clicking here:

TRANSCRIPT:
ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.
Our topic for today is: “What does the Long-Arm of the United States Tax Code Mean?”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our law firm’s Immigration Legal Assistant, Reyna Munoz will be asking the questions and I will be giving the answers as she and I will be discussing: “What does the Long-Arm of the United States Tax Code Mean?”

Reyna Munoz Introduces Herself to the Audience:

Hi everyone, I am Reyna. I am the Immigration Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, P.C. Right here in Dallas, Texas.
Hi Attorney; today we will be discussing the topic: What does the Long-Arm of the United States Tax Code Mean?

Question 1:

Well, attorney what does the long-arm of the U.S. Tax Code mean anyway?

Attorney Answers Question 1:

Good morning Reyna. I think this is a fascinating topic; so let’s get started!
United States citizens and Lawful Permanent Residents (or commonly known as Green Card Holders) are required to pay taxes on their gross income, regardless of where it is earned or how it is earned in the world. That basic rule is established in United States Code, Section 61(a); and explained in 26 Code of Federal Regulations, Section 1.1-1(b).
So, to answer your question, that is why it is often said by tax professionals that the U.S. tax code has long arms. It can reach U.S. citizens and Green Card holders and their gross income from anywhere in the world. These are very long-arms indeed!

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 2:

That is interesting! How would the United States Government find out about this gross income and these foreign interest of U.S. citizens and Green Card Holders?

Attorney: Coleman Jackson

ANSWER 2:

S. citizens and Green Card Holders have a legal duty to voluntarily file appropriate tax returns and other informational materials with the U.S. government reporting their gross income and interests in financial accounts held overseas. Federal tax returns must be filed annually to report gross income (such as, Form 1040 (individuals), Form 1065 (Partnerships), Form 1120 (Corporations), Form 1041 (Estates). All of these tax forms are filed with the Internal Revenue Service when applicable. Further U.S. citizens and Green Card Holders with ownership interest or signatory authority of foreign accounts must complete Schedule B, Part III, Line 7 of Form 1040 their individual tax return discussing their interest or signatory authority over any foreign account during the tax period; and moreover, in the event the balance in any single account or combination of foreign accounts is greater than $10,000 during the tax period, the taxpayer must also file an FBAR with the Financial Crimes Network.
It will not be hard for the U.S. Department of Treasury to find out about taxpayers reporting obligations today with the technology that is in existence. In fact, it is easier today than ever for information to be shared by business entities, governmental entities and individuals in seconds around the world.
The U.S. Treasury has negotiated operating and reporting agreements with governments around the world to share directly or indirectly financial banking information of U.S. citizens and Green Card holders.
LET ME JUST SAY, IT IS EXTREMELY UNLIKELY THAT THE U.S. GOVERNMENT WILL NOT LEARN OF THESE EARNINGS AND FOREIGN ASSETS TODAY.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 3:

What can happen if a U.S. Citizen fails to report all of their gross income and fail to report their ownership interest in a foreign bank account?
First what is a foreign bank account anyway?

Attorney Answers Question 3:

A foreign bank account is an account in a foreign institution, or an institution physically located outside of the borders of the U.S. and its territories. Branches of U.S. domiciled banks located overseas are not classified as a foreign bank for FBAR reporting purposes or IRS purposes.
Individuals who fail to comply with U.S. laws can expect there to be a gradation of criminal and civil exposure. What I mean by that is in the United States criminal penalties and civil penalties for violation of the law are graded based on level of culpability. This is also true with regards to failure to voluntarily comply with the U.S tax laws. The U.S. tax code imposes varies kinds of penalties for violations, such as tax evasion, failure to file penalties, negligent filing penalties.
As for failure to report interest in foreign accounts, the IRS is permitted to assess and collect civil penalties against any individual who fails to report their interest in a foreign account on a timely filed FBAR.
I have written numerous blogs with regards to the penalty structure designed to hold tax cheats accountable.

Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

Attorney what could you at least explain what you mean by gradation of penalties?

Attorney Answers Question 4:

Okay, very well! Let me briefly describe what gradation of penalties means as it relates to failure to file a required FBAR.
If an individual’s failure to file an FBAR is deemed willful by the IRS, then the IRS has the discretion to assess a maximum penalty of $100,000 or 50 percent of the balance in the foreign account at the time of the violation. Whichever is higher is the collectable penalty.
Willfulness does not require actual knowledge of the duty to report interest in a foreign account. Reckless or careless disregard of their statutory duty to report their ownership or beneficiary interest in the foreign account is enough for the IRS assess and collect the penalty.
The IRS has been challenged in Courts around the country, and they have a pretty good betting record on winning the willfulness FBAR cases. Come on, just look; these cases are what lawyers routine call document cases. For example, (1) it’s easy to prove whether someone is a U.S. citizen or Green Card Holder because there is a U.S. birth Certificate or Naturalization Certificate or Lawful Permanent Resident Card; (2) it’s easy to prove that the account is located outside of the U.S. and its territories because there are bank account statements; and (3) it’s easy to prove that the taxpayer filed a tax return failing to list the foreign bank account because there is Schedule B, Part III, Line 7 of IRS Form 1040. Hey, three strikes and you are out. Willfulness to violate the FBAR rules is not a very high burden for the IRS to carry in these FBAR violation cases.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 5:

Okay Attorney that sounds like three strikes. It might be hard to hit the ball. But what about—
If the taxpayer hired a professional tax return preparer to prepare and file, the return? Could the taxpayer now say it was none willful?

Attorney: Coleman Jackson

ANSWER 5:

Well it depends on all the facts and circumstances as to whether a skillful negotiated and advocate could make out a defense.
But the main thing everyone should take away is this:
Taxpayers are deemed to have constructive knowledge of and responsibility for the contents of their tax returns which are signed under penalty of perjury.
Where immigrants are involved who lacks the knowledge of the English language, cultural norms in terms of voluntary tax reporting, educational challenges and other capacity factors, in these circumstances skillful advocacy might manage to turn what appears to be a willful violation into a none willful violation of U.S. law. People with foreign gross income and foreign account interest need to do their due diligence in picking tax professionals in preparation of U.S. tax returns and compliance with FBAR requires because the penalties for failing to comply are rough regardless of the gradation of the penalties.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 6:

Okay, I think I understand.
Attorney, you mentioned voluntary disclosure. Is there a way a person can get this right even after they failed to property report their gross income or foreign account?

Attorney: Coleman Jackson

ANSWER 6:

Yes, the IRS has voluntary disclosure programs. But the Offshore Voluntary Disclosure Program or OVDP has ended and the IRS is no longer accepting taxpayers’ disclosures for failing to report foreign accounts under that program.
The various Streamlined Procedures Programs are still viable; but only if the violation is non willful. I have written blogs on this in the past and will not go into any more details here; other than, the taxpayer must make sure their actions were none willful because the IRS audits these submissions and if the IRS deems the actions of the taxpayer were willful violations rather than none willful violations, they could make a referral to IRS Criminal Investigations for possible referral to the U.S. Justice Department.
The IRS also still have a FBAR only disclosure program that might be used by some taxpayers under appropriate circumstances.
Mayra, thanks for your questions on this topic. We have numerous blogs on foreign accounts on our law firm’s blog site. We must go for now.

Attorney’s Concluding Remarks:

THIS IS END OF “LEGAL THOUGHTS” FOR NOW

Thank you for giving us the opportunity to inform you about What does the Long-Arm of the United States Tax Code Mean?”
We might discuss other aspects of this topic on gross income and foreign accounts matters in follow up podcasts or blogs in the near future. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C., subscribe to our podcast and stay tune! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation, and immigration. Until next time, take care.

Podcast – Foreign Investments and U.S. Income Tax? | LEGAL THOUGHTS

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Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published September 02, 2020.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C. The topic of discussion is “Foreign Investments and U.S. Income Tax?” You can listen to this podcast by clicking here:

TRANSCRIPT:
ATTORNEY: Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas
Our topic for today is: “Foreign Investments and U.S. Income Tax?”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Foreign Investments and U.S. Income Tax”

Interviewer: Mayra Torres, Public Relations Associate

Good morning everyone. My name is Mayra Torres and I am the public relations associate at Coleman Jackson, P.C. Coleman Jackson, P.C. is a taxation, litigation and immigration law firm based right here in Dallas, Texas. We help businesses, individuals and everyone with sales taxes,income taxes, gift and estate taxes and contracts drafting and negotiations and disputes and immigrants on a variety of business and family immigration matters from around the world.
Today Attorney we are discussing foreign investments and U.S. Income Tax Law. My first question is basic:

Question 1:

Are foreign corporations ever subject to U.S. income tax laws?

Attorney Answers Question 1:

Mayra, the simple answer is YES, SOMETIMES FOREIGN CORPORATIONS ARE SUBJECT TO U.S.INCOME TAX LAWS!

Interviewer: Mayra Torres, Public Relations Associate

QUESTION 2:

Okay then, let me just change my question a little.
When are foreign corporations subject to U.S. income tax?

Attorney Answers Question 2:

A foreign corporation is taxed on its taxable income which is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.

Interviewer: Mayra Torres, Public Relations Associate

Question 3:

Attorney what do you mean by the term “effectively connected with the conduct of a trade or business within the U.S.”?

Attorney Answers Question 3:

That is a very astute question! Think in terms of source of the increment or decrement of wealth of the foreign entity. What I mean is the term effectively connected with a trade or business in the United States means income, gain or loss incurred during a tax year from sources within the United States. The key to understanding the meaning of this term is the source of the income, gain or loss incurred by the foreign corporation. If the source of the income, gain or loss for the year is in the U.S., then the foreign corporation is engaged in a trade or business effectively connected with the conduct of a trade or business within the U.S. and are subject to federal income taxation under Internal Revenue Code Section 882.
The application of this Code Section does not mean that the income, gain or loss have to come from a trade or business being conducted in the U.S. If the source of the income, gain or loss is in the U.S., Code Section 882 applies and the income, gain or loss is taxable.

Interviewer: Mayra Torres, Public Relations Associate

Question 4:

Does the foreign corporation have to operate a business within the United States during the tax year in order for these rules to apply to income, gains or losses under Code Section 882?

Attorney Answers Question 4:

Yes, that is exactly right. In order for Code Section 882 to apply, the foreign corporation must be engaged in a trade or business within the United States during the particular tax year where the determination is being made whether income, gain or loss is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.
The Code Section 882 determination is made at the close of each tax year. If a foreign corporation has income, gain or loss at any time during a tax year from a source within the U.S. and its engaged in a trade or business within the U.S. whether it be in a joint venture or partnership or limited liability company or similar affiliation with a U.S. entity, it is taxable income effectively connected with the conduct of a trade or business within the U.S. under IRC 882.

Interviewer: Mayra Torres, Public Relations Associate

Question 5:

Wow! Attorney that is a lot to digest; can we continue this conversation in another podcast because I have a lot more questions? For example, are there any categories of income, gain or loss considered effectively connected to the United States even if its earned overseas by a foreigner?

Attorney Answers Question 5:

Yes, there are categories of foreign source income that are subject to U.S. income taxation as effectively connected with the conduct of a trade or business within the U.S. But you are right Mayra that is enough to ponder for now. We can continue this topic in a later podcast in about two weeks. Please subscribe to our podcast.

Mayra’s Concluding Remarks

I am looking forward to continuing this topic in about two weeks!
Anyone interested in hearing more about foreign investments and U.S. Taxation should subscribe to our podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast.We also have a lot of blogs going deep into the details of U.S. tax law, litigation and immigration law topics on Coleman Jackson, P.C.’s website at cjacksonlaw.com.

Coleman Jackson, Attorney’s concluding remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

Thanks for giving us the opportunity to inform you about foreign investments and U.S. taxation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! Watch for a new Legal Thoughts podcast in about two weeks.We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

The Fifth Circuit:

The Court Decision Discussed in this Blog:

Brief of the Law:

Brief of the Facts in the case—U.S. v Bittner (5th Cir. 2021):

What the 5th Circuit Said:

What Are Some Lessons and Take Aways from the Bittner Case?

LISTEN:

TRANSCRIPT:

TRANSCRIPT:

Brief of the Facts in the case—U.S. v Bittner (5^th Cir. 2021):

What the 5^th Circuit Said: