UPDATE ON FATCA & OVDI

Transcription

1 UPDATE ON FATCA & OVDI CHAYA KUNDRA KUNDRA & ASSOCIATES, P.C. GALIA ANTEBI RUCHELMAN P.L.L.C ADVANCED TAX INSTITUTE BALTIMORE, MD November 2,

2 FATCA November 2,

3 Agenda Overview FATCA Withholding Compliance for foreign financial institutions Compliance for non financial foreign entities FATCA in the news Questions and answers 3

4 FATCA - Overview New reporting regime aimed to prevent tax evasion by U.S. persons Generally requires foreign financial institutions ( FFIs ) to enter into an agreement ( FFI Agreement ) with the IRS and report financial accounts held by US persons Non-financial foreign entities ( NFFEs ) must report their 10% or greater US owners unless an exception applies Outside US, threshold raised to control Two regimes: Final and Temporary Regulations IGA s 4

5 FFI Investment Entity Any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer: Trading in money market instruments; foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures; Individual and collective portfolio management; or Otherwise investing, administering, or managing funds or money on behalf of other persons. 5

6 FATCA Withholding Compliance enforced through 30% withholding tax on withholdable payments: U.S. source fixed or determinable annual or periodical ( FDAP ) income Gross proceeds from sale of assets producing U.S. source FDAP income paid on or after January 1, 2017 Foreign passthru payments made on or after January 1, 2017 Withholding not reduced for payments otherwise exempt or eligible for reduced rate of tax under the Code or treaty Certain exceptions, e.g., grandfathered obligations Withholding began as of July

7 FATCA Certifying Status Generally US Withholding Agents must collect an applicable revised Form W-8 from non-u.s. payees In the case of participating FFI s and those complying under an IGA, the Withholding Agent must verify the GIIN on the IRS website NFFEs must certify exemption or if Passive status, disclose each US person that owns (directly or indirectly) 10% or more of the NFFE (a substantial US owner ), or certify that no such person exists 7

8 Certification Forms W-8BEN-E (Certificate of Status of Beneficial Owner for United States Tax withholding and Reporting (Entities)) Also certifies F.A.T.C.A. status and specific F.A.T.C.A. related certifications W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for U.S. Tax Withholding and Reporting) Includes a withholding statement documenting the applicable reduced treaty rate of withholding for the beneficial owner of the payment under Chapter 3 and allocates a withholdable payment under Chapter 4 to reporting rate pools based on the beneficial owner s F.A.T.C.A. status 8

9 Determine the Correct W-8 Form Determine the beneficial owner of the payment Is the entity receiving a payment treated as a corporation or a fiscally transparent entity Generally, the person who is required under U.S. tax principles to include the payment in gross income is the beneficial owner Entities that are treated as beneficial owners, generally, corporations, use Form W-8BEN-E Entities that are treated as intermediary, i.e., receive a payment on behalf of another or as a flow-through entity use Form W-8IMY Determine the F.A.T.C.A. status of the entity, and if the entity is a flow through, determine the F.A.T.C.A. status of the beneficial owners of a payment and include on an attached statement 9

10 I.G.A. s I.G.A. s triggers incorporation of F.A.T.C.A. into local laws Two models: Model 1 FFIs report to the tax authorities in their own jurisdiction; Model 2 FFIs report directly to the IRS and sign an FFI Agreement 112 jurisdictions are treated as having an I.G.A. in effect Effectiveness of I.G.A. terms not known more favorable clause updates I.G.A. coverage not certain Generally covers tax residents Swiss problem 10

11 HOW CAN AN ENTITY COMPLY? REGISTER REVIEW REPORT SELF CERTIFICATION November 2,

12 Determine FATCA Classification IGAs control FFI definition for residents Definitions under Regulations always available NFFE by elimination Active/Passive NFFE definitions appear in Annex I of the IGA Query: Do the Treasury FATCA regulations or the IGA control the NFFE definitions for entities resident in an IGA country? Query: If a fact pattern results in a discrepancy between the way an FFI will classify an entity under an applicable IGA and the way the entity classifies itself under the FATCA regulations, do the FATCA regulations or the IGA prevail? 12

13 Excluded F.F.I. s Holding companies, treasury centers and captive finance companies that are members of a nonfinancial group Certain F.F.I. s may be treated as deemed compliant F.F.I. s. Collective investment vehicle generally cannot have investors who are U.S. persons or Passive N.F.F.E. s. Closely held sponsored entities are Certified deemed compliant. Other sponsored entities are Registered deemed compliant. Closely held means held by participating F.F.I. s., deemed compliant F.F.I. s, closely held sponsored F.F.I. s, and not more than 20 individuals 13

14 Excluded NFFE Publicly Traded To be publicly traded a corporation must have its stock regularly traded on one or more established securities markets Query: How is regularly traded defined? Under the Regulations: Principal Class Listed: more than 50% of vote and value Trading Activity: at least 60 days and at least 10% of the average number of shares outstanding Under an I.G.A.: Meaningful volume of trading on an ongoing basis 14

15 Exempt NFFE Active NFFE Active NFFE determined under the income and asset test: less than 50% of income and assets may be passive Rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the N.F.F.E. are not passive income 15

16 FFI Compliance More responsibilities than for NFFEs Registration Due diligence as to US tax status of account holders Withholding on payments to recalcitrant account holders and nonparticipating FFIs Under a Model 1 IGA withholding is suspended FFIs must certify status of new account holder prior to opening the account. May not treat as reportable account in lieu of certification Limited FFIs status 16

17 What is a Financial Account? Definition includes any equity or debt interest that is not traded The Investment Entity is Equity Interest is held by A Partnership Any person holding capital interest in the partnership Any person holding profits interest in the partnership A Trust The settlor A beneficiary, if he has the right to receive, directly or indirectly, a mandatory distribution A beneficiary, if he may receive, directly or indirectly, a discretionary distribution from the trust Any other individual exercising ultimate effective control over the trust 17

18 Review Process Identify if a preexisting account is held by an individual or an entity Identify if the account meets the threshold for review >$50,000 for individuals > $250,000 Apply due diligence process Monitor all accounts for change in circumstances for entities Look for U.S. C/O address, POA or signor with U.S. address, a hold mail instruction Accepting new account only after due diligence 18

19 Entity Accounts Review Process Review information maintained for KYC/AML Look for U.S. place of incorporation or a U.S. address If U.S. data found U.S. reportable account Unless obtained self certification or otherwise reasonable determine no U.S. person If no U.S. data found Determine if entity is an FFI based on KYC/AML information FFI account holder Not a U.S. reportable account Keep monitoring for change in circumstances Non-IGA FFI deemed Noncompliant unless GIIN verified or self certification obtained Still, not a U.S. reportable account If determined it was an NFFE Look to information in possession or publicly available to determine if Active NFFE Alternatively, obtain self certification to determine FATCA status If Passive NFFE Account value > $1,000,000 Obtain self certification to determine if U.S. controlling persons Account value $1,000,000 Review KYC/AML information to determine if U.S. controlling persons If Controlling U.S. persons U.S. reportable account Keep monitoring for change of circumstances 19

20 Report What to Report In 2015 Account holder s name Account holder s SSN/TIN Account holder s address For Passive NFFE s, the abovementioned information of any Controlling U.S. person Account number Account balance or value For accounts held by non-consenting holders, aggregate number and balance or value In 2016 Everything reported in 2015 for 2014 Income paid except certain gross proceeds from the sale or redemption of property In 2017 Everything reported in 2016 for 2015 Gross proceeds paid to custodial accounts Thereafter Everything reported in

21 HOT TOPICS November 2,

22 Due Diligence for New Accounts Required for all entity accounts opened on or after January 1, 2015 New process adopted must include self certification form and GIIN verification F.Q.A No. 10 U.K and Canada BVI Favorable clause 22

23 Authorities Exchange of Information Model 1A exchange of information provision effective once: IGA enters into force AND the competent authorities provide relevant notifications regarding infrastructure necessary Model 1B - the obligation begins when the IGA enters into force Notice : Jurisdictions having a Model 1 IGA (signed or treated as in effect) in which reporting obligation has not taken effect may report 2014 information with 2015 information on September 30, 2016 Notice : 2014 and 2015 years transition period Canadian rejection 23

24 Compliance to Date Australia and Canada announced timely reporting Competent Authority pacts with the U.K. and Australia Assist in implementation Exemplify cooperation and commitment Include definition of nonparticipating FFI s Attacks continue from within the U.S. lead by Senator Paul Rand Attacks continue from outside the U.S. Canada lawsuit not dismissed Injunction to prevent exchange of information rejected 24

25 OVDI November 2,

26 What is an FBAR? An international reporting document advising the U.S. government of all interests held in a foreign financial institution. 26

27 FBAR Reporting and Filing Information Effective July 1, 2013, the FBAR must be filed electronically through FinCEN s BSA E-Filing System. The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer s income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR. 27

28 Who Must File an FBAR? Any U.S. person with a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year reported. 28

29 Who Must File an FBAR? A U.S. person includes U.S. citizens, U.S. residents, entities, including but not limited to, corporations, partnerships or limited liability companies, created or organized in the United States or under the laws of the United States, and trusts or estates formed under the laws of the United States 29

30 Exceptions to the FBAR Reporting Requirement Include: Certain foreign financial accounts jointly owned by spouses United States persons included in a consolidated FBAR Foreign financial accounts owned by a governmental entity Foreign financial accounts owned by an international financial institution Owners and beneficiaries of U.S. IRAs Participants in and beneficiaries of tax-qualified retirement plans Certain individuals with signature authority over, but no financial interest in, a foreign financial account Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust) 30

31 FBAR Penalties Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation. 31

32 FBAR Penalties FBAR penalties are determined per account. For Individuals who own multiple foreign accounts and do not file an FBAR could be subject to an FBAR penalty for each account. Multiple penalties per FBAR are considered only in the most egregious cases. The statute of limitations for FBAR civil penalties is six (6) years from the due date of the FBAR, which is June 30 th of the year following the calendar year being reported. 32

33 FBAR Penalties Criminal Penalties. A willful failure to file the FBAR can result in criminal sanctions, including imprisonment. Both civil and criminal penalties may be imposed together, with criminal sanctions potentially including: A willful failure to file FBAR or retain records while violating certain other laws penalty of up to $500,000 and/or 10 years imprisonment; A penalty for knowingly and willfully filing a false FBAR of up t0 $10,000 and/or 5 years imprisonment. 33

34 FBAR Penalties To establish a willful violation for purposes of the civil FBAR penalty under 31 USC 5321 or to sustain the heavy burden of proof to obtain a criminal conviction under 31 USC Section 5322, the government must establish a voluntary intentional violation of a known legal duty. The government must prove that the taxpayer was aware of the requirement to file the FBAR and intentionally failed to do so (or filed a false FBAR). Short of a concession or a confession, the government will rely on circumstantial evidence and infer willfulness based on a course of conduct. 34

35 FBAR Penalties The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted. Taxpayers who have not filed a required FBAR and are not under examination/investigation or have been otherwise contacted by the IRS, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the Other option. If unable to file electronically you may contact FinCEN s Regulatory Helpline at FREE or

36 FBAR Penalties In determining whether a taxpayer s offshore account violations were committed willfully, the IRS takes the view that an omission to check yes on Schedule B may provide some evidence of willful blindness on the part of the taxpayer. The IRS defines willful blindness as a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements and could seek to impose the willful FBAR penalty under these circumstances. 36

37 Reporting Income Penalties A penalty for failing to pay the amount of tax shown on the return under IRC 6651 (a)(2). If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of.5% of the amount of tax shown on the return, plus an additional.5 % for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25%. 37

38 Reporting Income Penalties An accuracy-related penalty on underpayments imposed under IRC Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20% or 40% penalty. 38

39 Reporting Income Penalties Civil fraud penalties imposed under IRC 6651 (f) or Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 % of the unpaid tax. 39

40 Overseas Interests Forms to be Filed: 926 Form 926: Taxpayers are required to report transfers of property to foreign corporations and other information under IRC 6038B. Form 926 is filed with the taxpayer s income tax return for the year that includes the transfer. There are certain exceptions to these filing requirements, as well as additional rules that must be considered for transfers by U.S. partnerships, transfers by a husband and wife, and transfers of cash to a foreign corporation. 40

41 Overseas Interests Forms to be Filed: % of the Fair Market Value of the property at the time of transfer/exchange; limited to $100,

42 Overseas Interests Forms to be Filed: 3520 Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Reports various transactions involving foreign trusts, including creation of a foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust and receipt of distributions from foreign trusts under Code Sec This return also reports the receipt of gifts that, in the aggregate, exceed $10,000 from foreign entities under Code Sec. 6039F. 42

43 Overseas Interests Forms to be Filed: 3520 (Penalty) The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35% percent of the gross reportable amount, except for returns reporting gifts, where the penalty is 5% percent of the gift per month, up to a maximum penalty of 25% of the gift. 43

44 Overseas Interests Forms to be Filed: 3520A Annual International Return of Foreign Trust with U.S. Owner. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 5% percent of the gross value of trust assets determined to be owned by the United States person. 44

45 Overseas Interests Forms to be Filed: 5471 The Form 5471 must be filed by U.S. persons that have a certain level of control (i.e. officers, directors or shareholders) of certain foreign corporations to report information required by Code Secs. 6035, 6038 and This information includes foreign corporation entity data, stock ownership data, financial statements and intercompany transactions with related persons. The taxpayer must report the information required by Code Secs and 6046, and must compute income from controlled foreign corporations under Code Secs The Form 5471 must be filed with a taxpayer s income tax return. 45

46 Overseas Interests Forms to be Filed: 5471 (Penalty) Per Return is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return. Persons subject to the Form 5471 reporting requirements fall within five filing categories. Penalties imposed for failure to file complete and accurate Forms 5471 are outlined in Code Sec (filing category 2 and 3) and Code Sec (filing category 4). 46

47 Overseas Interests Forms to be Filed: 5472 Form 5472: Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency. Sec: IRC SS 6038A & 6038C. 47

48 Overseas Interests Forms to be Filed: 8865 Form 8865: This form is used to report interests in and transactions of the foreign partnership, transfers of property to the foreign partnership, and acquisitions, dispositions and changes in foreign partnership interests under IRC 6038, 6038B, and 6046A. 48

49 Overseas Interests Forms to be Filed: 8865 Form 8865 must be attached to the related income tax return (or partnership or exempt organization return) or, if no income tax return is required, filed by the date and to the same place you would have filed that return. 49

50 Overseas Interests Forms to be Filed: 8865 (Penalty) Form 8865: Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and 10% of the value of any transferred property that is not reported, subject to a $100,000 limit. 50

51 U.S. Taxpayers Holding Foreign Financial Assets May Also Need To File Form 8938 Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. See Attachment A. 51

52 Current Offshore Voluntary Program On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Program which allows one to come forward without fear of criminal prosecution to report overseas income and permit FBAR filings. While the program does not have a closing date, the IRS may end the program at any time. The current requirement is 8 years of amended returns, 6 years of FBARs, payment of any outstanding tax and a 27.5% penalty levied on the highest balance at any point over the 8 year period. 52

53 Current Offshore Voluntary Program The offshore penalty goes to 50% if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation. See Attachment B. 53

54 OVDP Application Full payment of any tax liabilities for years included in the offshore disclosure period and all tax, interest, accuracyrelated penalties for underpayments related to offshore accounts and entities, and, if applicable, the failure to file and failure to pay penalties with the required submissions or make good faith arrangements with the IRS to pay in full, the tax, interest, and these penalties; 54

55 OVDP Application Cooperation in the voluntary disclosure process, including providing information on offshore financial accounts, institutions and facilitators, and signing agreements to extend the period of time for assessing Title 26 liabilities and FBAR penalties. 55

56 OVDP Application IRS Criminal Investigation will review the Disclosure Letter and then likely provide preliminary acceptance to make a full voluntary disclosure. Thereafter, you have 90 days to submit the full OVDP package. The full OVDP package disclosure will require the following items: A. Copies of previously filed original federal income tax returns for tax years covered by the voluntary disclosure; B. Complete and accurate amended federal income tax returns for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the account; 56

57 OVDP Application C. Payment of 20% accuracy-related penalties under IRC Section 6662(a) on the full amount of offshore-related underpayments of tax for all years; D. F. Payment of failure to file penalties under IRC Section 6651(a)(1), if applicable; E. Payment of failure to pay penalties under IRC Section 6651(a)(2), if applicable F. Penalty Statement and Chart G. Additional Disclosure Information 57

58 Potential Forms Filed with OVDP Submission Form 114, Report of Foreign Bank and Financial Accounts (FBAR) Form 433A, Collection Information Statement for Wage Earners and Self-Employed Individuals Form 433B, Collection Information Statement for Businesses Form 872, Consent to Extend the Time to Assess Tax Power of Attorney Form for the Offshore Voluntary Disclosure Initiative Complete Form 14452, Foreign Account or Asset Statement. Review your Offshore Voluntary Disclosure Letter and Attachment. Evaluate and sign the Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C for FBAR Violations. Follow the Instructions for Completing Consents 58

59 OVDP & PFIC U.S. investors report their PFIC holdings on Forms Return by Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, which are filed with their annual return. A separate Form 8621 is filed for each PFIC investment required to be reported in a given year. 59

60 OVDP & PFIC Passive income includes dividends, interest, gains from the disposition of stocks and securities, and gains from commodities trading. A foreign company is considered a Passive Foreign Investment Company PFIC is at least 75% of its gross income is passive income and/or if at least 50% of its assets produce passive income. 60

61 OVDP & PFIC With the enactment of the PFIC rules in 1986, U.S. shareholders of overseas funds were given a choice of two taxing mechanisms. 2 years later, Congress made a third option available. In order of preference to the taxpayer, the three possible methods now are: 1) Qualified Electing Fund; 2) Mark-to-market; or 3) Excess Distributions. 61

62 OVDP & PFIC The IRS continues to offer a special MTM method for calculation of their PFIC taxes. Without the opportunity of this "alternative resolution", affected taxpayers would be forced to use the Excess Distributions method for their prior year amended returns as the deadline for regular MTM or QEF elections would have lapsed. 62

63 OVDP Application & Closing Agreement Execution of a Closing Agreement on Final Determination Covering Specific Matters, Form 906; and Agreement to cooperate with IRS offshore enforcement efforts by providing information about offshore financial institutions, offshore service providers, and other facilitators, if requested. 63

64 Opting Out of OVDP No penalties shall be imposed if the failure to file is due to reasonable cause and not willful neglect. The fact that a foreign country would impose penalties for disclosing the required information, or reluctance of a foreign fiduciary to provide such information, does not constitute reasonable cause. 64

65 Opting Out of OVDP This option continues to be viable for taxpayers where the penalty is too high either through OVDP or Streamlined. Good alternative for taxpayers who want the extra layer of protection at the onset; however at end are comfortable with the lack of willfulness. 65

66 Opting Out Mitigation The mitigation criteria for violations occurring after October 22, 2004, follow: A. The person has no history of criminal tax or BSA convictions for the preceding 10 years and has no history of prior FBAR penalty assessments; B. No money passing through any of the foreign accounts associated with the person has been from an illegal source or used to further a criminal purpose; C. The person cooperated during the examination; D. IRS did not determine a fraud penalty against the person for an underpayment of income tax for the year in question due to the failure to report income related to any amount in a foreign account. 66

67 Opting Out Mitigation Per the Internal Revenue Manual, in cases where an FBAR violation occurred but no penalty is appropriate, the examiner will issue the FBAR warning letter Letter In cases where a penalty is warranted, the Internal Revenue Manual directs the examiner to consider the post-october 22, 2004, mitigation guidelines to promote uniformity but does not require that the guidelines be strictly applied. 67

68 Opting Out Mitigation The examiners are instructed to consider the following: Whether compliance objectives would be achieved by issuance of a warning letter; Whether the person who committed the violation had been previously issued a warning letter or has been assessed the FBAR penalty; The nature of the violation and the amounts involved; The cooperation of the taxpayer during the examination. 68

69 Appealing OVDP/Opt-out Determination Review of file In-person meeting FOIA 69

70 OVDP Quiet Filing An alternative to participation in OVDP would be to quietly file FBARs and amended tax returns in the hope that they are processed without scrutiny. 70

71 OVDP Quiet Filing The quiet filing strategy involves submitting FBARs and tax returns for years that are still open under the applicable statute of limitations. Generally, this means filing FBARs for 6 years and amended tax returns for the prior 3 years. 71

72 Streamlined Filing Compliance Procedures On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to nonresident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer s response to a risk questionnaire. 72

73 Streamlined Filing Compliance Procedures On June 18, 2014, the IRS announced the expansion of its streamlined procedures. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the tax compliance issue. 73

74 Streamlined Filing Compliance Procedures Eligible taxpayers must certify that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. A streamlined procedure for fling amended or delinquent returns, and Terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and Terms for resolving their tax and penalty obligations. 74

75 Streamlined Filing Compliance Procedures The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers who previously made "quiet disclosures may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated. Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number. For individuals who are not eligible for an SSN or ITIN will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission my be made under the streamlined procedures if accompanied by a complete ITIN application. 75

76 Streamlined Program General Treatment Tax returns submitted will be processed like any other return submitted to the IRS. (a) Receipt of the returns will not be acknowledged by the IRS; (b) The streamlined filing process will not culminate in the signing of a closing agreement with the IRS. Returns submitted may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers. After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures. 76

77 Coordination Between Streamlined Procedures &OVDP Once a taxpayer makes a streamlined submission, the taxpayer may not participate in OVDP. Similarly, a taxpayer who submits to an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures. A taxpayer eligible for treatment under the streamlined procedures who submits, or who has submitted, a voluntary disclosure letter under the OVDP (or any predecessor offshore voluntary disclosure program) prior to July 1, 2014, but who does not yet have a fully executed OVDP closing agreement, may request treatment under the applicable penalty terms available under the streamlined procedures. NOTE: A taxpayer seeking such treatment does not need to opt out of the OVDP but will be required to certify, in accordance with the instructions set forth below, that the failure to report all income, pay all tax, and submit all information returns, including FBARs, was due to non-willful conduct. As part of the OVDP process, the IRS will consider this request in light of all the facts and circumstances of the taxpayer's case and will determine whether or not to incorporate the streamlined penalty terms in the OVDP closing agreement. 77

78 Offshore Programs Another technique is for taxpayers to declare existing offshore accounts for the first time with their current year s tax return moving forward only. 78

79 Questions 79

80 Contact Info Chaya Kundra Kundra & Associates, P.C. 110 North Washington Street, Suite 406 Rockville, MD Connecticut Ave NW, Suite 1000 Washington, DC T: (301) F: (301) Galia Antebi Ruchelman P.L.L.C. 150 East 58 th Street, Floor 22 New York, NY King Street West, Suite 2300 Toronto, Ontario M5X 1C8 T: (212) x113 F: (212)

81 Important Notice This presentation is not intended to be legal advice. Reading these materials does not create an attorneyclient relationship. The outcome of each case stands on its own merits. 81