Offshore Voluntary Disclosures - Switzerland


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Gray's summary of the IRS Offshore Voluntary Disclosure Program with a focus on Switzerland.

Gray International (Gray) is an international network of public accounting and consulting firms based in the U.S., Hong Kong, China and Europe. Gray was started over 10 years ago in the U.S. (via its predecessor) and took the form of Gray International in 2013 as the result of the networking of multiple independent practices and professionals.

Gray provides international accounting and compliance solutions in the U.S., Americas, Asia and Europe. Gray focuses on U.S. accounting, tax, and governmental compliance for multinational companies, investors, U.S. persons living overseas and foreign investors and companies investing in or moving to the U.S.

Gray also consults on compliance with U.S. laws for businesses and financial institutions overseas such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA), the IRS Offshore Voluntary Disclosure Program, and the Program for Non-Prosecution Agreements or Non-Target letters for Swiss Banks.

Grays principals, partners, and employees have served clients worldwide. Gray has offices in Geneva, Hong Kong, Seattle, Shanghai and plans to open an office in Singapore in late 2013.

Grays U.S. public accounting firm (Gray CPA, PC) is registered with the U.S. Public Company Accounting Oversight Board and is a member of the American Institute of Certified Public Accountants and the Center for Audit Quality.

For more information about us, please visit us at:

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Offshore Voluntary Disclosures - Switzerland

  1. 1. U.S. OFFSHORE VOLUNTARY DISCLOSURES COUNTRY FOCUS: SWITZERLAND Overview of the 2012 U.S. IRS OVDP and Switzerland Update International Accounting & Compliance GENEVA          |          HONG  KONG        |          SEATTLE        |          SHANGHAI        
  2. 2. LEGAL NOTICE IMPORTANT LEGAL INFORMATION PLEASE READ This  presentation  is  prepared  for  general  guidance  only,  and  does  not  constitute  the  provision  of  accounting,    legal   or  tax  advice  in  any  manner,  written  tax  advice  under  U.S.  Internal  Revenue  Service  Circular  230,  or  any  professional   advice  of  any  kind.  “Gray  International”  or  “Gray”  refers  to  Gray  CPA,  PC  (a  U.S.  CertiIied  Public  Accounting  Iirm)  and   Gray  International  Ltd  (a  Hong  Kong  Limited  Company).     The  information  provided  in  this  presentation  should  not  be  a  substitute  for  consultation  with  qualiIied   professionals  who  understand  your  situation,  as  it  will  differ  from  others.  In  addition,  when  making  any  tax  planning   decisions  you  should  consult  with  your  own  legal,  tax,  accounting  and  other  professional  advisors.     This  presentation  has  been  provided  as  a  courtesy,  and  therefore  while  care  has  been  executed  in  the  preparation  of   this  information  Gray  CPA,  PC  (U.S.),  Gray  International,  Ltd.  and  all  of  their  afIiliates  make  no  representations  as  to   its  completeness,  accuracy  or  the  timeliness  of  the  information  and  takes  no  responsibility  to  update  this   information,  such  information  is  being  provided  without  warranty  of  any  kind.     IRS  Circular  230  notice:  Tax  advice,  if  any,  included  in  this  communication  (including  any  attachments)  is  not   intended  or  written  to  be  used,  and  cannot  be  used,  by  the  recipient  for  the  purpose  of  avoiding  penalties  that  may   be  imposed  under  the  U.S.  Internal  Revenue  Code  or  by  any  other  governmental  tax  authority.         ©  2013  Gray  CPA,  PC  and  Gray  International  Ltd.  with  all  rights  reserved,  this  document  shall  not  be  reproduced  or   distributed  without  the  express  written  permission  of  Gray  CPA,  PC  or  Gray  International,  Ltd.     For  more  information  about  us,  please  visit  us  at   International   Accounting &   Compliance  
  3. 3. WHO WE ARE OUR  PROFILE   Gray  International  (“Gray”)  is   an  international  network  of   public  accounting  and   consulting  Iirms  based  in  the   U.S.,  Hong  Kong,  China  and   Europe.  Gray  was  started  over   10  years  ago  in  the  U.S.  (via  its   predecessor)  and  took  the   form  of  Gray  International  in   2013  as  the  result  of  the   networking  of  multiple   independent  practices  and   professionals.     Gray  provides  international   accounting  and  compliance   solutions  in  the  U.S.,  Americas,   Asia  and  Europe.  Gray  focuses   on  U.S.  accounting,  tax,  and   governmental  compliance  for     multinational  companies,   investors,  U.S.  persons  living   overseas  and  foreign  investors   and  companies  investing  in  or   moving  to  the  U.S.       Gray  also  consults  on   compliance  with  U.S.  laws  for   businesses  and  Iinancial   institutions  overseas  such  as   the  Foreign  Corrupt  Practices   Act  (FCPA)  and  the  Foreign   Account  Tax  Compliance  Act   (FATCA),  the  IRS  Offshore   Voluntary  Disclosure  Program,   and  the  Program  for  Non-­‐ Prosecution  Agreements  or   Non-­‐Target  letters  for  Swiss   Banks.       Gray’s  principals,  partners,   and  employees  have  served   clients  worldwide.  Gray  has   ofIices  in  Geneva,  Hong  Kong,   Seattle,  Shanghai  and  plans  to   open  an  ofIice  in  Singapore  in   late  2013.                                                                                                                               Gray’s  U.S.  public  accounting     Iirm  (Gray  CPA,  PC)  is     registered  with  the  U.S.  Public   Company  Accounting   Oversight  Board  and  is  a   member  of  the  American   Institute  of  CertiIied  Public   Accountants  and  the  Center   for  Audit  Quality.     For  more  information  about   us,  please  visit  us  at:     International   Accounting &   Compliance  
  5. 5. WHAT WE DO OUR  PRACTICE  AREAS   AUDIT  AND  ATTEST  SERVICES   INTL.  FORENSIC  ACCOUNTING   U.S.  TAX  COMPLIANCE   Our  experienced  auditors  provide   extensive  experience  auditing  public   and  private  companies  in  the   developed  and  developing  markets.       Let  us  put  our  extensive  experience   operating  in  the  U.S.,  Asia,  Europe  and   the  Americas  to  work  for  you.     Our  forensic  accounting  services  are   designed  to  providing  vigilance  before   the  fact,  reconstructing  and  tracing   records  after  the  fact,  and  preparing   for  trial  once  the  Iindings  are  made.     Our  team  of  experts  are  available  for   worldwide  engagement.   U.S.  FATCA  COMPLIANCE   INTL.  TAX  STRUCTURING   Gray  provides  extensive  U.S.  tax   compliance  solutions  to  clients   worldwide.  We  work  with  individuals,   family  ofIices,  investors,  Iinancial     institutions,  multinational  companies   and  domestic  (U.S.)  businesses.       Let  us  guide  you  through  the  maze  of   complex  U.S.  tax  compliance.     No  single  piece  of  U.S.  legislation  will   have  a  larger  impact  on  foreign   Iinancial  institutions  and   intermediaries  in  the  next  5  years  as   FATCA.       Let  us  help  you  assess  how  this  will   impact  your  organization  and  how  to   implement  a  practical,  affordable   solution.   In  today’s  global  landscape   international  tax  structuring  and   planning  has  never  been  more   important.       From  transfer  pricing,  treaty   compliance,  withholding   minimization,    estate  planning  and   domiciliation,    to  pre-­‐residency  tax   planning  Gray  is  ready  to  help  you   navigate  this  difIicult  terrain.   U.S.  FCPA  COMPLIANCE   Widespread  globalization  brings     increased  risks  of  corrupt  practices,   and  correspondingly,  an  increase  in   FCPA  enforcement,  penalties  and   prosecutions.       Let  Gray  help  you  prepare  and   implement  appropriate  controls  to   protect  your  organization  from   violations.   International   Accounting &   Compliance  
  6. 6. WHERE WE WORK GEOGRAPHIC AREAS OF EXPERIENCE Greenland   Alaska   Iceland   Canada   USA   Bahamas   Mexico   Belize   Guatemala   El  Salvador   Cuba   Honduras   Nikaragua   Dom.  Rep.   Jamaica   Venezuela   Costa  Rica   Guyana   Panama   Columbia   Suriname   Fr.  Guyana   Ecuador   Brazil   Peru   Norway   Sweden   Russia   Great     Germany   Belarus   Ireland   Britain     Poland   Ukraine   Kazazhstan   France   Mongolia   Romania   Uzbekistan     Kyrgysistan     Italy   North  Korea   Spain   Portugal   Turkey   Tajikistan   Japan   Greece   Syria   Turkmenistan   China   South  Korea   Tunisia   Lebanon   Iraq   Iran   Afghanistan   Morocco   Bhutan   Israel   Nepal   Qatar   Algeria   Libya   Pakistan   Saudi   Westsahara   Taiwan   Egypt   Myanmar   Arabia   U.A.E   India   Laos   Eritrea   Oman   Mauritania   Bangladesh     Mali   Niger   Vietnam    Chad   Senegal   Yemen   Sudan   Cambodia   Burkina   Guinea   Philippines   Nigeria   Thailand   Ethiopia     Sierra  Leone   C.A.R.   Kamerun     Somalia   Malaysia   Liberia   Togo   Uganda   Ghana   Cote  d‘Ivoire   Gabun   D.  R.     Kenya   Congo     Indonesia   Tanzania   R.  Congo   Angola   Bolivia   Paraguay   Finland   Namibia   Zambia   Papua  New  Guinea   Mozambique   Zimbabwe     Botswana   Madagascar   Australia   Swaziland   South  Africa   Chile   Uruguay   Argenena   Lesotho   New  Zealand   International   Accounting &   Compliance  
  7. 7. GRAY SWITZERLAND Gray  has  extensive  experience  working  in  Switzerland.  The  Firm  has  represented  both  Swiss   companies  and  individuals,  as  well  as  U.S.  taxpayers  who  have  sough  relief  under  the  U.S.  Offshore   Voluntary  Disclosure  Program  (OVDP).  The  Firm  launched  its  (Swiss  Bank)  Independent  Examiner   services  in  response  to  the  release  of  the  Program  For  Non-­‐Prosecution  Agreements  or  Non-­‐Target   Letters  for  Swiss  Banks,  by  and  between  the  U.S.  Department  of  Justice  and  Swiss  Federal   Department  of  Finance,  on  August  29,  2013.     The  Firm  has  a  depth  of  relationships  in  Switzerland,  and  has  extensive  experience  operating  under   both  Swiss  law  and  in  compliance  with  U.S.  laws  and  regulations  (both  tax  and  securities).  The  Firm   is  committed  to  Switzerland,  and  as  a  result  Switzerland  is  one  of  our  key  markets.       The  Firm  focuses  on  the  following  key  practice  areas  in  Switzerland:       (SWISS  BANK)  INDEPENDENT  EXAMINER   FATCA  IMPLEMENTATIONS       U.S.  TAX  OPINIONS   PFIC  REPORTING/COMPLIANCE   OFFSHORE  VOLUNTARY  DISCLOSURES   International   Accounting &   Compliance  
  8. 8. OVDP: SWITZERLAND UPDATE AS OF NOVEMBER 5, 2013     International   Accounting &   Compliance  
  9. 9. 2013 SWITZERLAND UPDATES The  last  Iive  years  has  seen  a  signiIicant  focus  by  the  U.S.  Department  of  Justice  (“DOJ”)  on  Swiss  Bank  U.S.  Cross-­‐border   business  for  U.S.  account  holders  who  have  hid  assets  and  income  from  the  IRS  in  undeclared  accounts.  Enforcement   efforts  from  the  DOJ  have  led  to  the  following  major  events  in  Switzerland  (and  worldwide):       •  Signing  of  the  “Program  for  Non-­‐Prosecution  Agreements  or  Non-­‐Target  Letters  for  Swiss  Banks”    (the   “Program”)  as  announced  jointly  by  the  United  States  Department  of  Justice  (the  “DOJ”)  and  the  Swiss  Federal   Department  of  Finance  on  August  29,  2013  –  this  is  essentially  an  Offshore  Voluntary  Disclosure  for  Swiss   Banks  (program  summary  in  the  following  slides).     •  •  In  January  of  2013,  the  U.S.  Attorney’s  OfIice  in  the  Southern  District  of  New  York  secured  the  guilty  plea  of   Wegelin  Bank  (the  oldest  private  bank  in  Switzerland)  which  was  the  Iirst  foreign  bank  to  plead  guilty  to   felony  tax  charges.  Wegelin  bank  was  shut  down  as  a  result  of  this  action.   •  Worldwide:  From  2008  through  2013,  the  DOJ  Tax  Division  has  charged  over  30  banking  professional  and  60   account  holders,  thus  far  resulting  in  Iive  convictions  after  trial  and  55  guilty  please,  including  2  trial   convictions  and  6  guilty  pleas  in  the  Iirst  four  months  of  2013  alone.   •    In  February  2009,  UBS  entered  into  a  deferred  prosecution  agreement  (“DPA”)  and  admitted  guilt  on  charges   of  conspiring  to  defraud  the  United  States  by  impeding  the  IRS.  UBS  paid  $780  million  in  Iines,  penalties  and   interest  related  to  the  DPA.  UBS  provided  to  the  U.S.  information  about  thousands  of  recalcitrant  U.S.   Taxpayers.   Worldwide:  As  of  December  2012  the  combined  IRS  Offshore  Voluntary  Disclosure  Program  (“OVDP”)   submissions  resulted  in  more  than  39,000  disclosures  by  taxpayers,  of  these  taxpayers  almost  half  had   accounts  in  Switzerland  (as  indicated  in  the  U.S.  GAO  Report).   •    •  Popular  estimates  are  that  between  4,000  –  5,000  new  OVDP  submissions  will  result  from  the  DOJ  Program.   There  are  currently  14  Swiss  Banks  under  active  investigation  by  the  DOJ.   International   Accounting &   Compliance  
  10. 10. THE 2013 DOJ NPA/NTL PROGRAM   The  “Program  for  Non-­‐Prosecution  Agreements  or  Non-­‐Target  Letters  for  Swiss  Banks”  as  announced   jointly  by  the  United  States  Department  of  Justice  (the  “DOJ”)  and  the  Swiss  Federal  Department  of   Finance  on  August  29,  2013  (  “the  Program”)  is  open  to  every  Swiss  Bank  that  is  not  currently  under   investigation  by  the  DOJ  (further  deIined  as  Category  1  Banks).  The  Program  provides  a  mechanism  for   banks  to  resolve  past  U.S.  cross-­‐border  regulatory  exposure,  deIine  their  potential  exposure,  and   mitigate  penalties  (if  their  U.S.  account  holders  duly  disclose  the  existence  of  the  account(s)  under  an   Offshore  Voluntary  Disclosure  after  the  bank  has  notiIied  the  client  of  such  program).       Compliance  with  the  Program  should  result  in  the  avoidance  of  prosecution  by  the  DOJ.         The  key  features  of  the  program  are  as  follows:     •  Category  1  Banks  (e.g.  the  14  banks  that  are  already  under  investigation  by  the  DOJ)  are  not   eligible  to  participate  in  the  program.   •    •  Category  2  Banks  (e.g.  banks  that  have  reason  to  believe  that  they  may  have  committed  U.S.   tax-­‐related  offenses)  will  pay  a  penalty  and  may  request  a  Non-­‐Prosecution  Agreement   (“NPA”)  from  the  DOJ.   Category  3  and  4  Banks  will  be  able  to  prove  compliance  with  U.S.  laws  (i.e.  prove  their   innocence)  and  will  obtain  a  Non-­‐Target  Letter  (“NTL”)  from  the  DOJ  and  will  not  pay   penalties.     International   Accounting &   Compliance  
  11. 11. DOJ NPA - PENALTY STRUCTURE   Upon  execution  of  an  NPA  (for  Category  2  Banks)  ,  the  Swiss  Bank  will  agree  to  pay  as  a   penalty:     •  For  U.S.  Related  Accounts  that  existed  on  August  1,  2007,  an  amount  equal  to  20%   of  the  maximum  aggregate  dollar  value  of  all  such  accounts  during  the  Applicable   Period;   •  for  U.S.  Related  Accounts  that  were  opened  between  August  1,  2008,  and  February   28,  2009,  an  amount  equal  to  30%  of  the  maximum  aggregate  dollar  value  of  all   such  accounts;  and     •  for  U.S.  Related  Accounts  that  were  opened  after  February  28,  2009,  an  amount   equal  to  50%  of  the  maximum  aggregate  value  of  all  such  accounts.   •  Penalty  Mitigation  Provision:  The  determination  of  the  maximum  dollar  value  of   the  aggregated  U.S.  Related  Accounts  may  be  reduced  by  the  dollar  value  of  each   account  as  to  which  the  Swiss  bank  demonstrates,  to  the  satisfaction  of  the  DOJ,   was  not  an  undeclared  account,  was  disclosed  by  the  Swiss  Bank  to  the  U.S.  IRS,  or   was  disclosed  to  the  U.S.  IRS  through  an  announced  Offshore  Voluntary  Disclosure   Program  or  Initiative  following  notiIication  by  the  Swiss  Bank  of  such  a  program  or   initiative  and  prior  to  the  execution  of  the  NPA.     International   Accounting &   Compliance  
  12. 12. THE 2013 DOJ NPA/NTL PROGRAM: OVDP IMPACT   It  is  estimated  that  the  2013  DOJ  Program  will  see  wide  adoption  by  Swiss  banks.  The   (estimated)  success  of  the  Program  and  the  implementation  of  FATCA  means  that  the  DOJ   and  IRS  will  have  massive  amounts  of  data  about  U.S.  recalcitrant  taxpayers  in  the  very   near  term.       Because  of  the  reasons  above,  and  the  fact  that  the  participating  Swiss  Banks  have  an   incentive  (penalty  mitigation)  to  recommend  their  U.S.  account  holders  to  come  forward   under  the  OVDP  (and  the  U.S.  taxpayers  will  be  made  aware  that  their  data  will  be  shared   with  the  DOJ),  it  is  likely  that  the  volume  of  Taxpayers  seeking  the  protections  of  the  OVDP   will  increase  dramatically  in  2013  and  2014.               International   Accounting &   Compliance  
  13. 13. THE 2012 U.S. IRS OFFSHORE VOLUNTARY DISCLOSURE PROGRAM     A BRIEF OVERVIEW International   Accounting &   Compliance  
  14. 14. THE 2012 PROGRAM   The  2012  Offshore  Voluntary  Disclosure  Program    (“OVDP”)  is  a  limited  federal  income  tax  amnesty   program  for  U.S.  taxpayers  who  have  used  undisclosed  foreign  accounts  and  undisclosed  foreign  entities   to  avoid  or  evade  tax.  Once  a  taxpayer  successfully  completes  the  program,  the  taxpayer  escapes  certain   severe  civil  and  criminal  penalties.  Without  the  program  potential  civil  penalties  penalties  can  far   exceed  the  balance  of  the  foreign  assets  or  accounts,  and  the  criminal  penalties  can  result  in  federal   prosecution  and  jail  time.     The  taxpayer  completes  the  program  by  fully  and  truthfully  reporting  the  offshore  assets  and  income,   Iiling  amended  returns,  foreign  account  and  asset  declarations  (and  other  disclosures)  and  paying  the   following  penalties  (note:  certain  circumstances  may  qualify  a  taxpayer  for  reduced  penalties):     The  OVDP  Penalty  based  on  27.5%  of    the  highest  combined  value  of  the  taxpayer’s  previously   unreported  foreign  Iinancial  accounts  and  certain  other  assets  (in  limited  cases  this  may  be  reduced  to   15%  or  5%):     •  Pay  all  previously  unpaid  taxes  associated  with  the  undisclosed  Iinancial  accounts  and  assets   •  Pay  IRC  §  6662(a)  accuracy-­‐related  penalty  of  20%  of  the  amount  of  the  unpaid  tax   •  Pay  IRC  §  6651(a)(1)  failure  to  Iile  penalties  (if  applicable)   •  Pay  IRC  §  6651(a)(2)  failure  to  pay  penalties  (if  applicable)   •  Pay  interest  on  unpaid  taxes   International   Accounting &   Compliance  
  15. 15. WHY MAKE A VOLUNTARY DISCLOSURE? Taxpayers  with  undisclosed  foreign  accounts  or  entities  should  (in  most  cases)  make   a  voluntary  disclosure  because  it  enables  them  to  become  compliant,  avoid   substantial  civil  penalties  and  generally  eliminate  the  risk  of  criminal  prosecution.     Making  a  voluntary  disclosure  also  provides  the  opportunity  to  calculate  with  a   reasonable  degree  of  certainty,  the  total  cost  of  resolving  all  offshore  tax  issues.   Taxpayers  who  do  not  submit  a  voluntary  disclosure  run  the  risk  of  detection  by  the   IRS  and  the  imposition  of  substantial  penalties,  including  the  fraud  penalty  and   information  return  penalties  which  may  exceed  the  value  of  the  account,  and  an   increased  risk  of  criminal  prosecution.     The  Internal  Revenue  Services  (“IRS”  and  “Service”)  and  U.S.  Department  of  Justice   (“DOJ”)  have  ever  increasing  access  to  foreign  account  information  via  treaties  and   legal  action,  that  and  the  implementation  of  the  Foreign  Account  Tax  Compliance  Act   (“FATCA”)  and  Foreign  Financial  Asset  Reporting  (new  IRC  §  603D)  will  mean  more   and  more  undisclosed  accounts  will  be  subject  to  discovery  and  reporting.  Recent  DOJ   wins  in  countries  like  Switzerland,  Lichtenstein  and  other  jurisdictions  known  for   bank  secrecy  (that  was  legally  protected)  means  that  more  and  more  foreign  account   information  is  being  actively  disclosed  and  made  available  to  U.S.  authorities.               International   Accounting &   Compliance  
  16. 16. POTENTIAL CRIMINAL PENALTIES Taxpayers  with  undisclosed  foreign  accounts  or  entities  and  income,  can  face   prosecution  for  the  following  criminal  matters  if  the  IRS  examines  them:     •  Tax  evasion  (26  U.S.C.  §  7201).  This  can  carry  a  prison  term  of  up  to  Iive   years  and  a  Iine  of  up  to  $250,000.     •  Filing  a  false  return  (26  U.S.C.  §  7206(1)).  This  can  carry  a  prison  term  of  up   to  three  years  and  a  Iine  of  up  to  $250,000.   •  Failure  to  Iile  an  income  tax  return  (26  U.S.C.  §  7203).  This  can  carry  a   prison  term  of  up  to  one  year  and  a  Iine  of  $100,000.   •  Criminal  penalties  for  FBAR  violations  (31  U.S.C.  §  5322).  This  can  carry  a   prison  term  of  up  to  ten  years  and  criminal  penalties  of  up  to  $500,000.               International   Accounting &   Compliance  
  17. 17. POTENTIAL CIVIL PENALTIES Taxpayers  with  undisclosed  foreign  accounts  or  entities  and  income,  can  face  the  following  civil  penalties  if  discovered:     •  Penalty  for  failure  to  Iile  the  Form  TD  F  90-­‐22.1  (Report  of  Foreign  Bank  and  Financial  Accounts),  as  high  as  the   GREATER  of  $100,000  or  50%  of  the  value  of  the  total  balance  of  the  account  –  PER  VIOLATION  (31  U.S.C.  §   5321(a)(5))  [note:  non-­‐willful  violations  that  the  IRS  determines  were  not  due  to  reasonable  cause  are  subject  to   a  $10,000  penalty  per  violation].     •  Beginning  with  the  2011  tax  year,  a  penalty  for  failing  to  Iile  form  8938  reporting  the  Taxpayer’s  interest  in   certain  foreign  Iinancial  assets,  including  Iinancial  accounts  (I.R.C.  §    603D)  –  $10,000  PER  Violation  and  $10,000   added  per  month  for  each  month  the  failure  continues  beginning  90  days  after  the  taxpayer  is  notiIied  of  the   delinquency,  up  to  a  maximum  of  $50,000  per  return.   •  A  penalty  for  failing  to  Iile  form  3520,  Annual  Return  to  Report  Transaction  with  Foreign  Trusts  and  Receipt  of   Certain  Foreign  Gifts  –  the  GREATER  of  $10,000  or  35  percent  of  the  gross  reportable  amount,  and  in  the  case  of   gifts,  an  additional  penalty  of  5%  of  the  gift  per  month  up  to  a  maximum  penalty  of  25%  of  the  Gifts.   •  A  penalty  for  failing  to  Iile  Form  3520-­‐A,  Information  Return  of  Foreign  Trust  With  a  U.S.  Owner  (I.R.C.  §  6048(b)   –  the  penalty  for  each  one  of  these  returns  is  the  GREATER  of  $10,000  or  5%  of  the  gross  value  of  the  trust  assets   determined  to  be  owned  by  a  United  States  person.   •  A  penalty  for  failing  to  Iile  Form  5471,  Information  Return  of  U.S.  Returns  with  Respect  to  Certain  Foreign   Corporations  I.R.C.  §§  6035,  6038  and  6046)  –  $10,000  per  violation  and  $10,000  each  month  after  90  days  that   the  taxpayer  is  notiIied  of  the  delinquency,  up  to  a  maximum  of  $50,000  per  return.   •  A  penalty  for  failing  to  Iile  Form  926,  Return  by  a  U.S.  Transferor  of  Property  to  a  Foreign  Corporation  (I.R.C.  §   6038B)  –  10%  of  the  value  of  the  property  transferred  up  to  a  maximum  of  $100,000  per  return,  with  no  limit  if   the  failure  to  report  the  transfer  was  intentional.   International   Accounting &   Compliance  
  18. 18. POTENTIAL CIVIL PENALTIES (cont.)   •  A  penalty  for  failing  to  Iile  Form  8865,  Return  of  U.S.  Persons  With  Respect  to  Certain   Foreign  Partnerships.  (I.R.C.  §§  6038,  603B  and  6046A)  -­‐  $10,000  penalty  for  failure  to  Iile   each  return,  with  an  additional  penalty  of  $10,000  added  per  day  90  days  after  the  taxpayer   is  notiIied  of  the  delinquency,  up  to  a  maximum  of  $50,000  per  return  and  10%  of  the  value   of  any  transferred  property  that  is  not  reported  subject  to  a  $100,000  limit.   •  Fraud  penalties  imposed  under  IRC  §§  6651(f)  or  6663.  Where  an  underpayment  of  tax,  or   a  failure  to  Iile  a  tax  return,  is  due  to  fraud,  the  taxpayer  is  liable  for  penalties  that,  although   calculated  different,  essentially  amount  to  75%  of  the  unpaid  tax.   •  A  penalty  for  failing  to  pay  the  amount  of  the  tax  shown  on  the  return  under  IRC  §  6651(a) (2)  of  5%  of  the  balance  due  plus  and  additional  5%  for  each  month  of  a  fraction  thereof   during  which  the  failure  continues  may  be  imposed,  not  to  exceed  25%.   •  A  penalty  for  failing  the  pay  the  amount  of  tax  shown  on  the  return  under  IRC  §  6651(a)(2)   of  .5%  of  the  amount  of  the  tax  shown  on  the  return,  plus  an  additional  .5%  for  each   additional  month  or  fraction  thereof  that  the  amount  remains  unpaid,  not  exceeding  25%.   •  An  accuracy-­‐related  penalty  on  underpayments  imposed  under  IRC  §§    6662,  depending  on   which  component  of  the  accuracy  penalty  is  applicable  the  penalty  can  be  20  to  40%  of  the   tax.           International   Accounting &   Compliance  
  19. 19. ELIGIBILITY Taxpayers  (both  individuals  and  entities)  who  have  undisclosed  offshore  accounts  or  assets  and  meet   the  requirements  of  IRM  are  eligible  to  apply  for  IRS  Criminal  Investigation’s  OVDP.       In  general  terms,  Taxpayers  with  the  following  characteristics  are  NOT  eligible:     •  Taxpayers  whom  the  IRS  has  initiated  a  civil  examination,  regardless  of  whether  it  relates  to   undisclosed  foreign  accounts  or  undisclosed  foreign  entitles.     •  Taxpayers  whose  accounts  or  assets  were  funded  through  illegal  sources.     •  Taxpayers  that  the  IRS  or  DOJ  have  obtained  (under  a  John  Doe  Summons,  treaty  request,  or   similar  action)  evidence  of  the  Taxpayer’s  non-­‐compliance  (note:  a  Taxpayer  concerned  that  a   party  subject  to  a  John  Doe  summons,  treaty  request  or  similar  action,  will  provide  information   about  him/her  to  the  IRS  should  apply  to  make  a  voluntary  disclosure  as  soon  as  possible.     •  A  Taxpayer  appeals  a  foreign  tax  administrator’s  decision  authorizing  the  providing  of  account   information  to  the  Service  and  fails  to  serve  the  notice  as  required  under  existing  law  (see  18   U.S.C.  3506).     •  The  IRS  may  announce  that  certain  taxpayer  groups  that  have  or  had  accounts  at  speciIic   Iinancial  institutions  will  be  ineligible  due  to  U.S.  government  actions  in  connection  with  the   speciIic  Iinancial  institution.         International   Accounting &   Compliance  
  20. 20. WHAT IS REQUIRED? For  the  8  year  disclosure  period  (note:  speciIic  rules  apply  to  instances  whereby  a   Taxpayer  was  compliant  in  some  years  during  the  disclosure  period)  the  Taxpayer   must  do  the  following  (note:  among  other  disclosures  and  submissions):     •  Disclose  the  previously  unreported  foreign  assets  and  income.   •  Disclose  persons  who  helped  hide  the  foreign  assets  and  income,  such  as   advisors,  bankers,  attorneys,  accountants,  business  associates  and  family   members.   •  File  amended  federal  income  tax  returns.   •  Pay  previously  unpaid  taxes  and  penalties  as  detailed  earlier.   •  File  amended,  or  corrected  information  returns  and  disclosures  (such  as  the   Treasury  Department’s  Report  of  Foreign  Financial  Accounts  TD  F  90-­‐22.1,   IRS  form  8938  (statement  of  speciIied  foreign  Iinancial  assets),  IRS  form  8621   (for  investments  in  passive  foreign  investment  companies),  IRS  form  926  (for   transfers  of  cash  or  other  property  to  foreign  corporations),  IRS  form  8865   (for  investments  in  foreign  controlled  partnership),    and  IRS  form  5471.   International   Accounting &   Compliance  
  21. 21. WHAT IS THE PROCESS? 1.    2.    3.  Pre-­‐clearance:  Information  about  the  Taxpayer  is  provided  to  the  IRS  Criminal   Investigation  Division  (“IRS  CI”)  along  with  a  request  for  pre-­‐clearance  to  make   an  application  under  the  program.  The  IRS  then  notiIies  that  Taxpayer  if  they   are  preliminarily  eligible  (this  is  NOT  a  binding  position  of  the  IRS  and  may  be   revoked  at  any  time).  The  Taxpayer  then  has  45  days  from  the  receipt  of  the   pre-­‐clearance  letter  to  submit  the  information  required  under  Step  2.   Criminal  Review:  The  Taxpayer  then  submits  an  offshore  disclosure  letter  and   attachment  (for  each  group  of  offshore  accounts  or  assets)  to  the  IRS  CI  which   provides  details  about  the  location  and  range  of  value  of  the  account,  the   individuals  and  entities  involved  in  the  custody,  management  and  promotion  of   the  account  as  well  as  the  source  of  funds  for  the  account  (in  particular  interest   to  the  IRS  is  whether  these  were  obtained  from  lawful  means).  If  preliminarily   accepted  IRS  CI  will  then  notify  the  taxpayer  to  submit  the  required  information   and  payment  (or  proposal  for  installment  agreement)  required  under  Step  3.   Civil  Review:  Substantial  additional  information  is  then  provided  to  a  civil   examiner.  This  information  includes  amount  other  things,  payment  of  the   penalties  and  interest  associated  with  the  application,  amended  returns  for  the   disclosure  period,  consents  to  extend  time  to  assess  tax  and  penalties,  extensive   foreign  account  records,  amended  or  original  information  returns  and  treasury   department  foreign  account  and  asset  disclosures.     International   Accounting &   Compliance  
  22. 22. MAJOR CONSIDERATIONS A  decision  to  participate  in  the  process  should  be  made  carefully  and  with  the  assistance  of  qualiIied   professional  advice.  Some  (but  not  all)  major  considerations  for  a  Taxpayer  considering  the  OVDP   program  are  listed  below:     •  Penalties  are  high  and  can  equate  50%  or  more  of  the  current  account  value  (note:  in  some   cases  can  equal  or  exceed  the  account  value  due  to  Iluctuations  in  asset  value,  market  losses  in   the  account,  bad  investments,  foreign  currency  exchange  rates  and  other  variables).       •  The  compliance  costs  are  high.  Program  submission  requires  signiIicant  work  to  prepare   amended  returns,  corrected  or  original  disclosures,  calculation  of  penalties  and  interest,  and  in   some  cases  forensic  work  to  reconcile  the  foreign  accounts.     •  The  Taxpayer  will  be  required  to  identify  persons  who  facilitated  the  offshore  account  and  this   can  be  friends,  family  and  business  partners.     •  The  process  may  take  a  long  time,  it  is  not  unusual  for  an  OVDP  application  to  take  1  or  2  years.   •  Applying  does  not  guarantee  approval.  While  most  timely  Iiled  and  truthful  applications  are   accepted  (the  taxpayer  inspector  general  indicates  that  the  approval  rate  is  more  than  90%)  it   is  not  guaranteed  that  they  will  be.  If  the  application  is  rejected  then  the  Taxpayer  would  not   have  any  protection  against  an  assertion  of  civil  or  criminal  penalties  by  the  IRS.     •  It  may  be  difIicult  to  obtain  the  required  documents,  and  it  may  require  legal  action  in  the   domicile  of  the  account  or  asset.           International   Accounting &   Compliance  
  23. 23. A NOTE ABOUT QUIET DISCLOSURES The  IRS  is  aware  that  some  Taxpayers  made  so-­‐called  “quiet”  disclosures  by  Iiling   amended  returns  and  reporting  the  income  from  their  foreign  assets  and  accounts,   paying  the  interest  and  penalties,  but  did  not  make  a  formal  OVDP  application.       These  Taxpayers  are  still  eligible  (given  that  they  also  Iit  the  general  eligibility   guidelines)  to  take  advantage  of  the  OVDP  by  submitting  an  application.        The  IRS  strongly  encourages  these  Taxpayers  to  come  forward  under  the    OVDP  to  make  timely,  accurate  and  complete  disclosures.  Those  Taxpayers    making  “quiet”  disclosures  should  be  aware  of  the  risk  of  being  examined    and  potentially  criminally  prosecuted  for  all  applicable  years.         International   Accounting &   Compliance  
  24. 24. GRAY CAN HELP If  you  are  considering  making  a  voluntary  disclosure  Gray  can  help.  Our  experienced  tax   professionals  are  focused  on  helping  Taxpayers  through  the  Offshore  Voluntary  Disclosure  Process.     If  you  are  concerned  that  you  are  at  risk  of  IRS  action  related  to  your  undisclosed  accounts  contact   us  today,  if  not  disclosed  and  discovered,  the  penalties  and  potential  criminal  liability  is  signiIicant.       Since  the  IRS  is  obtaining  more  and  more  information  about  foreign  account  the  time  to  take  the   decision  to  enter  the  OVDP  is  now.   FULL  PROGRAM  REPRESENTATION   PREPARATION  OF  ALL  RETURNS  AND  FILINGS   FORENSIC  ACCOUNTING/RECORD  RECONSTRUCTION   CALCULATION  OF  PENALTIES  AND  INTEREST   PREPARATION  OF  SUBMISSION  FILING   International   Accounting &   Compliance  
  25. 25. CONTACT US Gray  welcomes  your  questions,  comments  and  inquiries  and   would  like  the  opportunity  to  serve  you.   Addresses U.S.  International  OfIice   Attn:  Jeremy  Stobie,  CPA,  CFE 10900  NE  8th  Street   Suite  1000     Bellevue,  WA  98004                                 Phone +  001  425.999.3685  xt  10   Website   E-mail     International   Accounting &   Compliance