Steven L. Cantor & Arthur J. Dichter September 30, 2014 STEP Bahamas The New 2014 IRS Offshore Voluntary Disclosure Program

OVDP Statistics More than 45,000 taxpayers have come forward About $6.5 billion in taxes, interest, and penalties paid

Overview of Changes Significant changes to OVDP made on June 18, 2014, effective July 1, 2014 Expansion of streamlined filing compliance procedures Creation of 2014 OVDP Transitional treatment rules for 2012 OVDP Delinquent FBAR and international information Return submission procedures

Streamlined Procedures: 2012 Eligibility Criteria Original streamlined procedures were available only to taxpayers meeting the following criteria: Lived outside United States since January 1, 2009 No U.S. income tax returns filed since January 1, 2009 Insignificant tax liability Low compliance risk

NEW Streamlined Procedures: The Basics Available to resident and non-resident taxpayers if failure to report foreign financial assets and pay taxes did not result from willful conduct Non-willful conduct = Conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law Must have failed to report income from a foreign financial asset and failed to pay tax, and may have failed to file an FBAR Submission under the Streamlined Procedures does not protect taxpayers from criminal charges

Expansion of the Streamlined Procedures Original criteria no longer applicable: Eligibility extended to U.S. taxpayers residing in United States Eligibility extended to U.S. taxpayers who previously filed U.S. income tax returns Low compliance risk level eliminated

Streamlined Procedures: U.S. Taxpayers “Living” Abroad Must meet applicable non-residency requirement Individuals who are U.S. citizens or lawful permanent residents – In any one or more of the most recent three years for which U.S. income tax return due date has passed: No U.S. abode, AND Physically outside of United States for at least 330 days Individuals who are not U.S. citizens or lawful permanent residents – In any one or more of the most recent three years for which U.S. income tax return due date has passed: Did not meet substantial presence test

Streamlined Procedures: U.S. Taxpayers “Living” Abroad File 3 years of delinquent or amended tax or information returns and pay tax and interest File 6 years of delinquent FBARs NO PENALTIES !!!

Streamlined Procedures: U.S. Taxpayers “Living” in U.S. For U.S. taxpayers residing inside the United States or who fail to meet one of the applicable non-residency tests Must have previously filed a U.S. income tax return (or would not have been required to file returns if unreported income was taken into account) for each of the most recent 3 years for which the U.S. income tax return due date has passed

Streamlined Procedures: U.S. Taxpayers “Living” in U.S. File 3 years of delinquent or amended tax or information returns and pay tax and interest File 6 years of delinquent FBARs Penalty of 5% of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the 6 year period

The Miscellaneous Offshore Penalty Intended to apply to all of the taxpayer’s offshore holdings that: Should have been, but were not, reported on form 8938 for that year The asset was properly reported but gross income in respect of the asset was not reported Assets include all assets directly or indirectly owned by the taxpayer Financial accounts holding cash Securities or other custodial accounts Tangible assets (real estate, art, etc.) Intangible assets (patents, stock, etc.)

2014 Offshore Voluntary Disclosure Program Continuation of the 2012 program with some important changes Changes effective July 1, 2014 and August 4, 2014

2014 OVDP: New 50% Penalty For pre-clearance letters submitted after August 4, 2014, taxpayers subject to a 50% offshore penalty under certain circumstances Applies if FFI at which taxpayer had an account OR a facilitator who helped taxpayer establish offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation Some “blacklisted” institutions have already been identified including Bank Ltd, Stanford Group

2014 OVDP: Other Highlights Additional information requested in preclearance letter Elimination of reduced offshore penalties Offshore penalty must be paid at time of submission Account statements must be provided for all financial accounts regardless of account balance Taxpayers may submit certain documents electronically

Transitional Treatment Allows taxpayers “currently participating” in the 2012 OVDP to take advantage of favorable penalty structure of Streamlined Procedures Must have submitted OVDP voluntary disclosure letter and required attachments prior to July 1, 2014 Must be eligible for either Nonresident or Resident Streamlined Procedures Not eligible to receive transitional treatment if a Closing Agreement has already been executed No refunds

Coordination of Streamlined Procedures with OVDP Once taxpayer makes submission under either Nonresident or Resident Streamlined Procedures, taxpayer may not participate in OVDP Taxpayer who submits OVDP voluntary disclosure letter may not participate in Streamlined Procedures but still may opt out of OVDP

Delinquent FBAR Submission Procedures Available to taxpayers who had no unreported income and who do not need to use the OVDP or Streamlined Procedures, but who: Have not filed an FBAR Are not under civil or criminal investigation by IRS Have not already been contacted by IRS about FBARs FBARs must be filed electronically at FinCEN and include a statement of why submission was late No failure to file penalties imposed if qualify and proper procedures followed

Delinquent Information Return Procedures Available to taxpayers who do not need to use the OVDP or Streamlined Procedures, but who: Have not filed one or more required international information returns Have reasonable cause for not timely filing Are not under civil or criminal investigation by IRS Have not already been contacted by IRS about the returns Delinquent returns must be attached to an amended return and provide a statement of facts establishing reasonable cause for failure to file

Some Ways to Get Caught IRS Litigation Changes in Law Whistleblower Renewal of U.S. Passport Audit by Infection Entry into U.S. Ownership of U.S. assets at time of death Criminal Investigations

Riding to the Rescue

CW Tax Services Our firm advises and assists various international clients, including professional trustees and foreign trust settlors and beneficiaries, foreign sellers of United States real property interests, and executors of the estates of nonresident alien decedents on a variety of United States tax reporting issues. Our work in this area has included: Preparation of reporting forms such as the Report of Foreign Bank and Financial Accounts (Form FinCEN 114 – FBAR), Statement of Specified Foreign Financial Assets (IRS Form 8938), Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (IRS Form 3520), Annual Information Return of Foreign Trust With a United States Owner (IRS Form 3520-A), Foreign Trust Beneficiary Statements, and other forms directly related to the foreign trust structure and/or foreign investments Preparation of Reporting and Paying Tax on U.S. Real Property Interests (IRS Forms 8288 and 8288-A)

CW Tax Services Cont… Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests (IRS Form 8288-B) Preparation of reporting forms for U.S. investors in foreign assets such as Information Return of U.S. Persons with Respect to Certain Foreign Corporations (IRS Form 5471), Return of U.S. Persons with Respect to Certain Foreign Partnerships (IRS Form 8865), Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (IRS Form 8858), and Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund (IRS Form 8621) Initial and Annual Expatriation Statement (IRS Form 8854) Annual Return for Partnership Withholding Tax (Section 1446) and Foreign Partner’s Information Statement of Section 1446 Withholding Tax (IRS Forms 8804 and 8805) When appropriate, preparation of United States Estate (and Generation- Skipping Transfer) Tax Return for Estate of nonresident not a citizen of the United States (IRS Form 706-NA)

Steven L. Cantor Arthur J. Dichter Cantor & Webb P.A Brickell Bay Drive Suite 3112, Miami, FL Contact Information Tel: (305) Fax: (305)