John D. Teter Law Offices

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San Jose, CA 95128

San Jose, CA offshore tax compliance attorneyU.S. taxpayers are required to report foreign financial accounts and other offshore assets and investments, and taxes may apply to income earned from foreign sources. In the past, the IRS allowed taxpayers who had not met these requirements to become compliant through the Offshore Voluntary Disclosure Program (OVDP). This program is no longer available, and it has left some taxpayers unsure about how to report their foreign assets and pay any taxes owed while minimizing the potential penalties that may apply. 

One issue that the IRS has identified as an area of concern involves taxpayers who applied for pre-clearance with the OVDP but did not complete this program. Specifically, some taxpayers may have been denied access to the program, or they may have voluntarily withdrawn their requests. The IRS’s Large Business & International (LB&I) division will be investigating these taxpayers, and tax audits may be performed in cases involving continued noncompliance.

Options for Compliance With Foreign Tax Reporting Requirements

In some cases, taxpayers who were unable to become compliant through the OVDP may be eligible for the Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP) programs. A person will qualify for this program if he or she can show that his or her noncompliance was non-willful, meaning that the taxpayer did not know about or did not understand the requirements for reporting foreign assets and income. These taxpayers will be required to comply with tax return requirements for the past 3 years, Foreign Bank and Financial Account Reports (FBAR) requirements for the past 6 years, and other required information. They must provide information about the balances of unreported foreign accounts for the past 6 years, and they must pay all outstanding taxes and interest. In most cases, a 5% penalty will apply to the taxpayer’s highest aggregate foreign account value, although this penalty may be waived in certain cases.

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San Jose tax compliance lawyer for foreign corporationsThe U.S. tax code is very complex, and taxpayers are required to file a wide variety of forms correctly when completing their tax returns. This is especially true for those who own foreign assets or earn income from foreign sources. Failure to meet these requirements can result in tax audits, and taxpayers may face hefty penalties for their failure to comply with their tax requirements. 

The Large Business & International (LB&I) division of the Internal Revenue Service maintains a number of “campaigns” meant to address ongoing concerns about misreporting of assets and income and noncompliance with tax obligations. One notable campaign addresses “loose filing” of Form 5471, (Information Return of U.S. Persons with Respect to Certain Foreign Corporations).

Requirements for Filing Form 5471

Form 5471 is used to evaluate the extent of a taxpayer’s foreign assets while also tracking the profits earned by a foreign corporation and any changes in a company’s structure or ownership that may affect the taxes it pays. There are several categories of filers that are required to submit Form 5471, including shareholders of specified foreign corporations (SFCs) or controlled foreign corporations (CFCs), officers or directors of foreign corporations in which a U.S. person has at least 10% ownership stake, or a U.S. person who had control (more than 50% of stock or voting power) of a foreign corporation during the relevant tax accounting period.

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San Jose, CA tax penalty lawyerThe Internal Revenue Service is always on the lookout for taxpayers who fail to comply with tax laws, and it maintains a number of Large Business and International (LB&I) campaigns to address tax avoidance through unreported income or undisclosed assets. Foreign investments are an area that the IRS commonly examines, and one issue that has been highlighted is the holding of assets in trusts outside the United States. Failing to file the proper forms or making errors when reporting assets in foreign trusts can lead to tax audits and significant penalties.

Penalties for Errors in Form 3520 and 3520-A

There are a variety of reporting requirements that apply for U.S. citizens and companies or estates in the United States that are owners or beneficiaries of foreign trusts. The term “foreign trust” is broadly interpreted to include any trust that is not considered a domestic trust. Domestic trusts are trusts that are primarily controlled by people or entities in the United States and are supervised by a U.S. court. There is a lack of clarity concerning some financial accounts that may be treated by the IRS as a trust.

U.S. taxpayers who are considered the owner of a foreign trust or who engage in transactions with foreign trusts are required to file Form 3520 to report these transactions. These transactions may include creating a trust, transferring assets to a trust, receiving a distribution from a trust, or making or receiving a loan with a trust.

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San Jose tax audit lawyer for IRS visits and tax compliancePaying taxes is an important responsibility that, if ignored, can cause a person serious financial and legal trouble. Individuals of all income levels are expected to fully and honestly fulfill their tax obligations, and the IRS is especially focused on bringing high-income individuals into compliance. The agency recently reported that agents will be increasing the number of in-person visits to taxpayers at high-income levels who have not filed tax returns or who have other compliance issues.

Commonly, a taxpayer incurs a tax liability not because they willfully refuse to pay taxes but because they have made a mistake or miscalculation and underpaid the IRS. Taxpayers may also struggle to resolve tax debt due to a job loss, major increases in expenses, unexpected medical problems, or other issues that cause financial hardship. If you have tax-related problems, do not wait for the IRS to visit you before taking action. Speak with an experienced tax law attorney and get the legal guidance you need to resolve these issues.  

What to Expect During a Face-to-Face IRS Visit 

If you know that you have not filed tax returns for previous years or have not resolved your tax debt, you may be worried that the next knock at the door could be from an IRS officer. However, IRS visits are rarely a surprise to taxpayers. The IRS will attempt to contact a taxpayer through mail several times before visiting him or her. If an officer does visit, he or she should provide two forms of credentials to prove his or her authenticity. The officer will then share information with you about your tax liability. He or she will not threaten you or demand immediate payment. Instead, he or she will explain the steps you need to take to become compliant as well as the consequences for continued noncompliance.

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San Jose, CA tax law attorney for IRS leviesPaying taxes is an important and often complicated responsibility. If a taxpayer does not adequately fulfill his or her tax obligations, the Internal Revenue Service (IRS) can take several actions. In some situations, the IRS may even seize some of the taxpayer’s personal wealth and property to satisfy his or her tax debt. If you have been contacted by the IRS about a tax liability-related concern, you should speak to an experienced tax attorney to get the legal guidance and help you need.  

What Is an IRS Levy?

Many people do not realize that the federal government is permitted to seize some of an individual’s assets if he or she does not pay his or her taxes. If you have an unresolved tax debt, the IRS may eventually use a levy to collect the delinquent tax. Before the IRS issues a levy, it will send you a “Notice and Demand for Payment.” If you do not respond, you will then receive a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” If you still do not resolve the debt or make an arrangement with the IRS for settling the debt, the IRS may be permitted to take ownership of your property.

What Types of Property Can the IRS Take?

The IRS is permitted to levy any property that you personally own or property in which you have an interest. The IRS could levy your bank accounts, part of your wages, accounts receivable, dividends, income from rental properties, retirement accounts, business assets, and more. The IRS could also seize personal property such as vehicles, and if approved by a U.S. District Court Judge, even your home. The IRS cannot levy assets that you did not own or did not have an interest in at the time the levy was enforced. For example, if a relative gifts you money and you add it to your bank account after the levy was issued, these funds are not subject to the levy. The IRS will also not levy:

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