Tax Compliance

IRS Releases New IRS Form W8-BEN. * U.S. citizens and LPRs beware of completing such form at the request of a third party.

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Hot off the press!

The long awaited revised IRS Form W8-BEN has been released (March 2014).  The major changes to IRS Forms W8, particularly W-8BEN-E (which is still in draft form), have been driven by the changes in the law under FATCA.

The new IRS Form W-8BEN and its instructions are accessible here.

Importantly, no U.S. citizen can legally sign and certify they are NOT a “U.S. person” under U.S. federal tax law.  Hence, they cannot sign and complete IRS Form W-8BEN.

The form, as is true with all IRS forms, is signed under penalty of perjury.  For a discussion of tax crimes of filing false documents see What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?.

Some key highlights of information on new IRS Form W-8BEN is set out below:

W8-BEN 2014 Version

Importantly, lawful permanent residents (“LPRs”) have a much more complicated analysis to undertake to determine whether they ARE or are NOT a “U.S. person.”

One of the key considerations of this determination is whether the individual lives in the U.S. or is living outside the U.S. in a country which has a U.S. income tax treaty with the U.S.  See  Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9.

 

 

 

 

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What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?

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Below is a fairly detailed summary of the type of tax crimes that are commonly investigated by IRS Criminal Investigation (“CI”) agents.

As has already been noted, TaxAnalysts reporter Jaime Arora reported in the 3 March 2014, Worldwide Tax Daily certain comments made by Mr. Jeffrey Cooper, who is the deputy director of the IRS Criminal Investigation division’s international operations.  It was reported that IRS CI is looking into why people are making the choice to shed their U.S. citizenship; whether it is related to any particular laws.  Cooper was quoted at the Federal Bar Association’s Section on Taxation’s 38th Annual Tax Law Conference held on February 28, 2014.

TaxAnalysts journalist Arora quoted Cooper as identifying why people are making the choice and  “If we find something, we do; if not, we just move on,” he said.

It is common policy for the IRS CI not to provide information on how they commence taxpayer investigations, including how they obtain U.S. citizenship renunciation referrals or documents.  There could be a number of ways these investigations are commenced.  It may be as simple as taking the list from the Quarterly Publication of Individuals, Who Have Chosen to Expatriate – Quarterly Publication of Individuals, Who Have Chosen To Expatriate, as Required by Section 6039G and start reviewing their tax return files (IRS Forms 1040, 8854, etc.) along with FBAR filings.

IRS CI tax investigations generally focus on false documents or false statements, evasion of taxation, aiding and abetting of the above along with other related tax and Bank secrecy (Title 31) crimes.

The tax reporting process for expatriates is extensive, including the basic requirement of signing IRS Form 8854 under penalty of perjury, which provides as follows on the last page of the form:signature line -8854 perjury.

There are a host of reporting requirements and factual information that must be provided under Sections 877 and 877A, for all persons (including those with little to no assets), specifically including filing IRS Form 8854 which asks for a “boat load” of asset, income, liability and tax information.  A former U.S. citizen or LPR always needs to be careful that the information provided is true, accurate and complete.  See Part V of the form.

A summary of these crimes is set out below:

1.         Criminal Offenses under Title 26 (Federal Tax Law)Part V of IRS Form 8854

a.         Tax Evasion (IRC Section 7201)

b.         Filing a False Return or Other Document – Perjury (IRC Section 7206(1) )

(i)        Aiding or assisting in the perpetration of a false or fraudulent document (26 U.S.C. § 7206(2))

(ii)       Removal or concealment with intent to defraud, commonly related to untaxed liquor (26 U.S.C. § 7206(4))

(iii)     Compromises and closing agreements involving fraud or concealment (26 U.S.C. § 7206(5))

c.         Failure to File Return, Supply Information, or Pay Tax – (IRC § 7203 – Misdemeanor – up to 12 months imprisonment)

d.         Fraudulent Returns, Statements, or Other Documents (IRC § 7207)

e.         “Structuring” Transactions to Evade Cash Reporting (IRC § 6050I)

In addition to these tax specific crimes, other key crimes commonly used by IRS CI agents in tax cases, particularly international cases, include:Part B Form 8854

2.         Tax Related Criminal Offenses under Titles 18 and 31 (Not Tax Law Specific)

a.         Conspiracy (Section 371 of Title 18)

(i)        Elements of the Offense

(ii)       Penalties and Statute of Limitations

b.         False Statements (Title 18 U.S.C. § 1001)

(i)        Penalties and Statute of Limitations

c.         Perjury

d.         Mail fraud

e.         Principals and those Who Aid and Abet (Title 18)

f.          Accessory After the Fact

Finally, it is worth noting that the government regularly collects information from internet resources, such as blogs and e-mails as they build a case for criminal prosecution.  A former head of the Tax Division at the U.S. Department of Justice once told me that “e-mails and internet communications was God’s gift to prosecutors”.

 

 

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What are the consequences of becoming a “covered expatriate” for failing to comply with Section 877(a)(2)(C)?

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Many lay pIRS Form 8854ersons are stumped as they try to understand the tax consequences of Sections 877 and 877A.  The language in the drafting of the statutes is not so clear.  Be careful to understate the meaning and how the IRS interprets the law.

One of the greatest risks for anyone who wants to self-diagnose their path towards becoming a former U.S. citizen, is Section 877(a)(2)(C).  To be blunt, anyone who renounces their citizenship at the Embassy or Consulate will find that process relatively easy.  However, no one at the U.S. Department of State will provide tax advice or try to interpret the meaning of Section 877(a)(2)(C).  Indeed, the Foreign Affairs Manual used to read to the person taking the oath, simply provides the standard overview language of “special tax consequences” arising form the renunciation.

Even the most economically modest individual, with little assets or income, can fall into this trap for the unwary – Section 877(a)(2)(C).  The statute is spelled out below –

  • This section shall apply to any individual if—
  • (A) the average annual net income tax . . . is greater than $124,000,
  • (B) the net worth of the individual as of such date is $2,000,000 or more, or
  • (C) such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.
The provision is clear that anyone who does not satisfy it, will be a “covered expatriate” and hence subject to the taxation and reporting requirements under Sections 877 and 877A and 2801.
This is worth understanding well, before rushing off to take the oath at the U.S. Embassy or the U.S. Consulate.

This is a good article on NPR – Why More Americans Are Renouncing U.S. Citizenship

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This is put both in the Media section and elevated to a specific post – as it is a thoughtful article.

This radio article notes that Americans who live overseas are renouncing their U.S. citizenship in record numbers.  The renunciation has been a sudden spike from a domino affect from the following:
1.  UBS aided tax evasion scheme that broke in 2009;
2.  Congressmen believed that tens of billions could be collected;
3.  FATCA was adopted in 2010 – to identify all American account holders throughout the world;
4.  Foreign banks cancelled accounts throughout Europe; and
5.  The U.S. is unusual in that it taxes its U.S. citizens wherever they are in the world.

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