ALERT: MARCH 17TH, 2014
JUNE 30, 2014 FILING DEADLINE FOR FOREIGN BANK ACCOUNT REPORTS.
In my past articles, included on this website, I drew your attention to very serious and onerous rules that may apply to you even if you are not a U.S. Citizen. If you are required to file both the new Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR) and U.S. Individual Tax Return reporting worldwide income whether earned in or outside of the USA and/or passive income from investments worldwide sources; then this Editor’s Opinion is critical for you.
At this point on the ever changing horizon, if you are required to file U.S. tax returns, it is possible to go back up to 8 years and file these delinquent tax returns as well as the delinquent FBAR returns and hope the IRS does not detect the last filings. You can also apply for the benefits of certainty by participating in the Tax Amnesty program where your penalties will be mitigated compared to the IRS learning of your non-filing first and contacting you before you can file for amnesty.
The decision of the “quiet disclosure” filing process vs. the tax amnesty program has taken a completely new direction. I believe that a quiet filing method may still be viable, but with an increase in newly trained IRS agents and computer programs designed to find quiet filings the chances of a successful quiet filing is quickly becoming a high risk for you. If you decide to come forward and apply for Tax Amnesty, then the IRS will know all about you as the requirements for a successful amnesty application is to satisfy the IRS agent that you are cooperating with all of the Agent’s inquiries. Failure to comply with the Agent’s subjective standard of compliance will cause your case to be transferred to the Criminal Investigation Agency, CID, for criminal prosecution.
The above dilemma is a painful decision for each affected individual to make without knowing the true outcome of either decision. What is the risk of a Quiet Disclosure filing? Now you also have to ask what is the risk of applying for Tax Amnesty if the Agent transfers your case to CID because of two recent offshore cases involving one country seeking tax information from another country’s tax authority under the Tax Information Exchange Agreements, which the US has with most other countries. These two cases clearly show that if the US is seeking your confidential files in other countries for gaining full disclosure of your income, wealth and assets, the US must claim the request based on criminal charges and not civil charges. Therefore, the Tax Amnesty Agent would merely pass the file to CID and the Tax Information Exchange Agreement would apply to you since the civil charges would transmute to criminal charges.
Recently, the Isle of Jersey had two cases before the Royal Court in which foreign countries were investigating their own citizens’ income, asset and banking activities in the Isle of Jersey. Now how does this apply to you, please let me explain.
The Isle of Jersey has historically been a strategic location for banking secrecy including individuals and companies worldwide as well as other less known tax benefits such as “secondments”. The Isle of Jersey offered similar privacy and secrecy to it other geographical island locations, such as the Isle of Man and the Isle of Guernsey with similar protective legislation. However, with the Tax Information Exchange Agreements, see below to see if your country is a member state, the Isle of Jersey is now obligated to release significantly, if not all, information and documentation within the files of a Trust Company licensed in the Isle of Jersey to the requesting foreign government’s Competent Authority. As an example, Competent Authority in the U.S. is the Deputy Commissioner (International), Large and Mid-Size Business Division, acts as the U.S. competent authority in administering the operating provisions of tax treaties.
The Official Request for Release of Tax Information is a very simple form of 3 pages with mostly check-the-box requirements.  This obligation to release tax information is not tied to FATCA! This means that the United States can make a tax information request NOW and not when FATCA applies, generally July 1, 2014 for retroactive application to 2013.
In the one case, a Norwegian individual was involved in a tax dispute with Norway. Norway was trying to get damaging tax correspondence between the individual and the Trust Company. Norway has a Tax Information Exchange Agreement, TIEA, with the Isle of Jersey and the Jersey Comptroller of Taxes is empowered to issue a notice requesting information in relation to a taxpayer when a request from a third country is made under a TIEA. The Royal Court ruled in favor of the Norwegian tax authorities. The This first appeal was against a decision of the comptroller to issue a notice to Volaw Trust & Corporate Services requiring the Trust Company, which is owned by the law firm of Volaw  to produce documents and records that it held in relation to its dealings with Mr Larsen, the Norwegian taxpayer at the center of the tax investigation, and certain companies in which it is suspected that Mr Larsen had an interest therein. The Norwegian Tax Authority had requested the information under its TIEA with Jersey. Ultimately, the Royal Court determined, with a revised TIEA application, that the Norwegian tax authorities were seeking the information on a criminal matter and, therefore, the full file of documents including emails, mails, legal documents and banking records must be handed over to the Jersey Comptroller of Taxes for forwarding on to Norway Tax Authorities. The pivotal issue raised by the Royal Court was whether this request for information was based on a civil tax fraud or criminal tax matter. Once Norway had revised its claim from civil to criminal, the Court was satisfied. 
This is one of a series of articles that provide you with the Author’s up to date opinion on U.S. Tax matters as they may affect the readers of this website. Please feel free to contact us if you have any concerns that we may be of assistance to you.
Michael B. Nelson, Esq.