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A Message to Our Valued Clients

In the interest of public health and the safety of our community, and in compliance with Governor Cuomo’s executive order, Freed Maxick has suspended onsite client work and cancelled all office visits. Meanwhile, our team is working remotely to provide the same high-quality service you have come to expect. Utilizing the best technology at our disposal, we will continue to meet all of your audit, tax, and advisory needs and help you navigate the business implications of the pandemic as it unfolds. You can reach your Freed Maxick representative directly by email or phone, or contact our main line at 716.847.2651.

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Summing It Up

Keeping you ahead of the curve with timely news & updates.


Freed Maxick

Recent Posts

Hidden tax benefits in the repair and maintenance regulations

By: Jennifer Birkemeier, CPA

 

describe the imageWith new temporary treasury regulations on repairs and maintenance costs, there will be requirements on capitalizing or deducting the cost of such repairs and maintenance.

How does this affect taxpayers? 

It is the responsibility of the taxpayer to ensure compliance with the temporary regulations. It also means the taxpayer will be responsible for adhering to the regulations for taxable years beginning on or after January 1st, 2014.

What is the benefit for taxpayers?

There has been a lot of feedback regarding the amount of time that is required to comply with the regulations and concern that the time spent will not result in reduced tax burdens for taxpayers. Recently CSP360 sponsored the inaugural AICPA Global Hospitality Conference where Mark Barbour presented updates on the repair regulations focusing on 263(a).  The repair regulations will impact all industries requiring accounting method changes that may have favorable taxpayer consequences. Some of the hidden tax benefits for taxpayers that were highlighted at the AICPA conference include:

  • Segregating the cost of structural components of buildings that were disposed of in prior years
  • Identifying expenditures in prior years or current years that do not constitute improvements to buildings or building systems and can be expensed as repairs
  • Reviewing the results of a prior year cost segregation study to identify dispositions of 1245 property
  • Identifying the cost of removal of a structural component not subject to capitalization under 263A
  • To segregate the cost of the eight building systems for purposes of applying the improvement and disposition rules under the final regulations

How are expenditures treated?

When capitalizing expenditures, the amounts paid fall into one of two categories:

  • Amounts paid to acquire or produce tangible property, or
  • Amounts paid to improve tangible property.

Generally capitalized costs include invoice price, transaction costs, and costs for work performed prior to the date the property is placed in service by the taxpayer. If the taxpayer is improving or “bettering” the real or personal property amounts that must be capitalized include correcting a material defect of the property, physical enlargement, expansion, or a material increase in capacity, productivity, or efficiency of the property. A taxpayer must capitalize costs that restore a unit of property to like new condition after the end of its class life. Costs incurred to adapt a unit of property to a new or different use must also be capitalized.

A Cost Segregation Analysis includes a thorough review of the property to properly depreciate the assets and accelerate tax deductions. These analyses include an intensive review of all blueprints and site visits to verify the assets and determine the quality of those assets. The professionals performing these analyses have an intimate knowledge of the building and building systems and provide valuable insight when examining repair and maintenance costs to determine if they must be capitalized or if they can be expensed.

Contact Us

CSP360 is a subsidiary of Buffalo, NY based Freed Maxick, CPAs  a Top 100 accounting firm and one of the nation’s leading providers of Cost Segregation and consulting services. Our philosophy is to offer clients a 360 degree view of a taxpayer’s assets; pairing engineering and LEED specialists with accountants for a truly unique tax advisory team. Since 1995, our in house team has provided specialty studies to CPAs in a private label arrangement. Products include Cost Segregation, 179D Energy Studies and 263a. CSP360 is Circular 230 compliant and has proven methodologies that are sustainable on IRS examinations. To learn more about our unique approach click here.

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Put a Stop to Expense Account Cheating

By: Mike Ervin CPA, CFE

 

Let’s say that a client recently caught one of his employees falsifying an expense report. Your client fired the person, but because the fraudulent amount was fairly small, the company decided not to prosecute. Case closed? I hate to burst your bubble, but no. When it comes to expense account cheating, where there is one there is usually more.

It’s an unfortunate fact that the same conditions that make it possible for one employee to cheat may help others submit false expense reports. Think of it as a domino effect; small amounts often add up to big losses when several employees and multiple reports are involved in fraud.

Opportunities for expense account cheating

Sadly, there are many ways to cheat on an expense account. A common method is to mischaracterize business expenses — using legitimate receipts for non-business related activities. For example, if Linda treats her friend Sophie to a birthday dinner, that generates an actual receipt, but it shouldn’t show up on Linda’s expense account.

Requesting multiple reimbursements is a bit more risky, but it’s just as simple. If Linda wants her company to pay for Sophie’s birthday dinner twice, she simply copies the receipt and turns it in on another expense report. Even worse, she may try to be paid once for the bill, once for the receipt and once for the credit card statement.

Some workers overstate their expenses by simply doctoring the supporting paperwork by changing the numeral “3” to an “8” on a receipt. There are also cheats who invent expenses. An example of this is the employee who asks a taxi driver for an extra receipt then fills it out and turns it in for reimbursement.

All of these small expense account infractions can add up to huge sums of money. For instance, a top salesperson who traveled extensively for business defrauded his company of $30,000 over the course of three years by adopting a liberal definition of “allowable” business expenses. If tighter policies on fraudulent claims were in place, that company may not be out $30,000.

Enforce your policies

Expense account fraud could be averted in most cases, if companies would simply implement fraud control policies and procedures and then enforce them. Unfortunately, many companies establish policies but then fail to make sure that they’re followed correctly. Or worse, they put fraud control policies together that leave large gaps or “loopholes” for employees to take advantage of.

Once your company has an expense report policy in place, communicate it. A solid policy can prevent misunderstandings and make punishing infractions easier.

Moreover, your managers should keep on top of employee business travel plans and other activities that might trigger expense reports. Let’s look at Tom, who is based in Cleveland but submits a bill for a dinner in Dallas. His supervisor should have known about the trip before it happened. The supervisor should review every expense that Tom turns in and require original receipts for everything. If a photocopied receipt is necessary, the supervisor should inspect it for signs of tampering. This also means that expense reports should include details of the company and specific individuals that are being entertained, to allow for follow up related to sales generated and evaluation of effectiveness of the expenses incurred.

Even though expense tracking software isn’t a substitute for hands-on expense account reviews, it can certainly help you spot inconsistencies that develop over time. Such programs make it easy to see if an employee’s expenses have soared in recent months or are noticeably higher than normal.

Also consider a confidential fraud-reporting hotline. It will encourage anonymous reports of misdoings and signal that the business is serious about eliminating fraud.

“Reasonable” is the key word

Businesses must ensure that their antifraud policies are reasonable. If the official definition of reimbursable expenses is too narrow, some employees may be inclined to lie on their expense accounts to make up for out-of-pocket expenses.

It’s also critical to hold everyone in the organization to the same standards. Even a CEO shouldn’t be immune from approval and scrutiny from the appropriate level. A CEO who cheats on an expense account may also be perpetrating other forms of fraud, such as falsifying financial records. This in turn teaches employees that “If the CEO can falsify records, why can’t I?” Managers might be surprised to see how much their employees pay attention to their own behavior at work. If it’s not acceptable for one, it should not be acceptable for any.

Enlist an expert

If a business contacts you about possible expense account cheating, help the client understand that the incident may not be an isolated one-time problem. Bring in a fraud expert to investigate the claim and possibly to review the company’s expense reporting policies and internal controls.

 

If you suspect expense account cheating is going on at your business, contact us here, or call us today at 716-847-2651

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Capital Improvement Regulations- What does it mean for you?

By Jennifer Birkemeier, CPA

In December of 2011, temporary regulations (T.D. 9564) were published. These regulations will affect taxpayers that acquire, produce, or improve tangible property. They also mean potential significant tax savings for taxpayers.

One purpose is to clarify  Sec. 263(a) of the regulations for capital expenditures, which make available tax benefits to commercial property owners through favorable rulings on building improvements and repairs. The building structure and its building systems might include: heating ventilations, electrical systems, all escalators, plumbing systems, HVAC systems, fire protection and alarm systems.

There is a process in finding these benefits, and it starts with a Cost Segregation study. The Cost Segregation study allows the commercial property owner to take advantage of the new capital improvement guidelines. This is done through qualitative tests; performed based on the cost of the unit of property and the current expenditures, and is either capitalized or expensed. While most owners want the expense, the unit of property must be defined in order to allow for this option. The new regulations will allow for expensing the repairs and maintenance to the unit once it’s defined.

Cost Segregation Studies

Cost Segregation studies help to define the units of property for the owner. In addition to this, the study can correctly identify “disposed of building components”.

Why is this an important aspect of the study? The Tangible Property regulations now allow for disposed of building components to be deducted up to their remaining depreciable basis. If a cost segregation study is not conducted than the costs of the disposed building components can’t be correctly identified, resulting in no deduction for the commercial property owner.

The Cost Segregation Partners of Freed Maxick CPAs is one of the nation's leading providers of Cost Segregation and consulting services to real estate owners. Our philosophy is to offer clients an experienced team of professionals who take a 360 degree view of a taxpayer’s assets. This helps our team identify credits and incentives that the taxpayer may benefit from. To learn more about our unique approach click here.

 

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Be mindful of debt restructuring for multiple properties

By: John Kleiman

 

ABLCommercial lenders often cross-collateralize loans in order to reduce risks. But beware: Accounting concerns and debt restructuring issues may emerge when using multiple properties to secure a loan associated with one property.

Nonaccrual status for loans

Typically, when interest payments on a loan are significantly overdue and collecting any principal is unlikely, the loan must be placed on what’s known as “nonaccrual status.” For example, if your bank experiences an increase in nonaccrual loans, it will likely be forced to bump up its reserves for loan losses, which may hurt profits in the long run.

Cross-collateralization can cause multiple loans to be placed on nonaccrual status, even if some of the loans are still performing. In the OCC’s June 2012 Bank Accounting Advisory Series (BAAS), the agency offers several examples that show the potential impact of cross-collateralization on nonaccrual status.

For instance, one example involves a real estate developer that has two loans with a bank for two separate projects. Loan A is up to date and the bank expects full repayment of interest and principal. Loan B, on the other hand, is placed on nonaccrual status.

According to the BAAS, placing one loan on nonaccrual status won’t automatically require your bank to place the other loan on the same status. The guidance stresses that the responsible party on the two loans are separate corporations and are wholly owned by the developer and that there’s no cross-collateralization or personal guarantees.

So, if the bank subsequently negotiates a cross-collateralization agreement with the developer, must loan A also be placed on nonaccrual status? According to the BAAS, when entering into a cross-collateralization agreement, the bank is simply taking steps to improve its own position relative to the borrower. The bank does not need to place loan A on nonaccrual status if cross-collateralization doesn’t change the repayment pattern of the loans or endanger loan A’s full repayment.

Yet another example shows loans A and B are related to separate real estate projects. The loans are personally guaranteed by the developer and were initially cross-collateralized. Project A has the cash flows to repay loan A in full, but no excess in order to meet a shortfall on loan B, which is already past due.

According to the OCC, if the developer has the intent and the ability to make the payments on both loans, the bank could keep both loans on accrual status. If, on the other hand, the developer lacks the ability and intent to make the payments, both loans should then be placed on nonaccrual status.

Because, in the above example, the loans are cross-collateralized, make sure that collectability is evaluated on a combined basis. The developer, as the guarantor, is the ultimate repayment source for both loans, so placing only loan B on nonaccrual status wouldn’t indicate that the collectability of the entire debt is in doubt.

Troubled debt restructurings

Under current accounting standards, if restructured loans are regarded as troubled debt restructurings (TDRs), they may result in losses on the bank’s financial statements or additional valuation allowances. Typically, a restructuring is a TDR if a bank grants a concession to a borrower that’s experiencing financial difficulties.

Some institutions use cross-collateralization in hopes of avoiding TDR status on reworked loans. They might, for example, defer loan payments or reduce the interest rate in exchange for additional collateral.

Work with an expert

Should you have any questions about the cross-collateralization strategy, contact a Freed Maxick ABL advisor here or call us at 716-847-2651.

 


 

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CSP 360 Professional News

Jenn BirkmeierJennifer A Birkemeier, CPA, Senior Manager, CSP 360 has passed the American Society of Cost Segregation Professionals (ASCSP) Member Exam. The exam is one of several available from the organization, which was formed with the goal of establishing a measurable standard by which cost segregation consultants can be evaluated both from a business practice standpoint as well as actual quality of deliverables.

(ASCSP) was established as a non-profit corporation in response to the growing need for education, credentials, technical standards and a Code of Ethics within the cost segregation industry. The ASCSP's goal is to provide its members with educational programs and continuing education programs; create and maintain minimum quality standards, and provide a Code of Ethics.

Erik EgglestonIn addition, Erik Eggleston, Cost Segregation Specialist, CSP 360 is now a LEED Green Associate.

LEED credential holders have a deep understanding of the most current green building principles and practices, and show a clear commitment to professional growth in the field. LEED Green Associates earn their credential by passing a two-hour, computer-based exam comprising 100 randomly delivered multiple-choice questions.

CSP 360 is headquartered in downtown Buffalo, NY and is one of the nation's leading providers of cost segregation and consulting services to real estate owners. CSP 360 also assists accountants and CPA firms in providing cost segregation services to their qualified clients who have constructed, bought, expanded or remodeled real estate.

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IRS Creates Website For Tax Provisions of the Affordable Care Act

By: Sam DiSalvo, Tax Director

The IRS has created a new, and user friendly website to provide information and guidance on the tax provisions of the ACA. This website is located at www.IRS.gov/aca.

The home page is divided into three sections that will allow individuals, businesses, and other organizations (such as governmental entities and tax exempt organizations) to access the health care laws, and receive education on how the laws may affect them. 

The site provides information about tax provisions that are in effect now and those that will go into effect in 2014 and beyond. Visitors to the new site will find information about legal guidance, the latest news, and links to additional resources.

The IRS/ACA webpage is user friendly, with easy to find resource information. For example, the new web based flyer -- Healthcare Law Online Resources (Publication 5093), provides a number of informational links on the ACA for individuals and employers. The website also categorizes organizations into small (fewer than 50 full time employees) and large employers, as well answering frequently asked questions, such as “Do I need to do anything right now to get ready for the changes coming in 2014?”

Learn how Freed Maxick CPAs can help you with all your healthcare tax needs. For more information contact us today.

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The Charter School Act Impacts Audit Requirements

By: Chris Piedici

New York State schools recently received $697 million under the “Race to the Top” funding through the Federal Government; this will include monies to NYS charter schools. Along with this is a $113 million grant to NYS under the Federal Charter School Program (CSP). It is the responsibility of the New York State Education Department (NYSED) to monitor the use of public funds, including CSP grants; necessitating a very high level of audit quality.

As a pass through entity, NYSED is responsible for monitoring the proper use of funds and compliance with CSP grant requirements by each school awarded funds. NYSED has decided that the most efficient and effective way of monitoring grant compliance is to allow each charter school an independent auditor, who is already reviewing records of the school, to perform additional procedures as part of the audit and then issue a separate report.

Charter School Audit Requirements

In accordance with the charter school agreement, the school shall retain an independent Certified Public Accountant (CPA), licensed in NYS, to perform the audit of the charter schools annual financial statements. The report shall include:

·         Agreed upon Procedures Report on Initial Statement of Controls

·        Opinion on Audited Financial Statements

·        Report on internal controls over Financial Reporting and on Compliance and other matters based on Audit of Financial Statements performed in accordance with Government Auditing Standards

·        Agreed upon Procedures Report on Charter School Program (CSP) grant

·        Report on compliance for each major federal program, internal control over compliance; and on the schedule of expenditures of Federal Awards required by OMB Circular A-133.

Deadlines for the Agreed upon Procedures report is due no later than 45 days after audit engagement has begun. As well, all audited financial statements must be submitted to NYSED by November 1st of each fiscal year after the conclusion of the charter school’s first year of providing instruction to the students.

A full report and explanation on the charter school guide can be found on the New York State Education Department website.

Contact Us

For more information on auditing procedures or to speak to a CPA regarding your Charter School audit needs, please contact our Rochester office at 585-271-2300 or click here to contact us.

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Know which Fraud Risk Profile Your Borrowers Need!

By: Dylan Walter, Sr. Field Examiner

Clients face two types of fraud risks: 1) employees who misappropriate assets and 2) those who “cook the books” to make the company look healthier than it is. Ask borrowers if they’ve prepared such a profile that reflects both of these fraud risks. After all, managing fraud risk is instrumental, to not only your customers’ success, but also yours.

The checklist below can help you create your own customized fraud risk profile for each of your borrowers. The left side identifies some of the most common risks. The right side shows a borrower’s relative risk on a scale from 0–5. A score of 0 means there’s no risk. A score of 5, however, indicates an imminent threat of material loss or misstatement with very few controls in place to mitigate risk.

If you’re not sure about the appropriate rating for any factor, contact your customer for more information.

Fraud Risk Checklist

 

Potential fraud risk factor

Rating

(0-5)

Excessive pressure. Evaluate if conditions exist that may tempt employees to massage the numbers, such as expiring credit lines, deteriorating financial performance and performance-based compensation.

 

Informal attitude. Determine whether fraud risk management is a top priority or is done simply to satisfy external auditors or the board of directors. Evidence of having formal fraud risk policies that includes internal audits, computer passwords, surveillance cameras, whistleblower hotlines, formal job descriptions, and corporate codes of conduct.

 

Changes. Pinpoint any major changes — such as updated accounting software, a new product line, a pending merger or acquisition, insurance claims or lawsuits, or IRS audits — that could offer opportunities to conceal fraud or result in a significant monetary loss.

 

Volatile industries. Assign higher scores to volatile industries that have high growth and failure rates, significant competition, strict legal regulations, and imminent changes in product obsolescence and technology.

 

Unusual activities. Look for unusual activities that may warrant additional investigation, such as the use of complex business transactions, accounting estimates, competitive bidding, proprietary intellectual property, offshore activities, related-party transactions, and contingent assets or liabilities. Also, look beyond the footnote disclosures for clarity.

 

Personal problems or conflicts of interest. Be wary of employees who have close relationships with suppliers, co-workers, competitors and customers — or financial interests in other companies. Also look for employees who have problems with addiction, gambling, or legal and credit problems.

 

Internal turnover. Consider whether the business has changed owners, managers, accountants or attorneys, or lenders in the last five years. Unreasonable demands or frequent disputes could signal that the company is in crisis.

 

Cash. Gauge how much cash the business has on-site and where it (and the company checkbook) is stored. Mitigate risk by performing background checks on employees who might handle cash, independent bank statement reconciliations and physical controls.

 

Receivables. Look for a stable relationship between sales and receivables (as well as receivables and total assets) over time. And evaluate write-offs and aging schedules.

 

Inventory. Evaluate controls over shipments, inventory receipts and write-offs. Consider ways a fraudster can pilfer inventory or manipulate records for their own personal gain. Ask your CPA to perform physical inventory counts annually to identify discrepancies with perpetual inventory records.

 

Fixed assets. Ask whether the business prepares a detailed fixed asset register and tags high-value assets, such as printers, scanners, phones and computers. Keeping a routine maintenance schedule can help the client track the whereabouts and condition of each item.

 

Payables. Look for payable fraud schemes, such as kickbacks and phantom vendors. Borrowers must take steps — such as confirming vendor balances and duplication of duties — to mitigate payable fraud risk.

 

Improper revenue recognition. Evaluate the business’s policy for recording sales. Some may prematurely book sales to either boost earnings or delay recognition to minimize taxable income. Also look for fictitious customers and excessive refunds, returns, discounts and voids.

 

Lax expense review. Ask the management team how they verify fees paid for services, such as rent and professional fees — because there’s no physical evidence of the expenditure, except a contract or invoice. Strong customers will also have formal expense report approval procedures.

 

Fraud risk profiles can help you identify your borrowers’ weaknesses, and expose which areas warrant additional due diligence. Often, lenders and borrowers will independently rate the company and then compare the results. This exercise can serve as a springboard for discussing risks, opportunities and perception gaps with your customers.

Contact Us

ABLFreed Maxick’s Asset Based Lending division is one of the nation’s largest providers for field exam outsourcing services. If you have questions regarding your asset based lending issues, give our Buffalo NY office a call at 716.847.2651, or you may contact us here.

 

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The 101 on Depreciation Expense and Fixed Assets

By: Rodney Collins

Fixed assets are a common source of loan collateral. But when a business has to account for equipment, plant and property, it can be tricky. IRS and FASB rules allow some leeway when deciding whether to expense or capitalize a purchase, as well as choosing the depreciation methods.

To expense or capitalize … That is the question

Deciding whether to expense or capitalize a purchase is subjective. If an asset is above a certain dollar amount (which will vary from company to company) and is expected to have ongoing use to the company beyond the current period, it technically should be reported on the balance sheet and then gradually depreciated over its expected lifespan.

On the other hand, some purchases are expensed in the current period, typically as maintenance or supply and repair expenses. Immediately expensing those purchases will lower the borrower’s profits compared to capitalizing purchases.

Keep in mind that repairs and maintenance are “hot buttons” with the IRS. Internal Revenue Code Section 263(a) classifies maintenance and repair spending as a “capitalizable improvement” if it lengthens the duration that the client can use it as an asset, adds to an asset’s value, or adapts an asset to a different use.

Choosing book or market value

When a client capitalizes a fixed asset, the amount shown on the company’s balance sheet reflects the original purchase price minus any depreciation expense that has been taken over the asset’s life. If the borrower uses accelerated tax depreciation methods for book purposes, the balance sheet may significantly understate a fixed asset’s ongoing value to the company.

A gift from Uncle Sam

The American Taxpayer Relief Act, or simply ATRA, allows businesses to write off up to $500,000 of qualified fixed asset purchases in 2013. The write off is subject to a dollar-for-dollar phase-out above $2 million. For any purchases above that $2 million, clients can write off half the purchase price under ATRA’s bonus depreciation provision.

Certain federal stimulus programs have been permitting expanded tax depreciation allowances since 2008. So if a borrower uses tax depreciation methods for book purposes, the balance sheet may report zero value for items that were purchased over the last six years. The good news is that many of these fully depreciated items will continue to benefit the client for years to come.

Moreover, profits can be quite low in the year that Section 179 or bonus depreciation deductions are taken.

Understand the law

In order to fully understand what’s happening with a borrower’s fixed assets and depreciation methods, you need to dig deeper. Fixed asset appraisals are essential if clients pledge them as loan collateral. If your bank accepts fixed assets at face value, you might make some bad decisions about the profitability, collateral values, and overall creditworthiness.

Freed Maxick’s Asset Based Lending division is one of the nation’s largest providers for field exam outsourcing services. If you have questions regarding your fixed assets, depreciation expenses or any other asset based lending issue, give our Buffalo NY office a call at 716.847.2651, or you may contact us here.

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What to Keep in Mind When Dealing with FBAR Penalties Negotiations

By: Howard Epstein

While FBAR reporting requirements have been in place since 1970, the significant revisions to the form (in 2008) and associated penalties for non-compliance are what have garnered the attention of many taxpayers and practitioners over the last few years. The IRS has taken steps to allow individuals who have not filed timely in the past to come forward- the Offshore Voluntary Disclosure Program (OVDP), and the Streamlined Program.

Negotiating FBAR Penalties

Those who decide to voluntarily step forward need to keep a few things in mind in negotiating penalties. Here are some essentials you should be discussing with your CPA as you negotiate FBAR penalties.

·         Penalties can be astounding – While FBAR penalties can be unjust, remember that the IRS bases penalties on the account size. When dealing with FBAR penalties, there is tremendous risk and you must take this seriously. These penalties are unlike many other IRS penalties out there.

·         There is no “good” penalty- The “get off lightly” FBAR penalty is $10,000 per foreign account. The penalty is assessed if the IRS feels you did “not willfully” fail to file your FBAR and you made an “innocent mistake”.  For example, if you have six foreign accounts that you don’t report on your FBAR, the IRS can penalize you $60,000 per year!  The “disastrous penalty” is 50% of the account value and can be assessed if the IRS feels you intentionally or “willfully” avoided filing your FBARs. Similarly, the “disastrous” FBAR penalty can also be assessed multiple times meaning the IRS can assess FBAR penalties that can potentially wipe out your entire net worth! One important point is that there are certain penalty mitigation provisions that the IRS can apply based on the facts and circumstances of your case.  But you should also be mindful to the fact that a “willful” violation can result in jail time! These matters should not be taken lightly. 

·          “Burden of proof”- It is up to the taxpayer to prove non-willfulness or reasonable cause. Once you are in the program you are obligated to pay the penalty the IRS deems necessary.  There may be certain strategies that can be employed such as entering a OVDP or Streamline program and then “opting-out”. These are options that should be weighed heavily and discussed thoroughly with a CPA. 

·         You can appeal to a higher authority- Yes, you can “claim” you day in court, but you should exhaust all administrative remedies first. Or you can attempt to pay all assessments, and then file a suit for refund in US District Court. Again this option should be thoroughly discussed with a CPA. Exhausting administrative remedies within the IRS appeals process is usually the best option. Our experience shows that clients don’t have to pay FBAR penalties until the end, and can be successful with alternative administrative remedies, making tax court unnecessary.

·         The OVDP Route- Unlike past Voluntary Disclosure Programs, the main purpose of the FBAR OVDP is to create a consistent and standardized format for dealing with the potentially ugly or disastrous FBAR penalties. This is why it is important to use the OVDP as a starting point to minimize your FBAR penalty exposure. By initially going through the OVDP, you will get a much more favorable review when discussing your potential “FBAR reasonable cause” position.   Outside the OVDP, the ground is much less sturdy and you will find the IRS does not treat people who they catch (whether innocently or those who made an ill-advised “soft” or “quiet” disclosure) as favorably as those who have come forward under the OVDP. The main advantage of the OVDP is that it can serve as a springboard to limit the potentially staggering penalties to 27.5% of your highest balance and then provides you a mechanism to “opt-out” of the OVDP and work with a revenue agent to apply the various Penalty Mitigation provisions discussed above. 

Contact Us

At Freed Maxick, we try to gain an understanding of the issues you face. We have considerable experience in helping taxpayers that have not been historically compliant, to navigate the IRS guidelines and minimize their potential penalties through the various Voluntary Disclosure Programs that are available. We work with individuals and businesses in the U.S. and throughout the world, on addressing all of their International tax issues. For a confidential discussion of your FBAR situation, call us at 716.847.2651 (or toll free at 800.777.4885), or complete and submit the online form for more information.

 

If you’re not familiar with the term FBAR by now, then you are among the few that are able to resist blogs, media, television and newspapers. FBAR’s have been all over the news, as the IRS has a new focus on FBAR penalty enforcement. W hen determining if you should file the FBAR, all foreign (non-US) financial accounts must be aggregated using their highest value during the calendar year.  A common misconception is that if a single account is under $10,000, no filing is required and this may not necessarily be the case.  Additionally, filings are required even if the foreign account does not produce income.

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