Rumors of Puerto Rico Act 22 Demise Put to Bed by Secretary of Economic Development

By William L. Blum

Subsequent to the October, 2014 issuance of a report commissioned by Puerto Rico’s Governor Alejandro Garcia Padilla that analyzed the U.S. Commonwealth’s tax system, rumors swirled that the benefits of Puerto Rico’s unique income tax exemption system for stateside transplants, known as “Act 22,” might soon come to an end.  No wonder, since the report, produced by KMPG and contracted for by Puerto Rico’s tax collection agency known as “Hacienda,” suggests that repeal of Act 22 is warranted and would simplify tax reporting and increase compliance.  (Access the report at

The report also recommended that Puerto Rico Act 20, a program that encourages service business relocation to Puerto Rico in exchange for job creation and other economic benefits, should require certain minimum thresholds of activity in order to ensure that its benefits outweigh its “tax expenditure” costs.

But not so fast!  According to a February 5, 2015 statement by Puerto Rico’s Secretary of Economic Development and Commerce, Alberto Baco-Bagué, “KPMG’s [Act 22 repeal] recommendation will not be adopted . . . because it is not consistent with the Commonwealth of Puerto Rico’s public policy on economic development.”  The Secretary also points out that individuals who move to Puerto Rico and benefit from Act 22’s income tax exemptions nevertheless contribute substantial tax revenue to the Commonwealth based on their non-qualifying income streams and payments of other taxes.

Secretary  Baco-Bagué agreed with a different finding of the report regarding Act 20 — that the incentive laws should be periodically evaluated to ensure that they are achieving their economic development purposes.  But he pointed out that current Act 20 policies have for the last two years already required that participating businesses hire a minimum of three employees.

Act 20 and Act 22 have sparked great interest among U.S. taxpayers and tax planners since their enactment in January, 2012 and especially in the last two years.  Act 20 offers service based businesses, including those owned by U.S. residents, a 4% tax rate, very similar to the rate offered by similar programs in the U.S. Virgin Islands and, of course, far less than stateside corporate tax rates exceeding 35%.  Act 22 is unique in that it permits U.S. taxpayers who relocate to Puerto Rico to avoid U.S. and PR taxes on capital gains accrued after the move and on certain types of interest and dividend income.  No other state or territory offers this type of incentive to U.S. taxpayers.

Solomon Blum Heymann LLP advises U.S. taxpayers on how to take advantage of the tax incentive programs in Puerto Rico and the U.S. Virgin Islands, including practical advice, legal opinions, and referrals to local professionals who can help taxpayers achieve very low tax rates that are not available elsewhere.

UPDATE: IRS Offshore Streamlined Filing Procedures and OVDP

By Robert A. Ladislaw, Esq.

Updated Forms for Offshore Streamlined Filing Compliance Procedures – January, 2015

The IRS has recently issued updated certification forms in connection with its Offshore Streamlined Filing Compliance Procedures (the “Streamlined Procedures”). The updated forms include a statement from the IRS that taxpayers “must provide specific facts explaining [their] failure to report all income, and pay all tax and submit all required information returns including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.”

The Streamlined Procedures are useful for certain U.S. taxpayers who have not disclosed their foreign assets or income, but did not act willfully. See our January 14, 2015 blog-post for more information.

In order to qualify for the Streamlined Procedures, the Internal Revenue Service (“IRS”) requires taxpayers to certify that their failures to report offshore assets and income, and pay the resulting tax, were not willful. This updated certification form is in response to the perception of the IRS that taxpayers were attempting to enter the streamlined program with little or no explanation to support a finding of non-willfulness.

Offshore Voluntary Disclosure Program (“OVDP”)

As discussed in our January 14 blog-post, the OVDP is recommended for non-compliant U.S. taxpayers who are unable to show that they did not act willfully. Until now, the position of the IRS was that it could rescind the current OVDP at any time. However, on January 28, the IRS announced in IR-2015-9 that the current OVDP would stay open indefinitely until otherwise announced.

There have been over 50,000 disclosures within the OVDP, and the IRS has collected more than $7 billion since the first OVDP commenced in 2009.

Solomon Blum Heymann LLP has long and extensive experience with international tax disclosures and tax dispute resolution. We have been successfully representing clients within the IRS offshore voluntary disclosure programs since 2009. We guide clients through the process of choosing the option that is most appropriate for them in their circumstances, and assist them to ensure a successful filing that will not be rejected by the IRS.

Please contact Robert Ladislaw or William Blum with any inquiries.

Tax Court Decides for USVI Taxpayer where Residency Claim was Disputed by IRS

By William Blum

On January 29, 2015, the United States Tax Court, in Estate of Sanders v. Commissioner (Docket No. 4614-11, 144 T.C. 5) sided with a taxpayer who argued that because he filed his return with the USVI as a bona fide resident, the statute of limitations on assessments had run and the IRS could not assess additional tax liability or penalties against him.

This is the most recent in a series of cases relating to the USVI residency issue and the IRS’s largely unsuccessful efforts to attack the USVI Economic Development Commission (EDC) tax incentives authorized by Congress in the 1960’s. Code section 934 effectively gives the USVI the authority to reduce the federal tax liability of USVI taxpayers with respect to USVI source (or effectively connected) income. The Territory has, for decades, used this authority by providing tax incentives for individuals and companies who engage in appropriate businesses, usually those that export goods or services, and who hire the requisite number of local employees, usually 5 to 10. For an individual to be eligible for the incentives, which provide a 90% income tax exemption among other benefits, the individual must be a “bona fide” resident of the USVI.

Beginning in the early 2000’s the IRS perceived that the incentives were being abused and began a program of audits of persons claiming USVI residency. As it turned out, the great majority of these taxpayers were “bona fide residents” of the USVI and were therefore entitled to pay their federal tax to the USVI minus any applicable EDC credits. But the IRS nevertheless challenged taxpayers in hundreds of cases, mostly for tax years 2001 through 2005. And for reasons that are unclear, the IRS failed to seek extensions of the statute of limitations while conducting its audits of these taxpayers. Instead the Service relied on the idea that if the taxpayers did not file US returns with the IRS, there would be no applicable statute of limitation even though the taxpayers had filed their returns with the USVI as directed by various IRS publications and pronouncements.

In the Sanders case, the Tax Court found that the taxpayer had made a legitimate effort to establish residency in the USVI before the end of 2002 and was therefore a bona fide resident of the USVI in that year and subsequent years. As a result, his filing of a tax return with the USVI was sufficient to start the running of the statute of limitations. Because that return was filed in 2003, the usual 3-year or 6-year statute had already run by the time the IRS made an assessment in 2010 – thus handing a victory to the taxpayer.

The Court analyzed Mr. Sanders’ facts in the context of rules set forth in previous cases on this subject, primarily, the Sochurek, Vento, and Appleton cases. Both Vento and Appleton were recent USVI cases also decided in favor of the taxpayer. The difference in Sanders, however, is that unlike earlier cases such as Appleton where the IRS had stipulated to the taxpayer’s residency, in Sanders the taxpayer’s claim of residency was disputed.


The Sanders court followed Vento in analyzing the factors to determine a bona fide residency claim. These 11 factors, first set forth in Sochurek, are divided into four groups under Vento: taxpayer intent; taxpayer physical presence; social, family, and professional relationships; and taxpayer’s own representations. Finding that the taxpayer met all of these four groups of factors, the Sanders court declared that the taxpayer “was a bona fide resident of the USVI for tax years 2002-04 and he properly filed tax returns with the VI [Bureau of Internal Revenue] for those years.” As a result the court found that the Code section 6501 period of limitations has expired before the IRS mailed its notice of deficiency.

There are still several more cases with similar fact patterns yet to be decided by the Tax Court, and many more that have not yet even been filed. After Sanders, it will be interesting to see how many new the cases the IRS will decide to pursue with vigor. So stay tuned . . . .

ALERT: Non-U.S. banks are now collecting data from U.S. customers pursuant to FATCA. U.S. persons with undeclared foreign accounts should become U.S. tax compliant as soon as possible.

By Robert A. Ladislaw, Esq.

If you are a U.S. citizen or a U.S. Green Card holder (a “U.S. Person”) with unreported foreign financial assets or income, you should take steps to get into U.S. tax compliance as soon as possible.

Pursuant to the Foreign Account Tax Compliance Act (“FATCA”), the United States has entered into Intergovernmental Agreements (“IGA’s”) with over 100 countries that are signed or agreed upon in substance. The IGA’s are in addition to the tax information exchange agreements that were already in place with many countries. Each IGA requires banks located in the signatory country to obtain certain information from their customers who are U.S. Persons. This information will be provided to the United States Internal Revenue Service (“the IRS”).

In order to comply with FATCA and their home country IGA, banks located outside of the United States are now asking their customers who are U.S. Persons for the following:

  1. to provide Form W-9, containing their social security number;
  2. to provide copies of their foreign bank account reports (“FBARs”) that have been filed for the years 2008 through 2013, or, alternatively, confirmation that the customer has entered the Offshore Voluntary Disclosure Program (“OVDP”, to be discussed below); and
  3. to sign statements saying that they are in compliance with all tax laws, and authorizing the bank to provide information about their accounts to any tax authority.

The banks are threatening to close or freeze the bank accounts of customers that do not comply with these requests.

Tax authorities in countries with a “Model 1” IGA will collect the information from the local banks and report the information to the IRS. Banks located in countries with a “Model 2” IGA will report directly to the IRS.

As foreign banks will now be sharing information with the IRS, U.S. Persons with undeclared financial accounts and income outside of the United States should take advantage of one of the available options to become U.S. tax compliant before the IRS contacts them. If such an individual is examined by the IRS before they enter one of the available programs, the individual may face severe civil penalties, or even criminal prosecution in certain instances. In addition, as indicated above, U.S. customers who are unable to confirm to their foreign banks that they have filed their FBAR’s or have entered the OVDP may find that their accounts will be closed or frozen.

The good news is that there are options available for U.S. persons with undeclared foreign income or assets (from legal sources) who have not yet been contacted for examination by the IRS:

  1. Non-compliant taxpayers that acted willfully to avoid reporting and taxation may enter the offshore voluntary disclosure program (“OVDP”).
  2. Certain U.S. Persons who can show they did not act willfully are eligible to file under the “offshore streamlined procedures.”

A taxpayer entering the OVDP must file eight years of delinquent or amended tax returns and FBARs, along with other documents and disclosures, and pay penalties. Generally, the most significant of the penalties within the OVDP will be the “miscellaneous” offshore penalty of 27.5% (or 50% in some cases) of the highest value of the taxpayer’s offshore assets during the eight year period. The taxpayer must also agree to cooperate with the IRS and Department of Justice, if requested, by providing information about financial institutions and other facilitators who helped the taxpayer establish their offshore arrangements. In return, the taxpayer will receive a formal closing agreement with the IRS and the IRS will not assess any of the several potential civil penalties that might otherwise be imposed. Examples of such penalties include the fraud penalty, penalties for the failure to file international disclosure forms, and the draconian and confiscatory “willful” penalty for failure to file the FBARs. In addition, the IRS will not seek criminal prosecution.

Taxpayers who can show they did not act willfully can often file under the less costly and less time consuming offshore streamlined procedures. Under the streamlined procedures, a U.S. Person who is a nonresident of the United States can file delinquent or amended tax returns for the previous three years, FBARs for the previous six years, and pay no penalties. Residents of the United States can file amended returns for the previous three years, FBAR’s for the previous six years, and pay a penalty of 5% of the highest value of their offshore financial assets during the six year period. Such taxpayers will be subject to no other penalty. Of course, taxpayers filing under the streamlined procedures must show that their failures were not willful.

Taxpayers who have reported all of their income from offshore sources, but who have failed to file FBARs or other required international forms, can file such forms in accordance with delinquent submission procedures, often without penalty.

Our firm has long and extensive experience with international tax disclosures and tax dispute resolution. We have been successfully representing clients within the IRS offshore voluntary disclosure programs since the first one was announced in 2009. We guide clients through the process of choosing the option that is most appropriate for them in their circumstances, and assist them to ensure a successful filing that will not be rejected by the IRS.

Please contact Robert Ladislaw or William Blum with any inquiries.

Luca Cantelli Joins Solomon Blum Heymann LLP: Firm Adds BVI and Cayman Corporate and Advisory Services

Solomon Blum Heymann LLP announced today that Luca Cantelli, Esq. has joined the firm as Counsel. Mr. Cantelli has considerable experience in domestic and cross-border wealth and tax planning, asset protection, trust and estate administration and anti-money laundering laws and regulations. He spent the last two and half years in the Cayman Islands as Counsel and Managing Director of a fiduciary services and entity formation provider, FINAB – International Corporate Management Services, Ltd. In addition to being a member of the New York bar, where he practiced law before joining FINAB, Mr. Cantelli is admitted to practice law in England and Wales and in the British Virgin Islands.

Mr. Cantelli’s cross border banking, trust and anti-money laundering experience provides additional experience and depth to or firm’s Corporate and Transactional, Banking, and Private Wealth Management Practice Groups.

Solomon Blum Heymann partner Robert Solomon commented that, “With this exciting addition, our firm now has the ability to represent our clients in a number of new ways, including the formation of companies in jurisdictions such as the Cayman Islands and the British Virgin Islands and the representation of companies with regard to British Virgin Islands law, a natural extension of our existing transactional and tax practice and our services and office in the U.S. Virgin Islands.”

Partner William Blum added, “Solomon Blum Heymann can now provide British Virgin Islands legal opinions and other legal advice directly from our New York City offices, which is a great complement to our current international capabilities in the areas of U.S. Virgin Islands law and Marshall Islands legal opinions.”

In addition to his legal experience, Mr. Cantelli has held senior positions in international banks including Banco Comercial Português (formerly Banco Português do Atlantico) and Banco De La Provincia De Buenos Aires. He has an LL.M. in Taxation from New York Law School, a Juris doctor from the University of Siena and an MBA from Hofstra University. He is a member of the Society of Trust and Estate Practitioners (STEP), a certified anti-money laundering specialist (CAMS) and an accredited director (Institute of Chartered Secretaries and Administrators). Mr. Cantelli is fluent in Italian, Spanish and Portuguese, and conversant in French.

Solomon Blum Heymann is a law firm with offices in New York City and St. Thomas, U.S. Virgin Islands. The firm provides sophisticated and comprehensive legal services for domestic and international businesses and families in several practice areas. These include corporate and securities law, international and domestic tax law, business start-ups, transactional law, estate planning and probate, commercial litigation, and real estate. The firm was recently selected by U.S. News & World Report as a “Best Law Firm” for Trusts and Estates Litigation in the New York Metropolitan Area.

Solomon Blum Heymann is affiliated with Kellerhals Ferguson Kroblin LLP of St. Thomas, U.S. Virgin Islands.

U.S. News & World Report Ranks Solomon Blum Heymann LLP a “Best Law Firm” in the New York Metropolitan Area for Trusts and Estates Litigation

Solomon Blum Heymann LLP announced today that it had been selected by U.S. News & World Report as a “Best Law Firm” for Trusts and Estates Litigation in the New York Metropolitan Area. In achieving the highest possible ranking, “No. 1 Tier”, U.S. News recognized the firm for professional excellence with persistently impressive ratings from clients and peers. As stated by the editors of U.S. News “achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.”

The top tier U.S. News ranking for the New York Metropolitan area in Trusts and Estates Litigation was accompanied by a high ranking for the firm’s Trusts and Estates Law practice as well.

Andrew W. Heymann, chair of the Solomon Blum Heymann LLP Private Wealth Management Practice Group said, “We are very pleased with the U.S. News and World Report designation and it is indicative of the commitment and professionalism of the members of our Private Wealth Management Practice Group in representing the interests of our clients. Over the past few years, we have focused on adding to the depth of this practice area and our group was much enhanced when Charles Gibbs, Esq. joined our firm.”

Mr. Gibbs is listed in U.S. News’ Best Lawyers in America, which is limited to the top 4% of practicing attorneys in the country. His resume includes a long list of success in trust and estate matters, including some of the most high-profile disputes of our time, including recent litigation involving the Estate of Huguette Clark. For thirty years, Mr. Gibbs was also a fellow of the American College of Trust and Estate Counsel (“ACTEC”) and Chair of the Fiduciary Litigation Committee and subcommittee on Will and Trust Contests.

Solomon Blum Heymann is a law firm with offices in New York City and St. Thomas, U.S. Virgin Islands which provides sophisticated and comprehensive legal services for domestic and international businesses in several practice areas. In addition to estate planning and probate, these include corporate and securities law, international and domestic tax law, business start-ups, transactional law, commercial litigation, and real estate.

Preeminent trusts and estates counsel, Charles F. Gibbs, joins Solomon Blum Heymann LLP as Senior Counsel, Private Wealth Management group

Solomon Blum Heymann LLP is very pleased to announce that Charles F. Gibbs has joined the firm, effective April 1, 2014. Mr. Gibbs will hold the position of Senior Counsel, Private Wealth Management group. Previously, Mr. Gibbs was a partner at Holland & Knight and a leader of its national trusts and estates litigation practice.

Mr. Gibbs brings considerable experience in trust and estate dispute resolution and litigation, trust and estate administration, and estate planning. He and our partners have previously worked successfully in several international, multi-jurisdiction estate disputes (involving U.S., European, Asian, Pacific Rim and Caribbean nationals and entities).

Mr. Gibbs’ resume includes a long list of success in trust and estate matters, including some of the most high-profile disputes of our time (such as recent litigation involving the Estate of Huguette Clark). A partial listing of some of his professional accomplishments follows:

  • Adjunct full professor teaching wills, trusts and estates at New York Law School for many years, and at the University of Pennsylvania Law School.

  • Fellow of the American College of Trust and Estate Counsel (“ACTEC”) for thirty years, a Regent for six years, past Editor of ACTEC’s quarterly journal, and Chair of its Fiduciary Litigation Committee and subcommittee on Will and Trust Contests.

  • Chair of the Committee on Estate Litigation of the New York State Bar Association’s Trusts and Estates Section, and as Chair of the Committee on Trusts, Estates and Surrogate’s Courts of the Association of the Bar of the City of New York.

  • Columnist on Estates, Trusts and Surrogate’s Practice for the New York Law Journal for twenty-eight years, and has written and lectured extensively on trust and estate matters.

  • Recognized every year since 1991 in The Best Lawyers in America guide (Trusts and Estates; Litigation – Trusts and Estates) and since 2006 in New York Super Lawyers magazine.

FATCA and the IRS Voluntary Offshore Disclosure Program: What to Do Now to Mitigate Negative Effects

The Foreign Account Tax Compliance Act (“FATCA”) was enacted into U.S. law in 2010. The purpose of the law is clear – to encourage increased tax compliance for U.S. persons (citizens, green card holders, and other resident aliens) holding undeclared offshore accounts. The law was designed to be phased in over a number of years with a key aspect of FATCA to take effect beginning July 1, 2014. On that date, U.S. financial institutions and other payors of passive income will be required to withhold 30% of such payments to recipient financial institutions that are not in compliance regardless of the intended recipient of the payments.

This heavy incentive for foreign financial institutions to comply means that the names of many U.S. taxpayers with accounts at such institutions are being transmitted to the Internal Revenue Service (“IRS”) currently, or will be in the near future. As a result, U.S. persons with previously undeclared offshore assets or income should seriously consider entering into IRS’s Offshore Voluntary Disclosure Program (“OVDP”), or otherwise taking steps to become compliant by amending previously filed U.S. tax returns. For such taxpayers, now is the time to become compliant on a voluntary basis to avoid future higher levels of interest and penalties that in some cases are confiscatory. If a taxpayer instead waits until the IRS or other taxing authority contacts them, the consequences are likely to be substantially more severe.


The FATCA withholding will apply to the most common types of income, including interest, dividends, rents and royalties and most other income payments. In addition, effective January 1, 2017, proceeds from sales of securities in U.S. based accounts and certain loan repayments from U.S. borrowers will also be subject to the 30% FATCA withholding rate on the gross proceeds, absent compliance.

The impact of FATCA for foreign financial institutions is that they must register with the IRS and comply with all FATCA reporting and certification rules. The rules require these companies to identify all of their customers who are U.S. persons, and report information regarding these individuals and legal entities to the IRS either directly or through their home country fiscal authorities.

The penalty for a foreign financial institution failing to comply with the FATCA rules is that all of the income payable from the U.S. to the foreign financial institution (even if the income is beneficially owned by a customer of the bank) will be subject to the 30% FATCA withholding. In addition, as of January 1, 2017, all payments of proceeds from within the United States of sales of securities that generate interest or dividends (including certain loan repayments) will be subject to the 30% FATCA withholding.

It is important to keep in mind that the definition of a foreign financial institution is very broad and designed to cover a wide range of companies, not just retail and investment banks.  Besides banks, the definition of a FFI may include non-U.S. venture capital funds, private equity funds, and certain foreign trusts.

Despite objections, non-U.S. financial institutions and foreign governments are moving to comply with FATCA in order to avoid the onerous withholding on payments from within the United States. In order to encourage compliance with FATCA, the U.S. government is negotiating as many agreements as it can with foreign tax collection agencies. These intergovernmental agreements (“IGAs”) are designed to override secrecy laws and they require FATCA compliance by financial institutions located within the signatory country. It is the IRS’s position that these IGAs do not rise to the level of a treaty requiring U.S. Congressional approval so, unlike tax treaties, that can take years to be ratified, the IGAs take effect as soon as the foreign government’s approval process is complete.

There are three IGAs that are currently in force, one with Japan, one with Mexico and one with Germany. In addition, another 47 IGAs have been signed or substantively agreed and are awaiting domestic approval, including those with British Virgin Islands, Liechtenstein, Switzerland, Luxembourg, Gibraltar, Jersey, Guernsey, Isle of Man, Bermuda, and the Cayman Islands. Another 22 IGA’s are under negotiation, including those with Brazil, the Bahamas, Russia, Panama, Cyprus, Israel, Hong Kong, Seychelles, Singapore, and Curacao.

Even though an IGA might not yet be in force in a particular country, many retail and investment banks are now complying with FATCA in anticipation of ratification. There have been notices sent to U.S. customers from banks in countries such as Bermuda, Switzerland and Israel and many other countries indicating that these banks will begin reporting the U.S. person’s account information to the IRS.

As discussed in our prior article, Is this the End of Banking Secrecy, the goal of all of this is to prevent U.S. taxpayers from hiding money in offshore accounts for the purpose of U.S. tax evasion.  While FATCA is clearly aimed at bad actors, the law casts a very wide net. For example, under FATCA, all U.S. persons with “financial assets” outside of the United States over a minimum threshold must annually report the details of their assets on Form 8938 which is required to be attached to income tax returns. Form 8938 in some cases duplicates information that is required to be reported on the Foreign Bank Account Report (“FBAR”) that must also be filed each year.

FATCA rules force previously noncompliant U.S. taxpayers to bring their offshore assets “out from the shadows”, by requiring their foreign financial institutions to report to the IRS (directly or through their home country fiscal authorities) regarding their U.S. customers. As indicated, many foreign financial institutions have already sent notices to their U.S. customers that they will commence reporting their information to the IRS. Those banks that are not already complying with FATCA are likely to start soon.


In conjunction with FATCA, the IRS is currently administering the OVDP for U.S. persons with previously undisclosed assets offshore. Sometimes informally referred to as “Amnesty”, the OVDP requires noncompliant taxpayers to file corrected income tax returns and foreign asset disclosure forms for the previous eight (8) years, and pay back taxes, interest, certain income tax penalties, plus an “offshore” penalty of 27.5% of the highest value of assets outside of the U.S. during the 8 year period (subject to reduction in certain instances). In exchange for the taxpayer voluntarily coming forward and agreeing to these terms, and for providing a significant volume of information regarding the non-U.S. assets held (designed in many cases to identify their professional advisors), the IRS agrees not to pursue criminal prosecution and any of the other penalties that are potentially applicable to undisclosed foreign assets including the onerous “willful failure to file and failure to pay” penalties. If the IRS has already contacted a noncompliant taxpayer, the contacted taxpayer will generally be ineligible to participate in the OVDP.

An example of an onerous willful failure penalty that may be avoided by entering the OVDP is the penalty for the willful failure to file the FBAR.  For each undeclared offshore account, the U.S. person can be penalized up to 50% of the highest balance in the account for every year it is undeclared, without limit other than the six (6) year statute of limitations applicable to this penalty. If applied, this penalty alone can easily exceed the value of the undisclosed foreign account. Since the civil penalties are not limited to the value of the undisclosed accounts it is possible that the IRS could pursue any other assets of the taxpayer whether they are held in the United States or elsewhere in the world.

The FBAR and Form 8938 as discussed above are just two examples of the blizzard of forms that U.S. persons are required to file to report their offshore assets and income. Other examples include Form 5471 for controlled foreign corporations, Form 8621 for passive foreign investment companies, Form 8865 for controlled foreign partnerships, Form 8858 for foreign disregarded entities, and Forms 3520-A and 3520 for foreign trusts and gifts from foreign persons. The penalties for the failure to file each one of these forms are potentially significant.

Of course, U.S. persons living outside of the United States, or with non-U.S. assets or income, should not delay in confirming that they are in compliance with all U.S. international tax and disclosure rules.


As a result of FATCA, especially the key provisions that are taking effect this year, U.S. persons should assume that the IRS will eventually discover their previously undeclared offshore assets and income. Therefore, it is imperative that such persons contact an international tax professional to assist them with entry into the OVDP, or to otherwise come into U.S. tax compliance.  Unless this is done before the taxpayer is contacted by the IRS, the likelihood of criminal prosecution or extremely onerous civil penalties will substantially increase.

Solomon Blum Heymann provides a full range of legal services for businesses and individuals, especially those with international investments and businesses, including in the areas of taxation, corporate law, securities, and estate planning. Our tax department has substantial experience in practice before the IRS and state tax authorities, including with FATCA, OVDP, and other provisions aimed at non-compliant taxpayers.

Cristina Salvador, William L. Blum and Robert A. Ladislaw, IPBA Journal, March 2012, Page 44.