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What every Indian-American should know about the IRS amnesty program

Act Now or Prepare to Face the Consequences.

April 27, Edison, NJ

HSBC probe by Justice Department and IRS was the hot topic of discussion at the Asian Indian Chamber of Commerce (AICC) Networking night on April 27 at Royal Albert's Palace , NJ

Richard J Sapinski, Lawrence S Horn, and Neel Shah, attorneys with expertise in criminal tax litigation were among the guest speakers.

They talked at length and fielded questions from an audience of about 100 business owners regarding the potential impact of the IRS's aggressive enforcement strategy on Indian-American business owners, real estate owners & bank account holders and about the process involved in doing a Voluntary Disclosure.

Probe of HSBC and its Clients

Here is what has happened with HSBC so far.

The U.S. Department of Justice has announced that HSBC India may have helped potentially thousands of Americans dodge federal income taxes. It is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the Internal Revenue Service.

The Internal Revenue Service asked a U.S. judge in Oakland, California, for permission to serve a so-called John Doe summons to get information about Americans using HSBC’s Non-Resident Indians, or NRI, services. The IRS cited the Jan. 26 indictment of client Vaibhav Dahake, who is accused of conspiring with five HSBC bankers to hide Indian accounts from U.S. tax authorities. His indictment alleges that HSBC bankers said that with an Indian account, no U.S. forms were required, he didn’t have to furnish a social security number, and no Form 1099 reporting the interest income would be filed with the IRS.

Through September, about 9,000 U.S. residents were “Premier” clients with NRI deposits of $100,000 or more at HSBC India, and only 1,391 had disclosed their accounts to the U.S. in 2009, according to a court filing by Daniel Reeves, who runs the IRS Offshore Compliance Initiatives Program.

The IRS has sent out letters to many businesses that may be considered as a wake-up call to clients of HSBC, said the lawyers.

Voluntary Disclosure Program

The amnesty program is for a limited time. The window closes on August 31, 2011.

The benefits include protection from criminal prosecution and confiscatory civil IRS penalties. The main advantage is to put it behind you and have peace of mind. The likely consequence of not entering the voluntary disclosure program includes jail time, loss of professional license, civil and FBAR penalties.

Not everyone qualifies for the program. For instance, an S corporation or a partnership does not qualify. You should not be under criminal investigation or not already known to IRS etc.

New Penalty Structure

The IRS has declared 20% accuracy penalty on undeclared taxes and a 25% FBAR penalty on the highest balance between 2003 and 2010.

Steps to avail yourself of the “Amnesty” Program

Step 1: Go to an attorney with experience in this field.

Step 2:  The attorneys will qualify and ‘pre-clear’ you (not on the IRS list, did not get the IRS letter etc.)

Step 3: The real work starts here. To put it simply, make a full disclosure. The attorneys will work with a qualified CPA to prepare the needed papers. The new 2011 initiative requires the last eight years of amended returns.

Step 4: Filing all papers and settling with IRS

Remember, once the papers are filed, every single item is audited.

In a nut shell

Fresh from its resounding victory over UBS AG that avoided U.S. prosecution by admitting it helped Americans evade taxes and disclosing client data to the investigators, the IRS is widening its net to HSBC and other banks. The IRS is following the money and is focusing on banking activities of US citizens (or green card holders or others who have been in US for an extended period) for tax evasion purposes.

You should assume that HSBC will disclose what the Department of Justice and IRS wants them to do especially for accounts less than 1 million dollars. The IRS will then use that data to pursue the next wave. This is likely to be a multiyear effort and it’s not going to stop. The IRS has a good record of successful prosecution in such cases.

So if you think you may have a problem, avail yourself of the “Voluntary Disclosure Opportunity” announced by IRS and enjoy peace of mind.

Lawrence S. Horne of Sills Cummis & Gross P.C.	Richard J. Sapinski of Sills Cummis & Gross P.C.