Vermont Bar Journal, Vol. 40, No. 2 Spring 2015, Vol. 41, No. 1 | Page 17

by John C. Newman, Esq., with Ron Morgan, Esq., and Matt Getty, Esq.

International Tax Rules Frequently
Encountered in Vermont
One of the most important functions that
a Vermont lawyer who does not concentrate in international tax law can perform
when encountering a client with international tax issues is issue spotting. This article intends to highlight ten international
tax and legal issues that our firm encounters frequently here in central Vermont.
While likely to be the domain of the specialist, having some general notions of the
flora and fauna of the international tax menagerie could be useful in advising when
the client should seek further advice.

1. FBAR Reporting
The federal requirement annually to report an ownership interest in a foreign
bank or financial account on the FBAR form
has been around since its creation by the
Bank Secrecy Act of 1970 (BSA), but you
would be amazed by the number of people who will phone you and ask what to do
about that UK bank account that they inherited from their uncle in 1986 now that
the UK bank must report the income to IRS
under FATCA (no. 2, below). As the IRS Audit Manual (“IRM”) explains,
A United States person must file an
FBAR (FinCEN Form 114, Report of
Foreign Bank and Financial Accounts)
if that person has a financial interest
in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds
$10,000 at any time during the calendar year. Failure to file this form may
result in civil and/or criminal penalties.
The civil penalties may be appealed.1
Since 2009, the IRS voluntary offshore
compliance program has provided an avenue for US citizens or lawful permanent residents (LPRs) who have defaulted on their
FBAR reporting or tax payment obligations
to bring themselves into compliance in exchange for reduced penalties. The most
recent IRS explanation of the current program can be found in IRS Notice IR-201473, June 18, 2014.2 This IRS document references the various explanatory materials
and forms needed to bring a client into this
program.
This voluntary compliance program is
doubtlessly useful for the client whose failure to comply has been intentional, rewww.vtbar.org

peated, and has resulted in substantial tax
avoidance. For clients whose failures to report accounts are unintentional and whose
unpaid back taxes are rather small relative
to their overall reported income, the cost
in professional fees, penalties, and interest
under the voluntary compliance program
is so substantial that many such taxpayers elect to make a “quiet disclosure,” by
simply filing their back FBAR reports, back
tax returns, and paying any tax, interest,
and penalties found due. In general, the
open audit period for federal income taxes closes three years after the later of the
due date for the return or the actual filing
of the tax return, when an understatement
of income is not