Thursday, August 11, 2011

Some IRS Interpretations / Applications of OVDI 2011 (8/11/11)

A member of a group to which I belong has shared the following which are key items of his talk with an IRS Hotline OVDI person:

1. The 5%, 12% or 25% offshore penalty does not have to be submitted with the Submission Requirements that are due August 31.

2. The understatement of tax and related penalties thereon are due by August 31, but the interest on the tax and penalty does not have to be included. The IRS understands that most taxpayers don't have the capability to compute interest. If you attempt to compute the interest, then that is okay too.

3. The deadline to be precertified into the 2011 OVDI is August 31 (no extension available), but (as you know) the deadline for submitting the Submission Requirements can be extended, if request prior to August 31 and meet the elements in the 2011 OVDI Q&A number 25.1.

4. The Offshore Voluntary Disclosure Letter must be filed with Philadelphia to qualify for the 2011 OVDI, but you don't have to do both the precertified and the letter prior to August 31. Only one of the two needs to be done before August 31.  [SEE THE POST BELOW INDICATING THAT THE VDL MUST BE FILED BY THE EXTENDED DATE OF 9/9/11.]

See the post below of a comment dated 8/29/11:

Roy Berg said...

I just spoke with CI out of WA DC. The agent told me that the Voluntary Disclosure Letter MUST be filed with Philly by the (new) 9/9 deadline notwithstanding having made a timely pre-clearance request.

135 comments:

  1. "The IRS understands that most taxpayers don't have the capability to compute interest."

    I hope some of the money collected is used to teach taxpayers basic math and compounding :-) Even in pre-Excel days, pre-calculator days, people could do that.

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  2. Most people have calculator and even PC, it is not a simple calculation problem.

    It is because interest rate changes over the time (even 3-4 times a year). it is how to implement the variation of interest rate into calculation.

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  3. Thanks for posting this, Jack.
    Any insight how long its taking for the pre-certification currently?
    Might it be already too late for pre-certification and rather one should just submit the disclosure letter right away?

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  4. I am getting preclearance responses back in a day or two (business days). I speculate that they have the process automated so all they have to do is entered the basic limited information on the preclearance letter and the algorithms spit out the answer and perhaps even fax back the response.

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  5. Yes, I know how IRS interest is calculated. I know it varies quarterly based on AFR, and its compounded daily, and if you want to be exact to the day you also have to take leap years into account and so on. With excel, its not that difficult, since it gives you functions to find difference in the number of days.

    Then again, we actually have tax tables for people who apparently can't do very simple algebra to get tax due after getting AGI>

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  6. My tax representative said that a pre-certification(via fax) is not required and directly submitted the OVDI letter. My letter reached on July 18th. Havent heard back. Wonder if pre-certification reduces the time for processing the OVDI letter.

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  7. Jack,
    Thanks for sharing this information and other postings on your wesbite that have been very helpful.

    Would you please clarify ...
    "The understatement of tax and related penalties thereon are due by August 31, but the interest on the tax and penalty does not have to be included. "

    Does it mean we need to amend tax returns from 2003 to 2010 by August 31st?

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  8. Another interesting distinction:
    Our office has many OVDI cases with taxpayers living abroad. For execution convenience we inquired about document executions under the POA.

    The OVDI Hotline advised our office that an Authorized Representative can sign all OVDI-related submissons (under the Form 2848 POA template proposed by the IRS), except for the Penalty Calculation Spreadsheet.

    Meanwhile, the IRS CID has rejected some OVDI Voluntary Disclosure Letter submissions signed under the POA and requested original taxpayer signatures. The IRS CID said that the OVDI civil folks are incorrect.

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  9. I just got a letter from the IRS stating that they have not received my full package though it was sent in and the check cashed on May 3, 2011. Anybody else with this experience?

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  10. Anonymous August 12, 2011 6:52 PM

    I did not have the same experience but can tell you they make mistakes at times. I was in the 2009 program and after getting a clearance letter and a revenue agent assigned began receiving collection letters from one of the service centers for two of the years covered by OVDP.No one knew how to stop it so we made payment to the service center for those two years after the agent agreed to make adjustments for them in the final settlement. That was all we could do to prevent having a federal tax lien put on me.
    Another big mistake they made: after we got the final bill we sent in payment including the in lieu of penalty. About six weeks later I got a check from the IRS in the amount of the in lieu of penalty plus they paid me interest on it. Of course I returned it to my revenue agent but what the heck! The in lieu of penalty was mid six figures.
    I guess my point is they make mistakes. Just make sure you have good documentation of your submission. You may have to validate that you sent it in. Sometimes IRS can not see the forest cause the trees are in the way.

    Anon123

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  11. does it mean your package is not complete (some forms missing) ?

    if the check was sent with the package, they should have it.

    if you missed some forms, they should have told you in the letter ?

    or OVDI is also run my machine -- it scans all the papers --- then print out letters like the one you got ?

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  12. "Under the 2011 OVDI, revenue agents will not be assigned until the taxpayer files the complete disclosure package."

    after so many months if you have not been assigned an agent, it means your disclosure is not complete.

    by the way, i have not been assigned an agent either -- but no letter from irs as of today

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  13. ij,
    How long has your package been in now? It seems like it has been a while. My process took almost 2 years from start to finish.

    Anon123

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  14. Anon123,

    Thanks for asking.

    I sent out first in April 2011, then I found some mistake and sent correction a few days later.. then I found that I should do PFIC -- and made correction again in June 2011, and sent the correction again. All together I have sent 4 mails and two checks (checks were cashed right after they got the mail)

    So far, nobody from IRS has contacted me. I did not hire CPA/lawyers -- I did it all myself -- I think the cost to pay CPA would much more than I would over pay to IRS -- I do not care about offshore tax credit -- all I just want to get it over with. Pay my due/mistake and move on.

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  15. In two minds to enter OVDI. Seeking following clarifications.
    1) Had an account in foreign country before coming to US & have been sending my US taxed savings into this account. Once money got deposited into this account, created Certificate of Deposits. So money got withdrawn and CD was created. Some money was transferred online to spouse account and again CD created there. Some money was transferred to family for thier financial stability. So bottomline is money was withdrawn but it finally landed into another account only. Now in this scenario, can this account qualify for 5% penalty.
    2) I understand that only mine and my spouse account are to be shown. No need to show parents/brother account where money was transferred to them. I don't have any authority over their accounts. Consider it as son to family gift or whatever, after all i owe them. I did not file or report any gift in US tax returns though (wasn't aware of any such reporting in this country).

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  16. Jack,

    Are there people still doing queit disclosures? Especially in really small cases (one or two fbar violations with little interest).

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  17. Does anyone know if any OVDI 2011 cases have been closed - mainly the ones who took part early after the program was announced? What kind of timeline are we looking at for the OVDI 2011?

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  18. The earliest 2011 participants would be those who filed under the 2009 program but filed after the deadline and prior to the announcement of the 2011 program. There were some 3000 of these cases. They were by default pushed into the 2011 program. I seriously doubt that many 2011 cases are closed. I submitted very early in the 2009 program and it still took almost two years to close. I think the 2011 program has more structure that will eventually speed up the rate of closing cases but I also think there are still 2009 cases moving through the system. If you recall a while back, the comissioner stated in a speech that just 2000 of the 15000 2009 cases were closed. Its a slow and tedious process.

    Anon123

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  19. anon@August 14, 2011 2:12 AM
    was it with the HSBC

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  20. I sent the final package via USPS priority mail (certified and signature required). When i log into USPS to check status, it says that no one was available to sign, so the package is sitting at the post office waiting for someone to call for redelivery or come pick it up, otherwise it will be sent back.

    Anyone face these issues before? Hopefully someone from the OVDI dept calls and gets it redelivered.

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  21. "Its a slow and tedious process"

    What happens after the package submission ?
    Is there lot of back and forth communication involved ?

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  22. Just got a call from OVDI hotline (I left a message asking my status of 2011 OVDI). The agent told me that "your package is complete and it is ready to go".

    Very happy and relieved.. now just waiting for what penalty they will impose on my RRSP.

    So if anyone is wondering what is their filing status, please just ring the hotline.. they will check for you

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  23. g11,

    don't worry about this address, it was same to my case, and it just the USPS local problem on tracking. Your package should have been in IRS office the same day when it reached to the local USPS.

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  24. Anonymous August15, 2011 12:37PM

    There should be less back and forth for the 2011 as there is no 2009 faq 35 issues to be brought up and the program requires submission of the complete package by a deadline. In 2009 people made faq 35 arguments and also the hard deadline was only to send in the submission letter. That is why I think the IRS will gain momentum in closing cases. Of course some unknowns may slow things down(opt outs). If IRS sees an issue with a submission there could be back and forth delays.

    Anon123

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  25. IJ - how did you send your package via Fedex, USPS Certified or regular mail? I am sending my package this week and was wondering whats the safest route?

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  26. i sent all in USPS, the first package was done by priority mail (because a lot papers), the following corrections were just first class mail. with check included, i knew they got it when it was cashed.

    i was worried about PFIC that i did not use any form, simply xsl file print out with my own calculation. now at least i had saved some money that would pay CPA. it was a lot paper/data into the calculation.

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  27. Hi All, I am faxing my preclearance tomorrow. As it is too late, can I include my OVDI letter with the final package itself after obtaining pre-clearance approval.

    Pls advise whether it is too late to complete the process?

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  28. @ij, good to know that your package is complete. Did you get any ETC on the entire process?

    -Anon777

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  29. To Anonymous August 15, 2011 7:28 PM

    You might consider sending the OVDI letter immediately after the preclearance acceptance fax. Then, send in the final package becore receiving the response to the OVDI letter.

    You will be good to go.

    The only concern with this is that honest answers in the OVDI letter might indicate that, despite the preclearance approval, something might disqualify you. You might have an experienced attorney review the OVDI letter. And, in preparing the original draft of the OVDI, you must provide responsive answers and not try to hide anything.

    Best,

    Jack

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  30. Anon777,

    I just got a call back from the hotline as I asked them to check if my package was complete. That is all I got. No letter and I do not know what is ETC. Can you tell me that is that ? I do not even know if I have an agent assigned.

    As Aug 31 is near, I jsut want to make I have all docs submitted.

    I can check again with hotline if I know what is ETC.

    ReplyDelete
  31. Anon777,

    I did not ask ETC -- i guess the hotline would not be able to tell. I think it is now up to the agent who is assigned to check the accuracy of my package. Hopefully, it should be done within a year or two.

    All I need to do is just wait for their rulings -- I have a lot dcos/records ready for them.

    ReplyDelete
  32. Question for ij:

    I have a quick question on PFIC. As I understand,
    gain on pfic per year is calculated at 20% of total gain and is added to total tax. What about the case
    where there is a loss. Should we deduct 20% of pfic
    loss from total tax for that year?

    Highly appreciate your help.

    Thanks

    ReplyDelete
  33. Jack,

    Can you comment on using approximations for closed accounts for which we cannot get any statements ? Will IRS agent be willing to accept approximations for smaller amounts (< $1000)

    ReplyDelete
  34. Anonymous August 16, 2011 2:13 AM

    I have had no experience with material approximations (many of the calculations require some approximations). So I can't comment other than to say that I think / expect / hope the IRS will be reasonable. That requires that the taxpayer be reasonable in order to invoke a reasonable response from the IRS. If the taxpayer does not have a reasonable basis, under all the known facts and circumstances, for the approximation, the IRS may not be reasonable as well.

    Jack Townsend

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  35. To
    Anonymous August 16, 2011 2:13 AM,

    if your bank can provide a letter that no record for this account, you can just send it to IRS. For my case, I could not get statement for year 2003, the bank issued a letter of that fact. I simply skip 2003, and IRS seems to understnad and accept (otherwise it would not be complete)

    To
    Anon of August 16, 2011 12:55 AM

    Yes, I have some years with loss on MTM. I just report 0 income. I did not use for any credit. To me, it is a WamBam job and i would rather overpay and to get quick resolve. by the way my gain and loss are all small -- it is just the penalty on base that is painful..

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  36. You can deduct PFIC MTM losses at 20%, but only to the extent of 'unreversed inclusions', i.e. previous gains on that PFIC under MTM that have not been reversed by previous losses.

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  37. Actually, this approximation is for old employer retirement account which was cashed out. Offshore employer is not very co-operative in giving response to our queries. What do you suggest we do in this case ?

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  38. ij and others:

    I need some help in PFIC. Really appreciate your
    help on this.

    1. 20% of PFIC gain for the year need to be added to total tax.
    2. I am not sure if we need to do the same thing in the case of PFIC loss, that is, 20% of PFIC loss need to be subtracted from total tax for that year.
    3. For amendeding returns, should I need to send 1040X with all the changed schedules? should I also need to send modified 1040 also in addition to above?

    Really appreciate your help on this.

    ReplyDelete
  39. anon Aug.16 2011 11:43AM

    sorry that i could not be more than helpful. as for MTM loss, i just took it. as for MTM gain, i paid tax. i was just lazy to do a quick job. for me, loss on tax (overpay) is nothing compared to FBAR penalty.

    as for amending returns, you should send 1040x with all changed schedules. you should send the original f1040 (not modified) -- you only make change on f1040x.

    some folks already post how to claim MTM loss..

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  40. ij, jack,

    I understand RRSP that you have been waiting for is some sort of retirement account. In my case, I have PPF (Public Provident Fund) which is similar to a retirement (tax exempt) account. Most of the money in this account was all earned/deposited before I came to the US.
    Indian govt rules do not permit existing PPF accounts to be renewed (after 15 years) for non-residents. Effectively I was forced cash out this account after a period of 15 years.

    I would appreciate if you can comment on whether this account can be exempt from FBAR penalty base and US income tax?

    FBAR penalty & tax on money earned prior to coming to US is unfair! And so is the FBAR penalty on already taxed funds sent home to support my parents. All along I was under the impression that since I was filing tax returns in India, I have met all my obligations of declaring all my income in respective jurisdictions. Wish US govt had made this public in BOLD LETTERS to everyone entering its borders: "BEWARE! YOUR WEALTH/EARNINGS OUTSIDE US MAY BE SUBJECT TO CONFISCATION!". It would have deterred a lot of young people from coming here and contributing to the growth of this country. Or at the very least, it would have alerted people to what they are getting in to.

    Also, I read somewhere that hedge funds are not subject to FBAR reporting. If this is true, isn't it a shame in how the rich hedge funds are treated favorably by lawmakers, but a commoner like myself have to pay heavy penalties. Some democracy we have got here!

    Apologize for the venting above. I had to get it out of my system.

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  41. I checked my status (for final package delivery) on USPS, and it says it was delivered to: AUSTIN, TX 73301.
    The strange thing is that it said it was "undeliverable as addressed", and i noticed that the zip code delivered to was changed (from 78741 as in the IRS FAQ to 73301).

    I plan on calling the OVDI hotline in a few days to make sure they received the package. I am a bit concerned that it was delivered to a different address. Anyone else facing the same issue?

    ReplyDelete
  42. anon of Aug. 16, 2011 1:48PM

    I fully understand your points, and I feel your pain. There is a treaty between US/CANADA -- so for RRSP holders we can make a tax defferal election. Of course, I was not aware and that is why I try to do it inside OVDI. I am hopeful that IRS will grant me this rather late election --otherwise, I will resent this gov and maybe this country rest of my life -- I know it is not healthy. I would have felt so bad if it were in Irqa/North Korea or even in China where I came from. But it is in US and we all believe its fairness to rich and poor (this may not be true any more). This country needs major tax reform -- it is just killing people who often use commen sense rather thand reading lenghy tax code..

    Now, back to your question on your retirement money in India, I wonder if you can make an argument on 5% penalty --because there is no activity other than being forced to cash out. I think it is a good shot.

    As for hedge fund FBAR issue, I do not know. I am not a good investor. I lost a lot money these days in my 401K -- in fact I have less money than I have put in. For me, life is more than just money, and I just want get out it of this mess -- and move on.

    Life is eqaul in a sense rich or poor we all will die -- nobody can take money to hell/heaven.

    Good luck

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  43. Foreign retirement accounts are not exempt from income or FBAR reporting, so they would be subject to penalty. US laws only recognize foreign retirement accounts as ordinary financial accounts (and the same for other countries, they don't recognize 401ks or IRAs) The only exception is that Canada and the US recognize each other's retirement accounts, so Canadian RRSP accounts are exempt from tax till withdrawal if a proper election is made. There is still FBAR reporting required for RRSPs.

    As far as hedge funds, they are exempt from FBAR reporting, but holders still have to pay taxes on income.

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  44. I absolutely agree with you... BOLD LETTERS to everyone entering its borders: "BEWARE! YOUR WEALTH/EARNINGS OUTSIDE US MAY BE SUBJECT TO CONFISCATION!"

    The word is getting out in a very unfavorable way, however. Word of mouth will have impact. I have now advised two people who think they want to immigrate to America, to give it a miss. It isn't worth it any more, especially if you have any assets or money in your home country.

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  45. Anyone has an experience declaring joint accounts in OVDI?

    If anyone has joint accounts with parents who are non-US citizens, would the base penalty be equal to the share of interest....which in this case is 1/3rd the highes aggregate in the account?

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  46. @August 16, 2011 1:48 PM
    very well said. I am in a similar situation.
    Assets bought out of post tax income earned in India before coming to US and then sold the assets
    after appreciation and taxes paid in India.
    FBAR penalty on assets earned before coming to
    US is a plunder. Is there no way to get this
    issue address. Just because we are a minority does it mean Justice has to be blind.

    ReplyDelete
  47. "FBAR penalty & tax on money earned prior to coming to US is unfair!"

    especially if no attempt was made to hide or conceal these assets behind a nominee entity or trust or some such thing.

    This is a clear case where ordinary law abiding people when they move from one country to another leave the assets in their home country.
    Especially in case of India, it is not easy to covert the proceeds to US dollars if the
    original assets were bought out of taxed Indian income.

    Is there no one to help us, wipe our tears and
    help us keep whatever we earned with our sweat
    and blood? Of all the countries in the world,
    it is hard to believe the supposedly righteous United States of America is doing this.

    There should be some sort of mitigation on the
    penalties if immigrants can prove the assets existed before they set foot in US, taxes properly paid in the respective home countries.

    ReplyDelete
  48. g111,

    I had the very same USPS problem. After talking to USPS in Austin and was told that package was deliverd, and the tracking was always screwed up. This is not a high tech problem, just wonder why USPS is in trouble.

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  49. Jack,

    Not because I have RRSP, I think retirement plan in offshore countries should be treated differently. For the countries that no tax deferral treaty with US, it is really big blow to those who fail to disclose their accounts.

    IRS grants some relief to certain account holders (like accident US citizen, or expat US citizens with less than 1000 US income), I think they should also consider a same kind relief to immigrants with offshore retirement plan.

    While 100% faieness may be hard to achieve, and may cost too much to implemnt, it won't add a lot burden to IRS to impose less penalty to retirement plan.

    You are a well known tax lawyer and used to work for DOJ/tax division. Your voice to IRS means a lot (louder) more than ours.

    IRS should add another FAQ to address retirement plan.

    ReplyDelete
  50. 'have now advised two people who think they want to immigrate to America, to give it a miss. It isn't worth it any more, especially if you have any assets or money in your home country.'

    I agree that the FBAR penalty is harsh and really should not apply at all to assets/funds held in India. But as for your advice to people, its not really a problem for someone who is tax compliant with US laws. After all, there are still 10 year waiting lists for people wanting to immigrate to the US from India.

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  51. 'I fully understand your points, and I feel your pain. There is a treaty between US/CANADA -- so for RRSP holders we can make a tax defferal election. Of course, I was not aware and that is why I try to do it inside OVDI. I am hopeful that IRS will grant me this rather late election --otherwise, I will resent this gov and maybe this country rest of my life -'

    Why did you join OVDI if only the RRSP account was unreported ? You must have had other unreported accounts too, I presume.

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  52. "Why did you join OVDI if only the RRSP account was unreported ? You must have had other unreported accounts too, I presume."

    Right, I have taken full responsibility and paid the penalty (not because I did not pay tax -- but did not know the double tax).

    Would that be a reason for IRS to impose penalty on RRSP as well ?


    If IRS also imposes penalty on immigrants retirement plan (for those countries without treaty), I guess we will have to collect food stamps then.. God bless America!

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  53. 'Right, I have taken full responsibility and paid the penalty (not because I did not pay tax -- but did not know the double tax). '


    I'm not sure I understand the multiple negatives in your sentence, but if you have paid taxes, then its just a matter of sending FBARs in by August 31st. No penalty for that. I'm not sure what reference to double tax means, but US and canada grant tax credit for each other's taxes, so there is no double tax.

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  54. Jack -
    Under the Sect 52 Q&A modifications, I am subject to the 5% discounted rate as an overseas, tax compliant in my homeland, resident. Except, for 2009, I earned over $10,000 in dividends on US stocks, thus termed US source income. It seems steep to bounce the penalty back up to 25% for that minimal infraction - especially as the amount is a very small amount compared to my regular salary. I am becoming fully tax compliant under the OVDI and just feel there MUST be a way to reason with them on this - even if through opting out. If opt-out is an option, is there a way to get confirmation that if I do opt out, the lower penalty will apply and a senior manager won't change the decision...

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  55. Some information on amending CA state returns (under the VCI 2 program which runs from Aug 1 - Oct 31):

    I called the VCI 2 hotline (for CA state) and they said the deadline for state amendments is Oct 31. I asked them what if the IRS comes back with changes to the amendments we filed under the OVDI? The lady said that if you owe more taxes based on the changes, then CA may apply a penalty to those additional taxes if we have to re-amend the CA state taxes. As a note, the CA VCI 2 initiative requires us to pay back taxes and interest on these, but there is no additional accuracy or in-lieu-of penalty in this program.

    She seemed very helpful and recommended to wait until close to the end of the deadline to file (hoping that IRS responds before Oct 31, although that seems unlikely based on what i am reading on these forums/blogs).

    Another thing she was willing to do was provide me with the interest penalty calculations over the phone (for the state taxes).

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  56. "but US and canada grant tax credit for each other's taxes, so there is no double tax."

    paid canadian non-resident withold tax, did not use credit/and did not report in US income. -- that was a mistake leading to OVDI -- and paid the FBAR penalty. to me it is double tax anyway -- i paid to both countries through OVDI.

    penalty for that mistake on FBAR is what I am willing to take inside OVDI.

    penalty on RRSP (just matter of election), that would be hard, and i hope IRS will be reasonable -- giving some consideration that not everyone in ovdi is a tax cheat.

    ReplyDelete
  57. g1111,

    California does not let RRSP deferral tax. But most other states (if there is state tax) follow the IRS.

    it is impossible to file state tax before f906 is signed if state tax is based IRS ruling (on offshore), say if IRS denies f8891 late election, that means all RRSP undistributed earning will be taxed -- this will affect on state as well.

    the best approach to deal with state tax is to inform them the taxpayer is in OVDI program and will file amending once IRS issue is resolved.

    ReplyDelete
  58. ij @ August 17, 2011 4:36 PM

    While i dont have RRSP issues, i have other issues that may cause the IRS to modify my amendments. That was my concern about filing state taxes now. However, the CA VCI 2 hotline lady said that i may be subjected to additional penalties if i dont amend by Oct 31 (when the VCI 2 program ends). Its frustrating, I dont know how to proceed here. One option is to just wait until the final f906 and file at that point

    ReplyDelete
  59. g111 -- California does not have FBAR penalty. The only penalty might be some small %age of the tax due to california.

    You could refile state now, and if there is some small adjustments made by IRS, let CA rebill you for difference. Even if they penalize you, it will only be on IRS adjustments. That might be less than interest due if you wait for form 906.

    States don't have FBAR penalties. The amount of money they can get in penalty is limited and they are not going to pursue unless there is large tax deficiency.

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  60. g111

    I just read through the California FTB disclosure policy on their web site. There are potential penalties although not the FBAR. I think the important thing is to gain acceptance into their program by submitting their application form with amended returns attached. You could submit now based on your OVDI submission to IRS with a letter stating that the IRS may modify and if they do you will modify California at that point. Granted this may cost some penalty and or interest but the California site does have implied threats of criminal sanctions and fraud penalties so you definately want to avoid these. Of note the California program states the applicable period is 2010 and prior. I guess that means you amend whatever you amend on your federal. Remember that your goals should be:
    1. Avoid criminal sanctions
    2. Minimize the financial penalties
    You may want to pay for a consultation with a California tax attorney because there seems to be conflicting ideas as to how you should proceed. To me the most important thing would be to gain acceptance by California. The secondary issue would be the finances. Talk to a California practioner.

    Good luck.

    Anon123

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  61. I've invested every month in Growth Funds (No Interest/Dividends) - My investment planner said that there is no long term tax on growth funds which I think is wrong in US tax system. If it's considered PFIC. How should I calculate penalty? Can someone help me with example? I invested from 2005-2011 - every month fixed amount (different NAV) - Yearly it went up and down in 2007-2008. Do I pay tax 20% on gain every year? Is is accumulative?
    For e.g. if I've paid taxes for 2006 from NAV 100 to 200 (20 tax) , Year 2007 NAV 300 - how much would be tax in 2007? Should I also include penalty and interest? How should I calculate that?

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  62. I don't know that much about California taxes, but if a relatively small amount of tax is due (even at CA's high tax rates), and there are no other indications of fraud, its almost inconceivable that California could or would try criminal prosecution, even if you don't formally join the program. And if the IRS changes the return later, the very most I think they would do is to charge interest on the differential. Unless you have a huge amount of tax due or have other indicators of fraud (entities, untaxed money) I wouldn't worry about it. I think CA is desperate for money and they pushed the program just to make sure people send the money now and they dont have to wait till IRS closes the case (which is what people would normally do).

    ReplyDelete
  63. "penalty on RRSP (just matter of election), that would be hard, "

    Whats the difference between making a late 'election' and just filing an amended return ? If someone were to refile all his returns including foreign income and that that he just filed a late amended return, so he should be exempt from FBAR penalty since there is no income due ?

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  64. g11 and ij I sent my package by USPS Priority mail as well and the status says that they attempted delivery but there was no authorized recipient and the package will be sent back if not claimed within 5 days. Did you guys get that status on USPS at first as well? What did you guys do to resolve the situation?

    ReplyDelete
  65. "Whats the difference between making a late 'election' and just filing an amended return ? If someone were to refile all his returns including foreign income and that that he just filed a late amended return, so he should be exempt from FBAR penalty since there is no income due ?"

    The difference is paper work involved all the tax due calculation for amending return. As for RRSP late election -- there is no single number change on f1040/f1040x.

    The other fact is that taxpayers have on incentive to avoid election --- you can always argue wilfullness when someone "missed" reporting income -- i mean real income.

    Clear ? I hope/think IRS will be more reasonable/fair than you think of..

    ReplyDelete
  66. Anon of "August 19, 2011 9:48 AM",

    It was just the same to my USPS. This local post office should have fixed this tracking problem. I spent a lot time/phone calls with all the post offices, somehow, they still keep that wrong tracking info.

    Do not worry, just keep your record.. and you can ask hotline to verify your package if you really worry

    ReplyDelete
  67. g11 actually just reading through the posts i realized that you also had the same status and next day you got the delivery notice. Did you call OVDI Hotline or USPS or the status changed without your intervention - any advice is greatly appreciated. Thanks in advance.

    ReplyDelete
  68. Anon of "August 19, 2011 12:18 AM",

    I did my PFIC in a very simple way. Using MTM, so you just calculate the difference (gain or loss) for the year. Mine was simple because I did not continue to invest after I left. So the 7% just applied to the first year (2003), for your case, I think that will be a bit more work on how to add 7% for MTM gain only "first year investment".

    Also, I did not claim any loss (even though MTM was a loss in 2007/2008), I just use 0 income.

    Do a quick job (make sure no less pay to IRS), and it will be fine, and IRS may correct you and give your overpay back.

    ReplyDelete
  69. To Anonymous: August 19, 2011 11:04 AM

    The status changed on the USPS site the next day. It now shows, "unable to deliver as addressed" and it was actually delivered to a different IRS zipcode. However, i did receive the return receipt with an IRS stamp on it, so i am hoping the package will eventually get routed to the correct department. I didn't call the OVDI hotline yet. If my check does not get cashed in the next week or so, i will try and call. From what i hear, people are having a very hard time getting thru the OVDI hotline now (mailbox full).

    ReplyDelete
  70. If you invested in growth funds i.e. if there was no dividend received on PFIC and no sale of any PFIC interest you could not do the MTM. Then you would be subject to excess distribution rules (Sec 1291) when you sell the PFIC or if you receive dividends in the future. You will be taxed at maximum marginal tax rate for all the years you held the PFIC by spreading your gain over the term of your holding. Also there will be interest due on the taxes due for prior periods. OVDI gives you an option to use MTM but you could also not do MTM if there was no unreported income and then face the punitive Sec 1291 when you sell the PFIC stock in the future. It depends on the materiality of your gains as noted in the FAQ.

    ReplyDelete
  71. "The other fact is that taxpayers have on incentive to avoid election --- you can always argue wilfullness when someone "missed" reporting income -- i mean real income."

    I'm not sure what you are saying here. Are you saying that taxpayers have one incentive to avoid election ? I would say that there is no incentive to do the election, but not fill FBAR form, since the IRS is now aware of your account. However, someone could 'miss' doing both if they wanted to conceal the existence of the account, even if they could defer income on the account (they don't want IRS to know about it even when they start doing withdrawals and it becomes taxable).

    ReplyDelete
  72. g11 thanks for the response. My status on USPS actually refers to the other zip code that you referenced i.e. TX 73301 but my status is that there was no authorized representative to sign. There is another package that my lawyer sent that has the same status. This means USPS has been delivering to the other zip code so hopefully your package did make to the right place!

    ReplyDelete
  73. g11 just saw my USPS status the package was finally delivered to same zip code as yours so lots of people are in the same boat.

    ReplyDelete
  74. "I'm not sure what you are saying here. Are you saying that taxpayers have one incentive to avoid election ? I would say that there is no incentive to do the election, but not fill FBAR form, since the IRS is now aware of your account.",

    it was a typo -- I meant "no incentive not to make an election". i read a blog that 80% people are not aware of f8891. my own small circle -- none except me --that including own my boss who was not aware until i told her.

    also there is no single case that IRS denies people make late election. even on form f8891 -- it does not mention any penalty on missing filing.

    while i am hopeful, it is still IRS' call/decision. they could just deny my request and force me into tax evasion on RRSp.

    as i have said before, if there is a statute that IRS can give taxpayers some fair/resonable treatment, it will do good not only to the taxpayer, but also to the country. when people who really need small retirement (for me it is only 50K) are not super rich, taking it away will force them to collect food stamps. one way or the other, it will be back to the gov problem.

    ReplyDelete
  75. by the way, taxpayers can not really concel RRSP because CRA will send IRS when he/she decide to cash it out.

    it seems to me (based what i learned from hotline), US/Canada are very transparent and often exchange tax/account information between these two tax agencies. That was a reason that some Canadian banks want to reduce duplicate reporting when FATCA becomes effect. RRSP is certainly included.

    ReplyDelete
  76. It is unclear to me how the actual distributions from a PFIC are to be taxed if an election is made under the OVDI to use "mark to market".

    ReplyDelete
  77. MM,

    I am no pro but I did my PFIC in OVDI, and I was told my package was complete -:).

    To make it simple, if your PFIC div was reinvested, then it would just be part of MTM calculation, the difference between Dec 31 and Jan.1 of your PFIC market value is MTM (gain/loss),

    if your div was paid out (out of the PFIC investment), you just claim it as normal div on schedule B.

    That is what I did, and no time (no money to hire CPA), IRS will corret it if it is not accurate.

    ReplyDelete
  78. "by the way, taxpayers can not really concel RRSP because CRA will send IRS when he/she decide to cash it out."

    Only if someone opened an account with a US passport, right ? If someone opened an account with a Canadian passport (dual citizen or green card holder), I would suppose not.

    ReplyDelete
  79. "Only if someone opened an account with a US passport, right ? If someone opened an account with a Canadian passport (dual citizen or green card holder), I would suppose not."

    Not really. You can only choose resident either in US or Canada. When you cash out RRSP, Canada will impose 25% if you are US resident, then they will inform IRS of your cashing out.

    Even if you use Canada address/ID to open account in Canada, the T slips will be sent to you, and if you claim to be Canada resident, then all tax will applied to you as Canadian resident. Then you have to fill the full tax return form in Canada -- even if you already do so in US.

    Now, it seems like you claim two residency -- and pay real double tax.

    ReplyDelete
  80. and in fact, all my accounts are with Canadian ID/(and used to have Canadian adress), and most of them are closed.

    FATCA will not likely affect on me, however, it is a timebomb if not to deal it today when thiere is a chance to have a good result.

    When RRSP is cashing out, it will be a big problem -- and then you have to explain all the gaps to IRS.

    Knowing something wrong and just pretending it will go away is not a way to deal with gov which is in many way the worest and most powerful enenmy.

    I think most people in OVDI understand that, so it is just to pay now to get rid of this time bomb and move on with better life ahead.

    ReplyDelete
  81. Incidentally, there seem to be a lot of Canadian/Americans posting about this matter in the last 2 weeks or so. Was there a big publicity drive for FBAR stuff in Canada ?

    ReplyDelete
  82. "Incidentally, there seem to be a lot of Canadian/Americans posting about this matter in the last 2 weeks or so. Was there a big publicity drive for FBAR stuff in Canada ? "

    not for my case, i read the news from a chinese web, and then learned all this fbar/f8891/ etc later on.

    Sure, there are a lot Canadians lives in US (and Americans live in Canada). A lot will use the treaty to solve their RRSP problem. Also a lot crossing board CPA/lawyers are doing ads for their business -:}

    A good resource on Can/US tax is here

    http://forums.serbinski.com/viewforum.php?f=2

    ReplyDelete
  83. Do we have data on how long it is taking the OVDI center to deposit the check and start looking at the final package for completeness? My package was received on Aug 15, but so far, the check has not been deposited. I just want to make sure the package is complete. Wonder if this warrants a call to the hotline or if i should wait till the end of this week.

    ReplyDelete
  84. Jack - based on your experience above, if the 25% in lieu of penalty is not sent with the paperwork, will the IRS assess an interest on the 25% penalty? I intend to send in the back taxes and the interest, accuracy and failure to pay penalties with my submission but want to wait for IRS to calculate the 25% penalty based on some information I have submitted

    ReplyDelete
  85. To Anonymous August 22, 2011 4:26 PM

    You are not supposed to send payment for the 25% in lieu of penalty when sending in the package. You make a calculation of the amount for the IRS, but that is just your calculation. Only when the IRS makes its own calculation (maybe just agreeing that yours is correct) does it send you the documents to finalize the amount. You then pay the penalty. That penalty does not draw interest until it is assessed.

    Jack Townsend

    ReplyDelete
  86. Hello Jack.
    The IRS website requires payment by Aug 31. This is from FAQ 25. Do you have to pay the 25% penalty

    A check payable to the Department of Treasury in the total amount of tax, interest, accuracy-related penalty, and, if applicable, the failure to file and failure to pay penalties, for the voluntary disclosure period. If you cannot pay the total amount of tax, interest, and penalties as described above, submit your proposed payment arrangement and a completed Collection Information Statement ( Form 433-A, Collection Information Statement for Wage Earners and Self-employed Individuals, or Form 433-B, Collection Information Statement for Businesses, as appropriate) (see FAQ 20).

    ReplyDelete
  87. G11 my package was also delivered on august 19 but check is not cashed. I plan on calling them tomorrow as it's taking them 2 business days to return calls

    ReplyDelete
  88. it took two business days for hotline to return my call.

    here is update,

    my package is being processed -- it is in the pipeline for processing.

    according to hotline, ovdi 2011 will be a lot faster than ovdp 2009, because the staff are better trained, and the who process is centrailized.

    no timeline yet for my package yet..

    folks, just make sure your pacakge is complete and then it will be put into the system.

    ReplyDelete
  89. Jack, need your opinion on this.
    If we filed 1040NR for some of the years, there is no non-compliance for those years with respect to foreign income and FBAR. Are we supposed to send in those 1040NR forms as well with the disclosure package ? There is no amendment required for those forms.

    I hope 1040NR forms showing up will not confuse the examiner.

    ReplyDelete
  90. There certainly seem to be a number of news items in Canadian papers (at least online Canadian papers) on IRS and OVDI, if you look at Google News. Maybe FATCA rules were a factor.

    ReplyDelete
  91. Hey Canadians..... You might be interested in reading this from Phil's blog...

    http://hodgen.com/canada-revenue-agency-wont-collect-fbar-penalties-for-irs/

    ReplyDelete
  92. FATCA and OVDI are getting much more press in Canada than you get in America. Can't seem to get any reporter interested in the subjects. Too boring, I guess. Here is the latest in the YVR Sun..

    http://www.vancouversun.com/citizens+living+Canada+face+risk+massive+penalties/5277590/story.html

    ReplyDelete
  93. g11 did you get any response from OVDI hotline on completeness of your package? I have not received a call back at all left a message 2 days back.

    ReplyDelete
  94. To anonymous @ August 24, 2011 5:37 PM

    I never called the hotline, i'm hoping they can get in touch with me if something is missing. My check has not been cashed yet either (delivered on Aug 15).

    ReplyDelete
  95. Folks, please update your progress here, or if you find any other active forum on the OVDI process let all know. I sent the check for FBAR penalty too. I sent yesterday by USPS Express mail.

    ReplyDelete
  96. Is the deadline increased to Sept 9th ?

    ReplyDelete
  97. Yes... See Jacks post here...

    http://federaltaxcrimes.blogspot.com/2011/08/irs-extends-ovdi-big-package-deadline.html

    ReplyDelete
  98. IJ - I have called the hotline but they have not returned my call or cashed my checks yet. I sent the full package 1 week back. I just wanted to confirm that my package was complete. You seem to have received a call back twice from the IRS hotline? What's the secret to elicit a response?

    ReplyDelete
  99. To Anonymous August 12, 2011 6:52 PM regarding incomplete package...

    Did you ever get a response from IRS on why your package was incomplete or what was missing from your package?

    ReplyDelete
  100. "IJ - I have called the hotline but they have not returned my call or cashed my checks yet. I sent the full package 1 week back. I just wanted to confirm that my package was complete. You seem to have received a call back twice from the IRS hotline? What's the secret to elicit a response? "


    It takes about two weeks for a check being cashed. So you may give it another week.

    As for hotline, it takes about 2 business days for them return your call. Now, you are in the program, so you can just call and leave your information such as name, telephone number and even your SSN, and of course, your question. They will call you back. That was what I did for the last two calls..

    ReplyDelete
  101. I just spoke with CI out of WA DC. The agent told me that the Voluntary Disclosure Letter MUST be filed with Philly by the (new) 9/9 deadline notwithstanding having made a timely pre-clearance request.

    Jack, this appears to be inconsistent with point 4 of your original posting. Thoughts on this?

    ReplyDelete
  102. Thanks, Roy. I will amend the post to add your more recent / more accurate information.

    Jack Townsend

    ReplyDelete
  103. >>>>> The word is getting out in a very unfavorable way, however. Word of mouth will have impact. I have now advised two people who think they want to immigrate to America, to give it a miss. It isn't worth it any more, especially if you have any assets or money in your home country. <<<<<

    I have a good friend who is an immigration lawyer. She is very proud when she gets someone a green card. I told her she is not doing the person a favor if they are wealthy. A green card is a great thing if you are poor and from South America, Africa, etc. A green card is poison if you are wealthy. In the past, rich people wanted a green card so they could enter through the shorter line at JFK, LAX or MIA. They saw it as a VIP card. Now, as you say, through word of mouth they are seeing it as a burden. Not good policy for our country.

    ReplyDelete
  104. Jack - what is the process to correct a really minor error in the submission (fed return)? Do we amend the amend or just send the amend with the original (1st filed) return and ignore the first amend? Or do we wait for the examiner and talk to him/her?

    How does the process go once submission is done? After the check gets cashed does the refund/bill for taxes come in automatically or does the examiner have to certify the accuracy before the final calculations and refunds etc?

    Thanks Jack/Asher and others. Good luck to all fellow sufferers.

    ReplyDelete
  105. For a really minor error, I recommend you wait and talk to the examiner when he contacts you. I presume that you do not have counsel, which is fine. Just bring it to his / her attention and say you would be pleased to further amend if that is what he / she would like.

    He / she will probably appreciate your honesty in bringing to him / her an error that he /she would likely not have otherwise spotted.

    Best to you!

    Jack Townsend

    ReplyDelete
  106. To August 29, 2011 9:21 PM

    Let me just second what Jack said. He is absolutely right in this comment.

    "He / she will probably appreciate your honesty in bringing to him / her an error that he /she would likely not have otherwise spotted."

    I had a similar situation when I had to produce all my paper work and reproduce all my amended returns. I took the additional step of auditing all my work, and then compiled a list itemizing all the minor mistakes there were for and against me.

    It establishes your credibility with your Examiner. And that relationship will be very important for you later, should you decide to Opt Out.

    For me, it had a positive effect of establishing my openness and cooperative spirit. I even pointed out errors that had nothing to do with the FBAR issues, and even though minor, the agent really appreciated it. It saved the discovery process.

    So, I would do just like Jack recommends, based upon my experience.

    ReplyDelete
  107. Jack and Anonymous @ August 30, 2011 12:35 PM
    Thanks a bunch. I will do just that. My net RME (really minor errors) is on the happy (overpaid) side.

    I just caught a tax software mis-calculation, though didn't affect the bottomline. I think it didn't update a previous calculation (as against making a math error). I relied and still do rely on calculations performed by software, not to mention ad-hoc spreadsheets and conversion rates entered by hand etc. I am realizing that accuracy is a function of available time, duress and other environmental factors. Even with CPA help, 100% accuracy may be a hard goal within the deadlines of the OVDI.

    ReplyDelete
  108. Jack - do we need to send two copies of each of the consents in the package?

    In general what is IRS policy if a package has missing information? Do they request such data or kick people out of the program?

    ReplyDelete
  109. I realized I sent only one copy of the consents as well. Should I send another copy to add to the package or wait for the examiner to contact me?

    ReplyDelete
  110. To WT,

    One final comment to your question. At the end of the process, your Examiner will create a Form 4549–A, Income Tax Examination Changes.

    This form has 19 items, and it is where they will go line by line down each years tax items, and calculate out adjustments to income and tax as compared to your amended returns with overages and underages noted, accuracy penalties calculated and interest estimates provided to come up with a final Summary of Taxes, Penalites and Interest

    When you get that form, you will want to audit it in detail, line by line, as I found multiple errors, and made corrections for and against me.

    In fact I created a spread sheet for each year with three columns. One had the Examiners figures, and one had my calculation and one had my notes as to the differences. It took me quite a while, but by the time I was done, I was in a good position to discuss all items, and it actually made it easier for come to agreement.

    I googled around tonight to see if I could find an example of this form 4549-A. You can find lots of descriptions, but harder to find reasonable quality pictures of it..

    Here is one.

    http://famguardian.org/TaxFreedom/Forms/IRS/IRSForm4549.pdf

    Just thought you might want to see in advance what you will be auditing. I doubt yours will be as complex as this one with all the adjustments :)

    cheers

    ReplyDelete
  111. For taxpayers that exceed the $500,000 threshhold and have to submit all of the bank and other financial account statements for the disclosure period will the IRS accept this in digital format?

    ReplyDelete
  112. ij and others who have submitted: just a few paranoid queries.

    1) Do you have to send 2 copies of consents? This instruction is buried in the "instructions" in "Date:" section. Not sure about you all, but I didn't read the instruction to fill in the date, before I filled in the date. The checklist doesn't mention it.
    2) if you are MFJ, do you send fbar consents separately or signed together?
    3) Is the deadline increase for all participants or only those people who had not submitted and need to start?
    4) If we send additional docs such as consents to the previously sent package, will it make it? In other words would it separate from the main package and cause additional headache?

    Peace.

    ReplyDelete
  113. Anonymous @ August 30, 2011 10:43 PM

    Thanks for the information. Is this form only created if examiner doesn't agree with the amends, or is it done even if there are no changes required (just certification).

    ReplyDelete
  114. Peace,

    Nice name (just kidding and we do need peace of mind after submitting the package),

    1. I only sent concents (one for FBAR one for assessment on tax) within the final package.

    2. Mine is MJF but all accounts are under my name, so I was the only person to sign --but it does not hurt to have both to sign.

    3. Deadline is due to Irene and it is for all.

    4. I did a few times with additional docs (even some FBAR forms), all would be added to your pacakge. No problem for me, I guess IRS understand that taxpayers are rushing to finish and often make some errors..

    Relax..

    ReplyDelete
  115. WT....

    It was part of closing process. They use it determine differences (like your minor errors) and anything else them might discover, plus show penalties and Interst to come up with a summary of what may still be due to the IRS. It formed part of the "This is how much you owe us" basis of the final Closing document 906.

    That is what they did in the OVDP, and assume they will in the OVDI.


    mvh

    ReplyDelete
  116. MM

    In my OVDP, all bank documents were in digital format. Some I had to re-create in Excel from email messages. It was that or nothing, and I had no complaints from them.

    ReplyDelete
  117. On one blog, someone wrote that he made changes to his Voluntary Disclosure Letter to add assets not reported on the earlier letter. Must this be done? - to avoid fraud charges? Presumably the assets not reported on the earlier Voluntary Disclosure letter would be reported on the FBARs?

    Also, if someone submit’s the 2011 OVDI package and then opts out, the IRS can assess taxes for 2003 because the waiver of the statute of limitations has been signed - correct? I don’t see any statement in the FAQs that when you opt out, the waivers no longer apply.

    ReplyDelete
  118. Hi,
    All my Checks were cashed, including the one for OVDI Penalty. What it means? May I assume, all my package is accepted? Is any one crossed this stage? What is the next process from IRS? & how long it takes? Please keep posted.

    ReplyDelete
  119. My question is for ij. You mention that you had a PFIC and you did your own computation. Did you use Mark to market or the default method. Can you reccommend some sources or help for someone who would like to do it.
    Thanks
    yj

    ReplyDelete
  120. yj,

    i did in with MTM and you should be able to do it yourself. Just list each year of your fund/stock and calculate the difference between the year-end and year-start. This is your MTM gain (loss). Gain is easy, just pay 20% tax and add 7% of the tax on first year MTM tax. loss may be a bit hard and i did not bother to use loss -- simply use 0 -- so no tax.

    ReplyDelete
  121. Jack and others could we start a new blog entry for people whose cases have been assigned to examiners to share experiences of going through the certification process. It would be very helpful to track the implementation.

    ReplyDelete
  122. Thank you ij for the info on MTM.
    yj

    ReplyDelete
  123. Has anyone in OVDI 2011 being assigned a civil examiner yet? Jack seems like you filed some packages early in the program any experience you can share will be appreciated.

    ReplyDelete
  124. To Anonymous @ September 13, 2011 3:07 PM

    Unfortunately, my 2011 submissions were fairly late. So we have not even gotten to the point of having an agent assigned. And, of course, we are a long way from opt out.

    Jack Townsend

    ReplyDelete
  125. Jack,
    I sent the complete pacakge 9/8 and discovered an account that was not included in the package and OVDI letter. Will IRS accept modified 1040X, TD f90, foreign assesement form and penalty sheet if I send those even after 9/9 ?

    Highly appreciate your help.

    Thanks

    ReplyDelete
  126. To Anonymous on September 20, 2011 @ 6:16 pm.

    I can't give you any other than a speculation -- an informed speculation, though (I hope). I don't think the IRS is looking for footfaults. You should just give some reasonable expecation as to how it happened. I think the IRS will accept the further amendment.

    Jack Townsennd

    ReplyDelete
  127. To Anon September 20, 2011 6:16 PM

    To Anonymous on September 20, 2011 @ 6:16 pm.

    Follow on to Jacks Comments.

    Based upon my experience, I can confirm that in the OVDP, they were not looking "footfaults". Have to assume that would still be the case in the OVDI

    If it were me, I would wait now until you have an Examiner assigned, and then send in what additional amendments/adjustments you have prepared, if they want them.

    To send anything in now, might just add to confusion later. For instance, I found some miss classed pension income and interest overlooked, and my examiner DID NOT even want an 1040x filed. Made it too confusing. She just handled the "footfault" on the closing 4549-A Adjustment Form.

    ReplyDelete
  128. I agree with Just Me - I had called the OVDI hotline for some missing items in my package. The person on the hotline told me to wait until an examiner is assigned and then send in any amendments. They are not looking for footfaults. Further, it only increases your tax liability so the examiner is unlikely to reject your amendments. Sending in amendments now will only create confusion and increase your profile both of which you want to avoid.

    ReplyDelete
  129. Jack,

    Appreciate if you can comment on my questions. I gave a gift of some money to my old parents in early 2009 and signed a gift deed for it. Later on toward the end of 2010, my parents decided to put my name in the account as the 3rd account holder in which they had deposited my gift thinking that... were something to happen to them, it would be easy for me to get the money back.

    I have already shown that account on the 2010 FBAR as well as paid tax on whatever interest was earned after my name was added (even though they too have paid tax on it in their country of residence) on my 2010 US return which was timely filed. The 2010 FBAR was also filed timely enabling me to keep 2010 out of OVDI, hopefully!!

    My impression is that since they have already paid tax in their home country, I should not even have to pay tax in the US but because the tax amount itself was minuscule, I decided to pay it instead of going through the hassle of producing my parents returns and claiming foreign tax credit for it.

    After learning about OVDI, I asked my parents to delete my name from that account which they did. But by then my name alredy had been in their account for 6 months.

    My questions are: would IRS view my gift suspiciously inside OVDI or if I were to opt-out and go through an audit? Was I correct in paying tax only on the interest earned in that account *after* my name was added? Was I correct in showing the peak balance in the account on the 2010 FBAR *after* my name was added?

    ReplyDelete
  130. To Anonymous September 25, 2011 10:01 PM

    I the facts are as you describe them -- the the account was your parents' after you made an effective gift to them, then it does not seem that it should go into your base for the OVDI penalty.

    As an account holder (which I presume means a titled owner), you would have to report on the FBAR for the period you were the titled owner, but if it is not really your account (you are just an accommodation "owner"), then the income in the account is not yours and you should not have reported the income on your U.S. income tax return. For the income tax, the issue is not whether tax was paid by anyone in the foreign country but whether the income is your income. Under the facts as you present them, the income is not your income.

    I hope this helps.

    Jack Townsend

    ReplyDelete
  131. Thank you very much, Jack

    ReplyDelete
  132. "gave a gift of some money to my old parents in early 2009 and signed a gift deed for it."

    I may be in a similar situation. However my attorney
    stated that till 2009 i should have paid the tax for the
    funds before they were gifted to my parents.
    If not from the period (2003 or later) till 2009 the
    amount must be treated as tainted if taxes were not paid.

    ReplyDelete
  133. To Anonymous at September 29, 2011 9:06 AM

    Thanks for your reply. Yes I did include that amnount on my penalty computation sheet for the year 2009. My question to Jack was whether that same amount will end up on my penalty computation sheet for the year 2010 after gifting it to my parents just because they put my name in their account as the third holder?

    And the reason for asking this question is that I have stated the peak balance in that account only after my name was added to it (instead of the peak balance in the entire year) so i am worried that irs may say that I did not correctly report the amount in the FBAR so now 2010 is back in OVDI (Currently it is outside of OVDI)!! Any thoughts on that?

    ReplyDelete
  134. October 2, 2011 11:59 AM
    arj it is possible they include the 2010 balance also.

    ReplyDelete
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