Treaty Form 8891 Relief. The announcement includes the IRS's decision to permit a request for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. This will impact most prominently the Canadian RRSPs. This relief will be available also under the Offshore Voluntary Disclosure Program as well.
Eligibility. The best presentation of the eligibility requirements is on the questionnaire that a taxpayer must submit. The taxpayer qualifies only if each of the following questions answered No.
1. Have you resided in the U.S. for any period of time since January 1, 2009?The instructions caution:
2. Have you filed a U.S. tax return for tax year 2009 or later?
3. Do you owe more than $1,500 in U.S. tax on any of the tax returns you are submitting through this program?
4. If you are submitting an amended return (Form 1040X) solely for the purpose of requesting a retroactive deferral of income on Form 8891, are there any adjustments reported on the amended return to income, deductions, credits or tax?
Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty.Compliance Risk Analysis. The IRS says:
The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.Submissions not in the low risk category "will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program."
Criminal Prosecution: The instructions caution:
Taxpayers who are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer's particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on January 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. For additional information go to the OVDP page. It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to use OVDP are also ineligible to participate in this procedure.
Required Submissions: The instructions contain a list of the documents that must be submitted with the package.
1. It appears to me that the eligibility requirements alone limit this relief to a small set of taxpayers who would likely not be at high risk of criminal prosecution and, also, of significant audit activity if they did not come into this streamlined program. Nevertheless, these taxpayers considering this streamline procedure should consider especially their potential criminal risks; this will likely require that they engage counsel qualified to assess criminal risks. It seems to me strange that the IRS would adopt a minnow program without more certainty so that minnows could get into the program without having to engage counsel for a risk analysis that could be expensive relative to their situations and the tax revenue involved.
2. In the same vein, the amorphous compliance risk analysis might give taxpayers some concern because taxpayers will not know how it is applied.
3. The statement that submissions not in the low risk category will be subject to audit in a manner similar to the OVDP opt outs, raises the inference is that the audit process, both in and out of OVDP opt out, is the same; if this inference is correct, this should be considered by those deciding whether to go into OVDP in the first place with the expectation of opting out, in which case they would achieve the same result as an audit without any benefit for having voluntarily opening the kimono in OVDP.
Shamik Trivedi, Streamlined Procedures for Low-Risk FBAR Filers Might Not Have Wide Application, 2012 TNT 171-4 (9/4/12; appearing 9/1/12). Here are a few excerpts
Practitioners * * * told Tax Analysts that the criteria determining low-risk status are so narrow that few taxpayers are likely to qualify, and the program may in effect be restricted mainly to those taxpayers owning Canadian registered retirement savings plans (RRSPs).
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Practitioners said the streamlined procedures preclude numerous potential applicants to the program, save for those Canadians with RRSPs.
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Barbara T. Kaplan of Greenberg Traurig LLP said that in its new procedures, the IRS has "carved out a very narrow exception," adding, "It's probably most useful for those people like Canadians who had deferred compensation arrangements for which they didn't make elections timely. . . . If that's their only noncompliance, this is going to be a very easy way for them to come into compliance and not lose those benefits."
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"How many people are going to pop their heads out?"
"If the IRS is trying to bring more people into the system, to get these nonresidents to come into full compliance, I still think you have to make it simpler, and I think you have to make it less costly," Elber [Niles A. Elber of Caplin & Drysdale] said. "I don't really see that coming out of this particular process as it's been set up."Robert W. Wood, Newest Offshore IRS Amnesty Not for Everyone (Forbes 9/1/12), here: