Friday, December 7, 2012

IRS and Practitioners Comment on Streamlined OVDI Procedure (12/7/12)

The American Bar Association Section of Taxation's annual National Institute on Criminal Tax Fraud in Las Vegas is going on now.  A topic of discussion was the relatively new New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers (see IRS Instructions here).  Here are excerpts from the program regarding this Procedure  (Shamik Trivedi, IRS Urges Low Risk Account Holders to Apply Under Streamlined Procedures, 2012 TNT 236-3 (12/7/12)):
Taxpayers who do not necessarily meet all the factors under the IRS's streamlined filing compliance procedures for previously unreported offshore accounts should nonetheless apply to the program if they are low-risk account holders, senior IRS officials said December 6. 
The streamlined program, introduced August 31, was meant as a way to allow low-risk, noncompliant account holders to come clean to the government. It introduced a $1,500 threshold for tax due in a year, as well as factors that would increase a taxpayer's risk. Those taxpayers that had no risk factors and met the $1,500 threshold would have their applications "processed in a streamlined manner," the IRS said at the time.  
Just because a taxpayer fails to qualify under the criteria as being low risk is not a reason to avoid applying to the program, said David Horton, director of the IRS Large Business and International Division's international individual compliance function. Missing one of the factors only means that a revenue agent will review the taxpayer's application, Horton said at the American Bar Association Section of Taxation's annual National Institute on Criminal Tax Fraud in Las Vegas.
"That does not mean there's going to be an audit," he said. "It means it's going to be reviewed and could be subject to examination." Some practitioners who spoke with Tax Analysts said they had viewed the program as having strict guidelines and that only those taxpayers who had no indicia of higher risk and who met the dollar threshold could apply. 
* * * *
The IRS "will not necessarily beat up on a taxpayer just because he's a little bit over or doesn't meet one of the criteria," said Christopher Sterner, IRS deputy chief counsel (operations). "It's just we're not guaranteeing that the returns will just be processed without any further inquiry from the Service." 
Nor does the IRS have any plans to revisit the $1,500 threshold or the risk criteria, Sterner said. It was set up that way based on what the IRS heard from taxpayers, he said, adding that the streamlined processing is an approach that allows low-risk taxpayers to become compliant. "I don't think people should be afraid to use this process if they really are a low-risk taxpayer," he said. It is highly unlikely that the IRS will increase the threshold, he told Tax Analysts later.


  1. IRS: "Just trust us. We'll make the right decision."

  2. I think they might have a deficit in that area right now. But, if these comments are serious and represent any shift in policy or attitude, I come from the "show me" state when it comes to trust. I would be interested in seeing what real effort they put into marketing this new message?

    Maybe that candy store of offshore data (as Steve Mopsick calls it) is making them reconsider whether or not to bother sweeping up all non compliant grains of sugar on the floor, even if they exceed their technical definition of a "grain"?!

  3. The streamlined procedure were for Americans living abroad.
    What about the millions of immigrants living in the US who fall below the $1,500 threshold. Does living in the US make us super high risk of being considered tax evaders? Is the localtion criteria deviating too much from the original procedure?
    Jack, Michael, would you still recommend the go forward for low risk immigrants being well below the $1,500 threshold or would you recommend the new streamlined procedure, in the light of this new anouncement?
    Why does the IRS have to be so criptic? Why don't they address the immigrants case?

  4. I can't answer your questions about why the IRS behaves the way it does.

    I do need to correct any idea you may have about any recommendation for low risk immigrants to go forward. I think what I have said all along is that these decisions require fact intense inquiries. When -- but only when -- those inquiries are made, many well informed taxpayers with low risk may make the decision to go forward. But, I made no recommendation that low risk taxpayers go forward without paying attention to the facts which might transform what appears to be low risk into a significantly higher risk.


    Jack Townsend

  5. The streamlined procedure, by its terms, is only available for nonresident taxpayers, so for immigrants it's simply not an option. As for the potential options that are available (e.g., formal voluntary disclosure, quiet disclosure, no action other than prospective compliance), I don't believe any responsible advisor can provide a formula for what makes sense in what scenario.

  6. I would like to know what taxpayers the IRS heard from when it set up the $1500 threshold. American Citizens Abroad, which represents large numbers of Americans living abroad, has always said that $1500 is too low. $5000 has been suggested by ACA as a minimum. Nina Olson, The Taxpayer Advocate, stated very clearly in the "Taxpayer Advocate FY 2013 Objectives Report to Congress" on page 24, that the TAS encouraged the adoption of a threshold set forth in IRC 6662 (d), i.e., the greater of 10 percent of the tax required to be shown on the return for the taxable year, or $5000 for individuals.

    In spite of the fact that many in my peer group wrote to their Congressional Representative about the inadequacy of the $1500 and that the IRS was contacted by some of these Representatives, no heed was paid to this input from Americans Abroad. Why should the IRS do that? We only live the reality, we are not experts at creating convoluted policy and practices.

  7. I agree that $1500 seems far too low a cut-off point because even those of modest assets could quite easily face U.S. double taxes above this threshold if they recently sold their home or had phantom gains from anomalous PFIC taxation on their locally held mutual funds. Many expats are probably not even yet aware of such horrors...

  8. Dear Jack,

    I was hoping that you can help me determine when a person qualifies for the streamline OVDI.

    I understand the procedure applies to non-resident U.S. taxpayers living abroad. In defining non-resident does that include a person that is a U.S. greencard holder but a full time resident of a foreign country.

    In other words, a taxpayer is a citizen and resident of France, with a U.S. greencard (a home in the United States and visits the U.S. 2 weeks a year) dose that taxpayer qualify as a non-resident US taxpayer living abroad?

    The FAQ under the Streamline program asked "have you resided in the U.S. for any period of time after 2009?" This seems to suggest that reside means actually have the United States as your principal residence and solely by means of having a U.S. greencard?

    further, do you reside in the united states for purposes of the Streamline program if you have visited the United States for a few weeks out of a year? I would think no.

    Any thoughts would be greatly appreciated.

    Thanks in advance.

  9. Anonymous,

    I have not gotten into the details of the Streamline program enough to give you a confident answer to your question.

    However, I do note that, since it refers to residence, the normal tax test for residence is the substantial presence test. You might check the IRS discussion of that test:

    Best regards,

    Jack Townsend

  10. with regards to SL : yes this person qualifies as a NR USP living abroad


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