Saturday, March 23, 2013

IRS has New Forms for Offshore Voluntary Disclosure Letter and Attachment (3/23/13)

These new forms apparently will replace the dog-ugly word versions.  As of this posting, the old ones -- in MS Wod format -- are still the forms linked on the master page, here.  I have not compared the content to see what might have changed.

Form 14457 (March 2013)  Offshore Voluntary Disclosure Letter, here.
Form 14454 (March 2013) Program Letter Attachment, here.

I will be back if I learn anything material.

Addendum 4/8/13: A reader has advised me -- and I have confirmed -- that the IRS has apparently taken the forms off the links, but the notice is that they will be posted soon.  In the meantime, here the forms are as they were originally posted:

  • Form 14452 Foreign Account of Asset Statement, here.
  • Form 14453 Penalty Computation Worksheet, here.
  • Form 14454  Offshore Voluntary Disclosure Program Letter Attachment, here.
  • Form 14457 Offshore Voluntary Disclosure Letter, here.



16 comments:

  1. I notice that Form 14453 is "protected" such that one cannot adjust the total aggregate balance. In our case, we had multiple accounts while living abroad, on which we reported all interest income to the best of our ability, but failed to file FBARs as we had no idea we should.

    As these were "everyday" consumer accounts, we regularly moved money between savings accounts, sometimes 5-figure sums. However, the new f14453 penalty calculation sheet only allows you to put in the highest balance for each account and automatically calculates the highest aggregate balance. Our original plan was to adjust the total aggregate balance to reflect inter-account transfers of the same amount of money, but the new form does not easily provide for this. The only option appears to be to adjust the actual Calculated Offshore Penalty amount that is sure to raise many questions when we eventually file. I have extensively documented the transfers in a spreadsheet and have all available statements, so there is ample supporting documentation. Being able to remove these intra-account transfers halves our penalty, so this is a critical step for us.

    Suggestions? Thoughts? Advice?

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  2. I don't know the answer. I did a quick and limited test and It does not appear to permit negative numbers.

    I suppose the solution would be to prepare a separate spreadsheet with negative numbers for avoid duplications and to have a single line referring to the spreadsheet. Note, that because only a limited number of lines, a separate spreadsheet will be required anyway.

    Jack Townsend

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  3. @FalseAlarm, you wrote: "In our case, we had multiple accounts while living abroad, on which we reported all interest income to the best of our ability, but failed to file FBARs as we had no idea we should."
    It was my understanding that one did not have to enter OVDI if the only problem was missing FBARs. For people in that situation, the FAQs say people can just file the delinquent FBARs with a reasonable cause letter. Why did you enter the program? Are there other facts that made you choose that path?
    Thanks.

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  4. Is there any requirement that the form be filled out electronically instead of printing out the form and filling it out by hand?

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  5. De minimis unreported interest and an error in our foreign corporate books that means we owed approximately $300 in tax. When I say de minimis I mean less than $50 in interest income over 8 years. We are considering an opt out but don't know if we can afford the additional professional fees and my health may not stand for dragging this out any longer than necessary.

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  6. Wow, you entered OVDI for $300 owed in tax. You must be a really high principled person, or scared to death by the IRS and lawyer's hyperbole.

    Did the lawyer threaten you with jail, or ruin?

    You agreed to pay 20K or more in professional fees and forego either 12.5 or 27.5% of you max balance for $300 of tax owed? That is just wrong...

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  7. .....That is just wrong......yes that is a FalseAlarm :-)

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  8. Anonymous - you are giving good advice. What do you think should be the tax loss over 8 years before one should seriously consider OVDI vs. GF/QD, especially for the minnows, $10K, $20K?

    TAS advocate suggested that persons with $5K or less than 10% of tax (whichever is higher) per year sh0uld be exempted. Any thoughts on the above question based on the TAS rec.

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  9. Principled, yes. But also a very low tolerance for risk and poor health. Yes it is wrong.

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  10. yes I have a question regarding TAS .... can readers share their experiences with them currently..... were they helpful with mitigations regarding FBAR penalties and fighting for you regarding your reasonable cause arguments and settling your case in an acceptable manner, did they replace the need for expensive legal advise in some cases.

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  11. This is a different Anonymous.

    The issues with the form, in my opinion, aren't the big issue. You can either fill it out by hand or just say "See attached" and attach a spreadsheet with detail. In either case the penalty inside OVDI is based on the highest balance. Interaccount transfers do get netted out, for the sole reason that money cannot be in two places at one time. And it does look better to start out with a smaller (netted out) high balance.

    But the big issue is whether you should opt out. Someone with experience (like Jack) can give you an opinion that considers all the facts. But what you've presented so far (living abroad and had active business abroad and therefore needed local bank accounts) as well as the fact that unpaid taxes are quite low (and could be even lower once you take bank fees into account; if you haven't reported interest income you probably haven't reported account maintenance fees either.)

    Unless there are bad facts you haven't mentioned I don't understand 1) how any lawyer could recommend you get into OVDI and 2) why the IRS would waste not just your resources but theirs processing your case.

    The only bit of advice I can give you is that once you get to the penalty stage you should contact the TAS (Taxpayer Advocate Service) about your case. They're an independent advocate inside the IRS and it doesn't cost anything to get them involved.

    Keep us posted.

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  12. SeniorResearcherApril 4, 2013 at 2:13 AM

    I would also think that it is worth mentioning as a reminder in any written application for help from the TAS, or in conversation with a TAS agent who may not know much about international issues, that the Offshore programs, and issues regarding International taxpayers ‘abroad’ were identified as priorities in the reports by the Taxpayer Advocate Nina Olson.

    See http://www.taxpayeradvocate.irs.gov/Annual-Reports-To-Congress/FY-2013-Objectives-Report-To-Congress . I would think that would help to rationalize why they should take a case.

    In particular, under ‘Areas of Focus’ see pg 21 of the report section entitled;
    “TAS Will Continue Advocating for American Taxpayers Abroad Who
    Are Expressing Fear and Frustration about FBAR, FATCA and Other
    International Penalties ”

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  13. I am evaluating options for OVDI/go forward/QD etc., and one thing that has me confused is my determination of how bad my facts are. I have a company provided defined contribution retirement/savings plan, and that plan holds some US stocks. The plan is based in the Bahamas, and the US dividends from the stocks are subject to 30% NRA withholding. That is the only income I have in that account, about $400 a year. I have not reported that it in the past (I did not know the retirement plan was reportable), but does the fact that this dividend income was already subject to NRA withholding mean I did not underpay my tax (my regular income would be in a <28% tax bracket)? The owner of the shares is actually my company, and they are the ones paying the withholding, they then distribute the dividends to my retirement account net of taxes - does that change anything? Does that make it regular income and not dividend income?

    On a higher level, I am trying to determine if this retirement plan is reportable at all - my company says I am not the owner of record of anything, that I don't have signature authority etc, and most of the funds can only be accessed by me once I separate from the company, but I can borrow from the plan (solely up to the amount of my own contributions to the plan, not any company contributions or earnings within the plan). Different tax advisers within the company have given me conflicting advice, differenct CPAs give different advice, and different tax attorneys have given different advice and all the phone numbers the IRS provides about FBAR advice don't work. Very confusing and frightening.

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  14. There is also a streamlined procedure for foreign residents with small amounts of undeclared income. Don't recall the details since it doesn't apply to me but you should look into it.

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  15. Thanks, but I am a US resident. High balance on accounts is ~160,000, so a 28% penalty is huge for a few hundred dollars of untaxed income (well, actually, already taxed income since it was subject to NRA withholding). CPAs now advise that since all the 'income' is dividends reinvested into stock within the retirement plan it's not 'income'. That leaves ~15 euros per year of interest from a ~$1000 savings account in my home country that was untaxed. So now I have potential $45,000 penalty for a total 60 euros of untaxed income over the last four years. This entire situation is absurd.

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  16. The evil reading of the rules and procedure would mean that one is assessed the penalty on each and every account's high balance, even if balances were moved from one account to another. The interesting question that I have been asked is how to deal with multiple accounts in a single bank where the net balance is negative, i.e. a loan. The law and regulations were drafted without reference to reality, logic or fairness so I am not surprised that the aggregate penalties for a single year can exceed one's total assets, or even that negative balances would be ignored.

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