Saturday, June 21, 2014

Comments by IRS Personnel on New Streamlined and OVDP Procedures (6/21/14)

I offer some points from Amy S. Elliott, IRS Answers Questions on Updated OVDP and Streamlined Filing, 2014 TNT 120-9 (6/23/14) which summarizes the comments of IRS officials at NYU's Tax Controversy Forum yesterday.  The two IRS officials were Jennifer Best, senior adviser, IRS Large Business and International Division,, and John McDougal, special trial attorney and division counsel, IRS Small Business and Self-Employed Division.  I only include here the items I think of most relevance to most of my readers.

1. The expanded Streamlined procedures were "were expanded in response to criticism that there wasn't an appropriate compliance path for individuals whose failure to report offshore accounts wasn't willful."  [This is not a direct quote from  the speaker.]

2.  The new procedures were designed to "encourage folks who are considering quiet disclosures to come in with their hands up"' and avoid taxpayers coming into OVDP with the intention to opt out.  [The quotations are indicated to be direct quotes from the speaker.]

3.  McDougal sais that a person is non-willful if he "isn't really worried about being prosecuted."  [That appears not to be a direct quote from the IRS employee but a statement of what the author heard him to say.]

4.  McDougal is quoted as saying: "The concept of willfulness is well documented in the case law," and "We're depending on the practitioners to help the clients work their way through what the risk is of criminal prosecution and significant penalties."  [JAT Note:  At least one blogger on this has lamented that these programs seem to require the taxpayer to engage counsel.  This is probably a subject for a separate blog.]

5.  As to the increase in the penalty rate from 27.5% to 50% if there is public disclosure of a bank or facilitator, the "public announcements that count for purposes of the 50 percent rate increase are those by the DOJ." [This is not presented as a direct quote from the speaker.]  Taxpayers delaying are at risk of a public disclosure before they act:  "it's risky to wait given that John Doe summonses, in particular, usually come with no warning."  [This is presented as a direct quote from the speaker.]

144 comments:

  1. Great Blog Jack

    I have 2 questions

    1) I am in Pre Clearance (haven't filed the intake letter yet) can i move from Pre Clearance to Domestic streamline process? is their a downside to it?

    2) With Domestic streamline can we fix domestic mistakes as well? If so how would the penalty structure work


    Thanks so much in advance

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  2. "hands up!?"

    Boy, does that show a mindset or what?!

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  3. Jack,

    "massive and intentional raid on the treasury" - Based on your spreadsheet, the suggested "average" tax loss was $2M for the listed individuals. The US Govt goes for the best cases and if this is the best that has come out of UBS - it is very telling. Additionally, If these account holders actually paid on time (without penalties and interest) the actual tax loss would have been much less... thus decreasing the true actual tax loss.

    $6B is what the IRS has touted that they have collected thus far from 45000 victims of OVDP. The US Treasury tax collections recently reached $1.4T... $6B is 0.4% (4/10s of 1%). Would an individual who makes $200K a year consider the loss of $800 (4/10 of 1 % of his yearly earnings) a "massive and intentional raid" on his earnings?

    What this did enable, after decades of allowing it to happen, was the enforcement of FBAR penalties, tax penalties, fines against banks, etc etc. The fines against the banks and the FBAR fines are where the money is at... not in the tax losses.

    Sadly, for the US govt, these fines are a 1 time payment...

    As I have state before, this is not about the tax losses. This is about shutting out US citizens from having their money outside the USA...

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  4. Jack I wondered about the consumption of IRS resources as well. It seems to assume (erroneously) that if you came forward and entered the program your actions are more likely to be willful than if you have done nothing until now The other issue is that there is no actual transition for people who are in the OVDI on anything but the 27.5% penalty, Even if transition relief is allowed, people who are already in the OVDP will still be required to pay tax and accuracy penalties for the past 8 years rather than 3 years. The reduction in the offshore penalty is fantastic but the transition rules seem to penalize people who came in sooner and rewards those who have not yet approached the IRS.

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  5. "We're depending on the practitioners to help the clients work their way through what the risk is of criminal prosecution and significant penalties."


    Wow. So now in addition to paying taxes for services they don't get, expats are to be REQUIRED to hire lawyers to show that their choice of residence is not a crime?

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  6. What does "non-willful of non-willfulness" mean? Willful?

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  7. Sallly,


    That was my error. Thanks for calling it to my attention. I have corrected it. Struck the "of non-willfulness."


    Jack

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  8. Hello:
    In the eligibility criteria for streamlined domestic offshore procedure (SDOP), it says the below:

    "If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent."

    What does "civil examination" mean? Is it same as any irs audit? I was planning to report foreign accounts the right way for 2013 (fbar & tax returns wise) and then take some time to figure out the new streamlined resident procedure. But if my first fbar I'll file this week raises an audit , will that disqualify me from using/entering SDOP? Thx

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  9. Why is it so hard to put some relationship between the tax deficiency and the penalty?

    Take the extreme, a person who is temporarily in the USA for work say five years with a visa. He has stupidly during his stay in the USA opened a Swiss account with money he got as a gift from a foreign relative and then spent his next three years even more stupidly trading away this money with a loss every year. He did not report this account on his FBAR but did file FBARs with other accounts in his home country. Assume there is zero tax deficiency when all returns are corrected. He has now left the USA and has no more reporting obligation but is caught up in the Swiss banking program and needs to come clean.

    His acts are probably deemed willful if analyzed by the IRS. FAQ 17 is no longer there.

    Everyone still agrees it is reasonable to have him come into OVDP and pay a huge penalty?

    And who can tell if this guy/girl should be worried about being criminally prosecuted? I mean the IRS certainly could but will they at the end of the day? And what would FBAR penalties be if there is no "future compliance" as stipulated as the very reason for penalties in the IRM.

    Seems to me the fair thing would be to have a penalty in relation to the tax deficiency and that's what I would have liked to see. Minnows don't owe a lot of tax. Whales do. Is it not that simple?

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  10. Jack correct me if i am wrong but the term willfulness is this term tied with offshore accounts only?Or this term tied with Domestic tax return as well? Suppose a persons offshore account is clean but the irs finds an issue with domestic tax return would the tax payer signed statement cause an issue?
    Or would that be a seperate matter.

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  11. The certification is non-willful as to income tax and FBAR delinquencies. Willful means that same for income tax as for FBAR -- intentional violation of a known legal duty. Hence non-willful means the same in both contexts. Hence, the person who certifies non-willfulness does so in both contexts and, even if he passes muster for FBAR purposes, if there is some other issue on the return (even unrelated to foreign accounts), that certification could be a problem.


    Jack Townsend

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  12. I would not agree on the bare facts given that the IRS would assert willfulness for the civil penalty purposes. And, with not net tax due, he almost certainly would not be criminally prosecuted on the facts given.


    As to the equation of penalty with tax due, in a sense that is what occurs. The lesser the amount of tax due, generally, the lesser the civil penalty.


    That may not be apparent from the program, but those who have watched the FBAR penalty exactions with real data -- even if anecdotal -- should notice some correlation there. Of course, i am speaking of audits and not the automatic penalty regime in FBAR without an opt out.


    Jack Townsend

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  13. The IRS/DOJ would not necessarily prosecute on these facts. A host of factors other than that go into the decision, including resources and priorities. I dare say most persons who fit the profile you mention would not be prosecuted, even if known to the IRS.

    Jack Townsend

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  14. You should have time to implement the streamlined process before an audit would be started as a result of filing the 2013 FBAR on or before 6/30/14. And, I doubt that, if you do not delay in filing the streamlined documents, even an interim audit would subject you to a worse result. This is all contingent on your setting about timely and promptly to enter the streamlined program.

    Jack Townsend

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  15. Jack can domestic tax issue be fixed under streamline process?

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  16. Congress and the IRS could have saved a lot of people a lot of time if they had come out with the following a long time ago:
    - Possession of a foreign account by a US person creates a rebuttable presumption of some form of malfeasance (i this case, tax evasion)
    - In the first instance, that presumption is rebutted by filing FBAR
    - in case of failure to file FBAR, presumption can be rebutted if there is no intent to commit malfeasance. In particular, a legitimate reason for having the account coupled with negligence/ignorance/reasonable cause can be used to rebut the presumption
    - people with legitimate reason include per se expats and immigrants but they still need to explain themselves
    - OVDP is for people who cannot find a way to rebut that presumption and have criminal intent with respect to Title 26 malfeasance

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  17. I am not certain of the answer, but I think so. The certification is broad enough to cover domestic underpayment unrelated to offshore accounts. And, keep in mind that the certification is that the taxpayer is not willful as to the income reported. And, of course, it is an amended return that, under penalty of perjury, needs to correct everything.

    From the IRS's perspective, this is win-win. It is getting the non-willful actors back into the fold for their entire income for the immediate past and going forward.

    So, I think that domestic income issues unrelated to offshore accounts can be corrected in the streamlined process.

    Jack Townsend

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  18. GlobalCapitalismJune 23, 2014 at 9:12 AM

    The IRS and Treasury have CHOSEN to continue using the FBAR as a weapon of financial destruction and as a fundraising tool in lieu of any actualUS tax owed.
    No-one has objected to this twisted use of the significant and life altering FBAR NON-willful penalties – which did not originally exist until some time in 2003 (only willful, which was the IRS burden to prove) – and which Congress gave the IRS the power to levy ON CONDITION
    that they do EDUCATION to alert people of it – which they still have not(See historical overview published in 2006 ‘EVOLUTION OF THE FBAR: WHERE WE WERE, WHERE WE ARE, AND WHY IT MATTERS’
    By Hale E. Sheppard* http://americansabroad.org/download_file/view/434/200/ . )

    The Taxpayer Advocate has noted the significant problems with the IRS enforcement of the FBAR in several of her reports, ex. http://www.taxpayeradvocate.irs.gov/userfiles/file/Full-Report/Most-Serious-Problems-IRS-Offshore-Voluntary-Disclosure-Programs.pdf .

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  19. For us expats with regards to paying ourr fair share of taxes

    U.S. Court Rules Constitutional Rights Don’t Apply for Americans Overseas
    http://www.thewestwire.com/constitutional-rights-dont-apply-overseas/

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  20. Jack,


    in the "wilfulness" case law on the "intentional violation of a known legal duty," there has been recently (and presumably a bit in the past) about "wilfulness", whether intentional or due to wilful blindness. Is there much that has been said about negligence. Where does that fit into into your spectrum of non-wilfulness to wilfulness.

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  21. Yep. The OVDI just got MORE heavy handed.

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  22. there is an update on this... IRS agent made some (troubling) public comments

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  23. Hey Jack, Scot Michel brought up the "Canadian Snowbird Dilemma" (which is the problem of the Canadian Snowbird US citizen who is a non-filer but spends the winter months in the US). The answer is somewhat troubling and could result "pushing" these Snowbirds into OVDP:

    Here's the quote from the article:

    " [Scott] Michel asked [Jennifer] Best about what's been referred to as the Canadian snowbird dilemma, which the expanded streamlined procedures don't address. In this situation,
    snowbirds -- Americans who have lived in Canada most of their lives and never
    filed U.S. tax returns -- happen to own property in the United States where
    they spend a small amount of time each year.

    "This is a tough one. We have to make policy decisions and draw lines
    somewhere," Best said. "We were tracking section 911 with the 330
    days and no abode in the U.S. I think that's the one that's going to trip up the snowbirds."
    She said that while the IRS will continue to give the issue further thought, "if you're spending a
    substantial amount of time in the United States . . . you need to be
    responsible with respect to your tax obligations."

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  24. If I can add something. Just look at the new streamlined procedures for offshore or domestice people (SFOP or SDOP, respectively). It says to only amend the last three year returns, pay those taxes on your foreign income for those last three years, and file last 6 years of FBARs. Very simple to do. And there would be NO penalties assessed, whatsoever, for people residing abroad. That's a very reasonable thing, considering a person who hasn't filed anything for many, many years, who also is living abroad. The IRS is trying to meet people halfway here I think.

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  25. Negligence alone is not willfulness. The law is clear on that.

    The non-tax law does have a concept called gross negligence which is not just negligence. Even gross negligence is not willfulness for tax purposes unless it can be characterized as willful blindness. I can't speak as to whether gross negligence and willful blindness are different characterizations of the same conduct.

    Jack Townsend

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  26. The reason you leave that out is that the year is closed, unless you fall into the 6-year statute of limitations which, on a small amount of income, you probably do not.

    Jack Townsend

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  27. Sorry so Jack are you saying that one should file 2013 and previous amended 2010-2012 return + fbar at the same time to avoid an audit?

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  28. Jack

    My vague recollection (non lawyer) is that one of the few court cases involving FBAR civil penalties, gross negligence was characterized as equivalent to reckless behavior, which was supposed to be the same as willful blindness

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  29. jack


    If a foreign informational return for a year was left out, then that year is open indefinitely, right ?

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  30. I agree. Willfullness is on the burden of the IRS. Simply a checkbox, "NO" is not enough to prove willfullness. There has to be a pattern of willfullness, and the background of the taxpayer MUST be taken into account. This is somewhere in the IRM.

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  31. What I would expect (and not necessarily what the IRS might do) is differentiate between fraud (as your example of someone claiming to never have seen an FBAR when he had) versus things such as NO on Schedule B; the latter is something that the IRS can see since it has access to old returns.

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  32. That is true, but unless foreign entities were involved, the foreign informational return would be the Form 8938. There are two potentially applicable statutes of limitations for Form 8938 assets. First, if omitted income related to those assets exceeds $5,000, then whether or not the assets are reported on Form 8938, a six-year statute applies. Second, if a Form 8938 is required for the year, then failure to file the Form 8938 will mean that statute of limitations that does not expire until three years from the date the taxpayer furnishes the information required to be disclosed unless the failure is due to reasonable cause and not willful neglect. The Form 8938 was first required for the tax year 2011. So, the unlimited statute would apply only for tax years 2011 and forward for which the Form 8938 was required. (Note that the six-year statute mentioned above applies with respect to income from assets of the type reportable on Form 8938 even for years prior to 2011.)

    Jack Townsend

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  33. Just to add something, there are now ten institutions in the IRS list, but there are certain banks rumored to be Category 1 which are not on the list; these are likely to be added soon.

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  34. Thanks. That could be right because fine distinctions this area are difficult.

    We understand negligence and intentional conduct. It is difficult, perhaps impossible, to pick out much nuance in the ground between the two.

    Jack Townsend

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  35. No. I don't think it makes any difference in terms of audit potential.

    Jack Townsend

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  36. Here's my understanding of the law. Code section 7701(b)(3) says anyone who has a work visa (NOT a US green card or a citizenship), must have passed the substantial presence test to be considered a "US person" and thus eligible to pay income taxes to the USA on their worldwide income. Substantial presence test is cooky formula which uses a prorated number of each year to add up to 183 days. So a person who is NOT a US Citizen or a US green card holder who never crosses 183 days in 3 year period according to the formula, will NEVER be taxed on his worldwide income. Even if he/she does, they can take the "closer to home exception." Thus they would never have any US income tax obligations, practically speaking..


    The US Green Card Holder or a US Citizen, who JUST happens to CROSS the 35 days in a calendar year (such that they have less than the 330 days abroad), can STILL qualify as a nonresident per Pub 54 (code section 911) rules because 330 days is NOT necessarily a calendar year period. A US Citizen or a Green Card Holder can have 8 months abroad in one calendar year, and just 5 months in another consecutive calendar year, (like from August 2012 to August 2013), and therefore qualify under Section 911 rules (Physical Presence Test). However, even if the IRS does not apply this portion of Section 911, meaning they want the 330 days to be abroad in a calendar year period, I think you can still work with the examiner to make them understand you are a Bonafide Resident. See the bonafide resident rules under Pub 54 (Section 911).

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  37. I agree. Here's another part of the new streamlined procedures:

    "Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program (OVDP) and should consult with their professional tax or legal advisers."

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  38. I seem to recall reading in the IRM that merely checking no, in and of itself, is not wilfulness.

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  39. I disagree. I had someone just receive the treatment on the new Streamlined Procedures for Domestic Taxpayers (SDOP), even though all of his Schedule Bs for 2005-2010 were marked "NO.". It's always, case, by case.

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  40. I don't think so. If the violation occurred while she was a US person, renouncing her citizenship would not preclude assessing the penalty after she was no longer a citizen.

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  41. My opinion, NO, it's NOT willful -- but then again, it's on a case-by-case scenario. The burden of proof of willfulness is on the IRS. There has to be a pattern of willfullness of the taxpayer, and the background of the taxpayer has to be taken into account as to their ability to understand what is legal and not legal. I just had a case where the OVDI examiner afforded the new SDOP (streamlined) procedures for the 5% penalty, but that does not mean the IRS can't still go after the taxpayer, although it's still highly unlikely. Not checking the box or marking it no, is not the same as a repeated patter of willful conduct, erroneous deductions, and someone actively working with a 3rd party to hide assets or income. It's always a case by case scenario.

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  42. Here's one thing I've quite concerned about for people in the OVDI, assuming they can't get the assurance from their OVDI Examiner & his/her OVDI Examiner's manager to not then pursue criminal or civil penalties. This is from the following link:

    http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

    "Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program (OVDP) and should consult with their professional tax or legal advisers."

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  43. An additional advantage of transitioning from OVDI into Streamlined prior to July 1 is that if the IRS does not accept your certification that you are nonwillful, you still are in OVDI and still have the choice to either pay 27.5% or opt out.

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  44. Wonder if the IRS would accept the "bona fide" residence test for these Canadian snowbirds. This is also a part of Section 911, and in Pub 54. The physical presence test (330 days) according to Section 911, doesn't have to be in a calendar year, but for purposes of SFOP, this might be applied per calendar year purposes. I guess we might have to have a 'wait & see' approach to see if Examiners will allow borderline people who don't quite meet physical presence test rules, but might fit bonafide presence test rules to then be able to fit in the SDOP or SFOP procedures. Seeing as how FAQ 52 has been entirely deleted, and that the IRS wants more minnows to simply report last 3 years and be compliant through SFOP & SDOP, the Examiners and committee might be quite lenient on this regard. However, I am most concerned on the following, assuming someone enters the SDOP or SFOP:

    http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

    "Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program (OVDP) and should consult with their professional tax or legal advisers."

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  45. So, in the case where years not submitted via Streamlined Procedure (yrs 4+) includes income attributable to foreign financial assets that exceeds $5,000, are those years subject to assessment with the possibility of full penalties? If so, should these years be included in the Streamlined Procedure Submission?

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  46. McDougal says that a person is non-willful if he "isn't really worried about being prosecuted."

    No, sir. How the IRS handles opt-outs has been a "black box" for a long time and it has been said that much depends on the subjective judgement of the agent handling the case. Except in the clearest situations at both ends of the spectrum, there is a huge gray area, as well as intimidating statements from the IRS FAQs as to potentially huge penalties and possibly criminal prosecution which scares people away from opting out. This is coupled that even if the taxpayer eventually wins the war, the cost of legal fees to fight a willful determination is huge.

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  47. So if any of the years 4-6 are still open to assessment, should that be included in the Streamlined Procedure submission? Are these years subject to penalties if they are not included in the Streamlined Procedure submission?

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  48. For those who have signed off on 906, I have not seen any relief in the IRS notes.
    I did not opt out due to the uncertainty of civil penalties (lots of small accounts over multiple years), not because my conduct was wilful. It looks like people who waited are getting a better deal than those who came in early. Is there is a way to appeal for such closed cases to be given the privilege of being able to opt for the 5% penalty instead of the 20, 25 or 27.5%?

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  49. Jack quick question if i have a domestic issue in my 2010 tax return should i fix it in Streamline domestic process even though the SOL has expired?

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  50. in the Certification by US Persons -> Amount of Tax I Owe, is it just the Federal deficiency or includes State deficiency also?

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  51. The following question refers to people already in the OVDP that would apply/ fall under the transitional rule: Here is the question: The Certification for the streamlined procedure, says: "I recognize that if the IRS receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties…or even referral to Criminal Investigation". FAQ 8, Transition Rule, states that "If the IRS does not agree that the taxpayer is entitled to transitional treatment, the case remains governed by the terms of the OVDP in which the taxpayer is participating" - QUESTION IS: Isn't transitional rule 8 opposite or at odds with the statement in the Certification that "I recognize that if the IRS receives or discovers evidence of willfulness…….it may open an examination…..civil fraud penalties….even Criminal Investigation"? If someone is under the protection of the OVDP, how could the Certification statement described above apply at all? They are mutually exclusive, are they NOT? would highly appreciate Jack's response!!

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  52. Jack i had a foreign corp closed in 2008 but the bank account associated to foreign account closed in 2011 transferred to personal account. Would i have an issue under domestic streamline process?

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  53. RON,

    You have presented an excellent question. I have been asked that question. Basically, the question is whether, if the IRS allows the OVDP to proceed with the streamlined penalty, does that mean that the IRS cannot contest willfulness or even claim that the certification was false. I think we will have to wait and see on that. However, my gut reaction is that there is risk to all persons making the certification where the certification is not true -- whether in OVDP or not -- and that the willful actor does not get a free pass by certifying in OVDP that he is not willful.

    Jack Townsend

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  54. I think it is just the federal deficiency.

    Jack Townsend

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  55. Yes, it is sort of like opt out. The same issues. If the taxpayer is willful, he should not streamline or OVDP with opt out. If he is non-willful, both streamlining and opting may be options (in OVDP opt out, of course, the nonwillful penalty analysis should be considered).

    Jack Townsend

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  56. The streamline wiil require an amended return for 3 years and all problems should be fixed on the amended returns. Otherwise you commit another crime -- at least tax perjury by filing an incorrect or false amended return.

    Jack Townsend

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  57. Any idea if this new program is open to those who have been reporting
    properly for the last three years, but have incomplete returns prior to
    that?

    In 2012, after learning about the FBAR and all the other
    things we had not been including in our tax returns, including foreign
    investment income, my wife and I decided to not enter OVDP. For 2011 tax
    returns and on we have been completing our tax returns in compliance
    with the foreign reporting requirements. We have not gone back and
    amended returns prior to 2011 for fear of the "quiet disclosure"
    warnings on the OVDP FAQs.

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  58. D. Datkar,

    I am not aware that there is a way to open a closed case.

    Jack Townsend

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  59. I don't think they should be included in the streamline package. Just remember that the years are still open and the IRS could ask you to file or could audit for those years.

    Jack Townsend

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  60. Like many tax practitioners around the country, I have been analyzing the new OVDP and Streamlined rules. I'd like to bring up an issue that I believe has not been fully addressed: the possibility that the IRS takes issue with a "non-willful" representation in a Streamlined disclosure. Of course, if there are blatant facts that would support willfulness, e.g., a foundation or trust or corporation to disguise true beneficial ownership, or a diversion of taxable income to an undisclosed account, then the applicant would crazy to enter the Streamlined program.

    But what about, e.g., an account where the US owner withdrew funds? Assume further that this is the sole "bad fact", and there were no other indicia of willfulness. We know that there is case law that holds that use of the accounts (withdrawals) coupled with failure to "check the box" on Schedule B of Form 1040, constitutes willfulness. So, in the absence of any other "bad facts", is a taxpayer who withdrew 2,000 Euro while in Europe not eligible for the Streamlined program? Or, asked another way, if the IRS will see withdrawals on the bank statements, what is the possibility of the IRS now rejecting the non-willful submission? Further, what would happen next, an automatic 50% penalty for willfulness, or a full examination and application of all available penalties?

    It seems to me that there is serious potential for the IRS to find "willful" factors in many Streamlined applications. There is thus a serious risk for many (domestic) submissions claiming the 5% penalty. Seems to me that only the very squeaky clean applicants may assert the 5% penalty. For all others, the potential for the IRS rejecting "non-willfulness" may be very high, with serious negative consequences for such rejection.

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  61. I think the way the program is designed is that there will be no assessment with respect to offshore accounts in years earlier than the 3 year period, unless the certification of non-willfulness is false. However, if there are issues other than offshore accounts, I am not so sure, but do note that the certification addresses all underpayment issues, whether offshore or domestic. So, a fair inference could be drawn that, baring willfulness, the past is closed.

    That seems to me to be the best result administratively.

    But, having said that, you should remember that, if there is a good certification, all years are at rest. If there is a bad certification, all is open. And, conceptually, events in the earlier years could be dredged up to prove that the certification was false.

    Jack Townsend

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  62. DITTO. The specific reasons they are asking the tax payer for in Page 5 of the certification... that seem to be ALREADY written for the tax payer right in the top of that page.

    "My failure to report all .... was due to non-willful
    conduct.... negligence, inadvertence, or mistake....or conduct that is
    the result of a good faith misunderstanding ... law."

    So I am not sure what more specific reason(s) taxpayer would give? Other than rephrasing the same paragraph and some wordsmithing it and saying sorry? Do they want the tax payer to like substantiate something? Is the burden on the tax payer to prove he's non-willful?
    Thanks!

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  63. Thanks Jack..


    Also for which years should we do the amendments? There seems to be confusion whether we need to do 2010

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  64. Jack, I see that the two part statute of limitations exists in the instructions for 8938, however, I can't seem to see that anywhere in the SDOP page. I am assuming you are stating this in a regular filing scenario, not in the context of any voluntary disclosure program. Correct?

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  65. Do I read it right that the 5% offshore penalty also applies to signature only accounts that should have been in the FBAR but were not? It also looks like even accounts that had no tax due get into the offshore penalty. Or does the "my" in the Consent form means only the personal accounts?

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  66. The SDOP & SFOP program is for the last 3 years of income tax reporting & last 6 years of FBAR reporting. I am assuming you want to be compliant with your FBARs since you mention you've already been properly reporting for the last three years. Currently, to be compliant through SDOP or SFOP, assuming one's prior incomplete returns & FBARs are due to nonwillfulness alone, the SDOP, right now, simply wants 2012, 2011, & 2010 returns to include all foreign income & assets. Once October 15th, 2014 passes, then the returns to be submitted would presumably "roll forward" to 2013, 2012, & 2011 years in SDOP & SFOP. I am assuming the same is the case with FBARs, once deadlines have passed for those filings. If one signs the certification form now (http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf), then presumably, the IRS would NOT look back beyond 2010 except to investigate for willfullness. But here is the kicker, and why I personally am not moved by the SDOP or SFOP program:

    http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

    "Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate."

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  67. I agree with Ron's assessment but also with Jack's. I I can also see how the IRS can use both programs FAQs to then come back and haunt a taxpayer for willful conduct accusations.The certification statement is so the IRS can then have a "gotchya" moment. With OVDP however, most of the background check is already done, so a taxpayer having been PRECLEARED for OVDP, should, in my opinion, NOT have to worry about criminal or willful accusations being levelled against them unless the IRS truly does find evidence to the contrary (like if a foreign bank reports information contrary to what the taxpayer submitted, etc. etc.).


    I currently have an OVDI examiner who told me that when you do NOT check the box at the bottom of schedule B, the taxpayer is going to be deemed, willful violator in an opt out situation. Fair enough (no matter how ludicrous that sounds)


    However, she just approved that SAME taxpayer, after 2.5 years of being lodged in the 2011 OVDI, for the NEW June 2014 SDOP, thus leaving it to the taxpayer to sign the certification declaring himself that he's not a willful violator. Okay, so now, he's on his litle boat on the sea, without the criminal protection of the OVDP. Meaning, under the OVDP, it does not matter if a person is willful or nonwillful, because the person is IN THE PROGRAM and is afforded protection against criminal wrongdoing. By having the taxpayer certify his nonwillful conduct in teh SDOP or SFOP, and later finding evidence to the contrary, that taxpayer is now prime meat for Criminal Investigations.


    But the funny thing is, the SDOP & SFOP is also PART and PARCEL of OVDP, so I do not understand how the criminal protection can't still stay because the taxpayer never had to OPT out of the OVDI in the first place! The inconsistency is not with just the programs, but with examiners themselves, who do not seem well versed in the new program yet.

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  68. I am not sure what the question is.

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  69. The FAQ says:

    For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed.

    Thus, if you filed your 2013 return timely, the three three years would be 2011, 2012 and 2013. If you have not yet filed the 2013 and are on an extension, the three years are 2010, 2011 and 2012.

    Jack Townsend

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  70. If in any year WITHIN the SDOP or SFOP, a missing informational return would presumably be a moot point, once the 906 closing is signed. So the statute question applies as to a missing informational return in a scenario when a taxpayer is simply filing a return normally, not in any disclosure program. So your answer as to the 6 year statute or the 3 year statute would apply only in a scenario where taxpayer is NOT submitting his returns through any streamlined (SDOP, SFOP) or OVDP program disclosure. Please confirm.

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  71. If I can make one comment on the above points of the Forum: if Mr. McDougal is saying that the IRS is expecting taxpayers' practioners to help their clients work their way through what the risk is of criminal prosecution and significant penalties, then OVDI examiners should not be making an assertion that taxpayers would or would not be willful violators in any Opt Out situation. It seems that OVDI Examiners and their managers are at odds with and not ready to accept that "the concep tof willfulness is well documented in the case, law." I think minnows need reassurance that willfulness is on the burden of the IRS. I don't have a case to cite, but I think bad behaviour and background of the taxpayer are really what the IRS is looking at with the taxpayer.

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  72. One highlight of the new SDOP/SFOP is that it does not include the asset value of the foreign real estate, EVEN if it makes foreign rental income. OVDP penalizes a taxpayer for the value of the foreign real estate if it is used to make foreign rental income. Other than this highlight, I am not advocating SDOP or SFOP.

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  73. Jack, I am in 2011 OVDI with agent assigned but 906 not closed. I have paid 2003 to 2010 tax, interest and accuracy penalty. I plan to move into the streamlined program. Is there a chance getting accuracy penalty payments back? I cannot (morally) expect the tax that was properly due to be refunded. I will have to pay 5% misc. penalty as part of domestic (U.S.

    resident) streamline program. I am thankful to the IRS for modifying the program and considering the plight of minnows such as myself. Opting out was a dreadful option for us even though the tax due was small and if not for the streamlined procedures I might have ended up paying 800% (@27.5%) of the total tax due (2003 to 2010). Now with the new program I will be paying a little over 100% of tax due. That seems fairer.
    Thanks

    ReplyDelete
  74. I filed for extension and filed my 2013 on May 20th along with the FBAR. However now I realize one of the smaller inherited account (which was closed on 2013 and earned minuscule interest) was left from 2013 and I need to amend the same for 2013

    So do I need to do amendments for 2013, 2012, 2011 and 2010?

    Thank you....

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  75. Michael J. MillerJune 23, 2014 at 7:24 PM

    Comments like this are distinctly unhelpful. I, for one, would rather I didn't have to waste time on off-topic rants to get the information I'm looking for.

    ReplyDelete
  76. Michael J. MillerJune 23, 2014 at 7:34 PM

    Anon, I don't have the guidance in front of me, but I'm fairly sure there's no chance of getting the accuracy penalty back.

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  77. What would be the treatment under SOFP for the whole life savings of a
    person that has not filed any kind of taxes in US for his CFC during 20
    years? Let say the person has saved 1 million dollars.

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  78. Does "Form 906 Closing Agreement has been fully executed by the IRS" mean the form has been signed by the taxpayer, received and processed by the IRS, or does it mean the IRS has already sent the from 906 to the taxpayer?

    ReplyDelete
  79. Jack if i hear you correctly all mistakes little or erroneous on tax return 2010-2012 should be fixed in Domestic Streamline process? But wouldn't fixing your domestic mistake make it willful?

    Thanks

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  80. Jack, I just filed the 2013 FBAR, and will also be filing my 2013 1040 (for which I got an extension) in the next 2 weeks. So when I enter SDOP sometime in July, do I file FBARS for 2008,09,12,11,12 (+ 2013 already filed = 6 FBARS), and amended 1040s for 10,11,12? Or should I include the 2013 1040 with the SDOP package that includes amended 1040s for 10,11,12? Thanks!

    ReplyDelete
  81. Hi Roy,
    Is this what you meant by "I have it on good authority that the the Snowbird Trap ("Snowbird Skeet Shoot" is probably a more apropos description) was unintended and will likely be clarified soon.?"



    Maybe no one has an answer to this, but why would they provide a streamlined option for people who live here and filed incorrectly but not people who have a foreign residence with evidence that it is their domicile and wouldn't even meet the substantial presence test but who didn't file because they didn't realize they had to? And they know it's going to cause a problem for snowbirds yet they chose the 330 days rather than the substantial presence test.


    I'm having a difficult time reconciling that there is a substantial presence test used to determine if someone is a U.S. tax resident, yet for the program they chose to use that standard only for those who live abroad without green cards or U.S. citizenship rather than applying it to all who live abroad. The IRS says they want people to come forward and then created the Snowbird gap. Brilliant policy decision, Jennifer Best.

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  82. What comments?

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  83. What about the US resident taxpayer, a chronic non-filer who planned to use FAQ52, allowing for a 5% OVDP penalty for undisclosed accounts that were inherited or opened by family members on her behalf? Now she can't qualify for a 5% penalty (it's been eliminated) under OVDP. Nor can she qualify for the streamlined domestic offshore procedures, as those seem to require that she have filed the 3 preceding year returns.

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  84. Roy - thank you, I saw your comment on the other post and commented before I saw this comment. Was the IRS comment made in the Tax Controversy Forum? I didn't quite get the circumstances of the comment. Without disclosing more than you can, what was it that made you think the Snowbird Trap was unintended? I'm asking because then perhaps there still is hope?

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  85. I really hope the IRS reads these comments because according to J. Best, if someone spends a substantial amount of time in the U.S., they need to be responsible with respect to tax obligations - then why exactly did they provide a procedure for U.S. residents with a 5% penalty who reported incorrectly? The least they could do is allow everyone who is non-willful to have some avenue to come into compliance.

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  86. Milan - you wrote "work with the examiner to make them understand..." Do you mean in OVDP (going through that long and arduous process for the same result as streamlined had they been more inclusive) or in an audit?

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  87. Is there a Form 906 closing for the streamlined procedure at all ? I don't think so.

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  88. 2011 OVDI, still not closed ? That's a long time -- it took over 3 years to handle your case ?

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  89. One needs legal systems to prove guilt, not "your view of reality" or "your view of history". Relying on generalizations to make accusations against the innocent by lumping them together with the guilty doesn't prove that those generalizations don't suffer from the same problems experienced by other forms of bigotry. It is this bigotry which is the core of most of the problems in the world, a bigotry which you'd rather honor than to stand up against. How can one who relies heavily on generalizations seriously oppose tax crimes?

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  90. Censorship in defense of bigotry. Such was a favored practice of the Nazi regime. Is this America's desired future?

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  91. There was some discussion of the "snowbird trap." There are others who fall through the cracks ... What about the chronic non-filer LPR taxpayer who would have qualified for a 5% penalty under former OVDP FAQ 52. Such a taxpayer can't qualify for SDOP due to being a non-filer. No more 5% OVDP penalty. Failing to file returns at all seems pretty willful. Even assuming there was no unreported income or tax, the taxpayer seems stuck with FBAR penalties. Quiet disclosures or hiring counsel to slog though opt-out seems perilous. What should such a taxpayer do? .

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  92. And what about the US resident taxpayer with nonwillful undisclosed foreign financial accounts but no unreported / unpaid tax during the past 3 years? If such a taxpayer had some unreported income during the 8-year OVDP period and submitted an offshore voluntary disclosure letter with the intention of opting out, they are still stuck with opt-out since they can't qualify for transition to SDOP. SDOP requires that there have been unreported income in the 3-yr look-back period. Again - expensive opt-out for relatively small fish taxpayers

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  93. OVDP and Streamlined filing makes sense for people who live in America. So, why can't the US government figure out how to tax the 300+ million people living in America who access the American infrastructure without threatening and harassing a couple of unrepresented expats simply because they pay local taxes to the local non-US jurisdictions where they live which finances the local non-US infrastrutures that they use?

    ReplyDelete
  94. Nobody hates the American expat greater than the stateside American.

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  95. Much censorship is needed to defend America's hatred of the innocent expat. Jack, you'll be censoring criticism of American crimes for as long as they continue to exist.

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  96. One more question: doesn't the wilfulness standard differ between civil and criminal cases? Is the "wilful blindness" acceptable in a criminal case where generally, specific intent to commit a crime is required. If not, then the question is, which wilfulness standard are they requiring for the certification? Finally, in terms of being criminally liable for a false certification, it still seems to me that it would be very hard to establish intent, given the difficulty of differentiating wilfulness and non-wilfulness

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  97. Thanks Michael that really needed to be said.

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  98. The new SDOP defines:
    "A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered FBAR period if the asset should have been, but was not, reported on an FBAR (FinCEN Form 114) for that year"
    Then the Certification form says to list
    "my foreign financial assets"
    Would you read "my" as my personal assets and only my personal assets, or would you read "my" as any account that should have been listed in "my" FBAR forms?
    In other words I am wondering if I need to include the signature only accounts.

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  99. It says the below too..

    A foreign financial asset is also subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset was properly reported for that year, but gross income in respect of the asset was not reported in that year.

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  100. Seriously, seriously? As much as I think it is worth discussing the policy behind CBT, what is discussed on this forum, by whom and how, should solely belong to the person who created and maintains it. As far as I can tell, there is no governmental action here, and thus, censorship claims are quite silly. Jack would fully be in his rights to prevent all comments, to select only those he likes, only those written by people whose names he likes or indeed, only those who fit some irrational criteria that he decides. We have no more right to comment on this blog than we do to go into his house and express our opinions. I think a bit of perspective is needed.

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  101. Good question. I am in the same boat. IMO you have done 2013 correctly and done 2013 fbar before Jun 30th. So SDOP will span tax amends for 12, 11, 10 and fbars for 07,08,09,10,11,12 since those fbar due dates have passed (if you had > 10k in each of those years).
    This is because the procedure says: "(2) for each of the most recent 6 years for which the FBAR due date has passed (the “covered FBAR period”),"

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  102. The willfulness standard is the same in a criminal and civil context except as to proof of willfulnees. In a criminal case, the proof must be beyond a reasonable doubt. In a civil case, the proof must be by a preponderance of the evidence (right now, based on limited authority, the consensus view of the courts) or clear and convincing evidence (which I think is the right burden for FBAR willfulness).

    I do think that the IRS / DOJ would have a tough time establishing an intentional falsehood in the certification of non-willfulness for purposes of pursuing a crime for signing the certification. However, if it wanted to use to treat that certification as false for some civil purpose -- such as in the mix of proving willfulness for the original delinquencies, then it could be used.

    Jack Townsend

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  103. In the first paragraph under "Description of Scope and Effect of Procedures", IRS says "for each of the most recent 6 years for which the FBAR due date has
    passed (the “covered FBAR period”), file any delinquent FBARs".

    To me the word "any delinquent FBARS for the most recent 6 years" AFTER July 1 2014 means the FBARS for 2008-2012, since I have just filed 2013, and the most recent 6 years are 2008-2013 (total of 6). Jack, would appreciate your opinion if my interpretation is correct. Thanks!

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  104. I did not know that. Wilful blindness in a criminal tax or other similar context is quite scary, as it could easily be expanded beyond the narrow scope to which it should probably be applied. Also, wouldn't it make a Cheek defense difficult?

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  105. I am not sure why 8938 instructions and statute come into play. None of the $5,000 income threshold would matter for an 8938 asset because the SDOP is a closed ended program unto itself, correct? If a taxpayer were SIMPLY filing an 8938 OUTSIDE of any voluntary disclosure program, yes, the statue for 8938 assets would very MUCH be in play. I guess I am confused here as to why the 6 year or 3 year statutes for 8938 assets matter in the context of SDOP or SFOP.

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  106. I think for SDOP we have to amend only 2011 , 2012 and 2013. Year 2010 is already closed and due date for 2013 is already over. What is the need for amending year 2010.

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  107. I applied for pre-clearance going for the faq 52 -5% penalty and it should come back any day now. but now I wonder if I should go through the OVDP. For the last 8 years covered period Have filed 2006-2010 returns on time with no tax liability, FBAR 2006-2009 omitted POA accounts and pension accounts. Filed 2013 return and FBAR on time before 6/30 disclosed everything. Filed the missing 2011 and 2012 returns in May with correct information and paid all taxes plus penalties. Should I just file amended FBAR for 2008-2009 and missing FBAR 2010-12 and hope for the best? Or keep going with OVDP and switch to SODP?

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  108. So is there now any reasons whatsoever to go into the OVDP if you know you will opt out instead of choosing streamlined directly?

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  109. Jack - Can you please respond to the above? Do i need to do amendment for 2010 also?


    Also do we need to include the 5% real estate value (rent yielding) in the SDOP or SFOP application?


    Thank you...

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  110. For taxpayers with inherited overseas accounts, I believe it's a common situation where withdrawals are made as needed for expenses when visiting. These accounts were not setup to avoid taxes. The misunderstanding amongst most immigrants may be that checking the box in Part B pertains to taxpayers who have set up accounts overseas by sending $ from the USA. I would say the vast majority of immigrants who inherited money overseas would be guilty of "willful" conduct, based on your post. What would be a reasonable thing to say as an excuse under this situation?

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  111. Desi b,

    I am swamped with my regular work, trying to understand the new rules, responding when I can to comments, visiting with and enjoyning my grandkids who are with use for a week.. I apologoize that I cannot attend to these timely and given the quantity of the requests for my responses sometimes not at all.

    I can't address you 2010 issue.

    I can say that only foreign financial accounts are included in the Streamlined calculations for the offshore penalty. So, real estate is not included.

    Jack Townsend

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  112. No. Except that, at least at the end of the opt out audit, there is no longer any uncertainty. If the taxpayer does not go into OVDP and opt our or do the streamlined, there is uncertainty until all statutes of limitations close (or at least the years are so old that the statute of limitations is irrelevant).

    Jack Townsend

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  113. Thanks Jack.. you are a life saver! Hope you have a great time with your grand kids!


    Best Regards

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  114. Desi B

    Why not actually seek a consultation with Jack or another lawyer, pay them and ask these questions ?

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  115. Hmm I am confused. I am going to make this a general question / a quiz :)

    For those who have done extension for 2013, Oct 15 is the due date which has not passed yet. Assumption is that this person will do 2013 tax return the RIGHT way before Oct 15 (since he/she is now aware of foreign reporting needs) also complete fbar before 30th June 2013. So he/she is all good as far as 2013 goes.



    Now the need is to fix past years (i.e. before 2013) via SDOP... (Let's also assume the person had a need to file FBar for all past years)

    So if this person files for SDOP say in August 2013:
    a. What previous years should be amended? (2013 was done correctly).
    b. What past year fbar should be submitted as part of SDOP? (2013 fbar was done correctly).


    Thx

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  116. I did .. things changed after the intro. of streamlined procedure

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  117. Jack,


    don't you think the certification you signed when entering the streamlined makes any difference in case they find you willful in an audit in the streamlined as opposed to going trough the OVDP, then opting out and then found willful?


    Proving that someone don't believe themselves to be non-wilful while signing the certification sounds even harder than proving that they actually were willful in the first place.



    Well if the certification does not have a practical difference, it would mean that after making your math, and you are sure you will do an opt out in all events (perhaps even willful penalties in your case is better because real estate is involved), the decision to streamlined instead of opt out is really not weather you think the IRS will find you willful (which is at the heart of the certification you make) but weather you think there is a real risk of prosecution when all cards are on the table. Did I get that right? Or is there real-life examples of prosecution after asking for an opt-out?


    I would love to get all readers to chime in on what would drive real risk of prosecution in these cases. Is there a dollar amount (or a ratio to tax paid) on the tax deficit that at least need to be there for IRS to prosecute? Or is it based on the amount of underreported income regardless of actual tax owed (remember that most international tax issues there is a foreign tax credit that will mitigate tax). Or something else, what if so?


    There has been a lot of discussion about what is willful here. Perhaps we would make everyone a big favor by discussion what really creates criminal risk for a bit.


    As stated above "McDougal sais that a person is non-willful if he "isn't really worried about being prosecuted.

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  118. Jack can one join the 2012 ovdp without going the preclearance just to retain the option to streamline through the ovdp? I understand your point about the certification outside and in the ovdp but the ovdp->streamline option might be valuable if the IRS treats the certification differently inside the ovdp

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  119. Is there any reason to go into OVDP if streamlined is not an option due to the Snowbird gap yet you know you will opt out under OVDP?

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  120. A question on the definition of financial accounts, in particular, securities accounts (via a 3rd party). The question is: to what extent does a nominee relationship (ie., the separation of registered owner and beneficial owner) create a financial account. In this case, shares in a private company held via a nominee, who holds directly on the share register (ie, the shares themselves are not held in any account). The nominee is not in the securities business (and is not regulated to do any business with securities) but rather, is a subsidiary of one of the myriad accountancy/legal firms that provide, among other things, nominee services. Clearly, the nominee relationship creates the "financial interest" in the shares, but would it also create a financial account where none otherwise exists? Anyone have experience or thoughts?

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  121. Anna R,

    The predicate issue is whether the person really would have opted out and has done the necessary work to reach that conclusion. That is the big issue. Needless to say willful actors would not opt out. And depending upon the facts, even some nonwillful might not want to opt out as well. But, assuming that the person has determined that he or she is non-willful and will be able to establish that fact on opt out and will be able to achieve an acceptable opt out audit result, your question is whether the person should go into OVDP in the first place. That is a good question.

    That is an environment where options other than OVDP should be considered.

    Jack Townsend

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  122. My understanding is that, in the past, one could go straight to the OVDL intake letter without preclearance and just take the risk of not being accepted into the program after giving the IRS a lot of information that would not have been provided had preclearance not been approved.

    Having said that, since preclearance denials are rare (but not unheard of), the taxpayer might want to go straight to OVDL intake letter if he or she thinks it is important to do so.

    Jack Townsend

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  123. Swede,

    I may not answer all of the nuance you seek but I will try to bullet point what I see on a quick read.

    1. Given the uncertainty in the definition of willful / non-willful, particularly for lay people signing the certification, I do think that the Government would have had hard time proving a deliberately false statement in all but the most egregious cases. But, keep in mind, the Government is not likely to criminally prosecute many certifiers given pressure on resources and prosecution priorities. But, if it spots egregious cases of certification, I suspect it will prosecute. I expect to see at least one prosecution where an allegedly false certification is the basis for a count in the prosecution or a prominent item of proof of willfulness as to other counts.

    2. I have heard some say that, since it is not likely the Government will prosecute allegedly false certifications, it is a no-brainer for the taxpayer in OVDP to do the certification in order to get the lower offshore penalty. The thinking goes that the worst that can happen is the IRS denies the streamlined in which case the taxpayer can proceed under OVDP and even opt out in cases where even the risk of a large FBAR penalty would be acceptable because of real estate or some other financial asset skews the cost of the offshore penalty. I think one needs to be very careful in that type of planning. As I note above, if you are clearly a willful actor, the false certification could independently create problems.

    3. I don't think anyone can give you any real assessment of the real risk of prosecution. The risk of prosecution is so fact dependent that any generlized observation could not form the basis for taxpayer choice. For example, over the universe of taxpayers who commit tax evasion, I dare say that the Government prosecutes less than a fraction of 1% of the taxpayers. But, within that universe, practitioners should be able to determine the type of characteristics that would more likely be subject to prosecution if the Government became aware of the facts. Hence, focus on the facts and nuances is critical to assessing risk of prosecution. I am not aware of any formula that the IRS and DOJ have with respect to prosecutions, other than the Government does not usually prosecute low tax due cases because convictions are more difficult and meaningful sentences -- driven principally by tax loss -- are not given in tax cases.

    Jack Townsend

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  124. I am not sure of the answer to this question. I just have not focused on it and do not have the time to divert to it. If and when I do, I will likely post something on it.

    Jack Townsend

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  125. Jack if someone has send Pre Clarence letter but not the intake letter can he automatically apply in Domestic streamline process?
    My CPA tells me yes but a lawyer tells me that you need to send in a fax to put your case on hold?
    Can someone please let me know what to do?
    Thanks

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  126. A big THANK YOU to TAS for influencing the IRS in making these changes. Earlier, the IRS had buried its head in the sand. The IRS knew that minnows how made honest mistakes were being made to pay atrocious penalty for minor errors but did not want to take quick action to correct them. This despite many groups (e.g. Indian community) tried to highlight the shortcomings of the OVDP program for non-wilful, hardworking taxpayers including immigrants. I strongly feel that people in the IRS that were responsible for this debacle need to resign. I don't know who in the IRS office of RosemarySereti designed this program. It made money from IRS but was partly a shake down program. The modification to the program indicates that IRS has finally accepted that its program was not fair. Even the transition rules for current OVDI participants makes them pay more (8 years) than people who did not come forward earlier. That shows the kind of shallow thinking that goes into the design of such programs.

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  127. My understanding is that, if you have not sent in the OVDL intake letter (the step after receipt of the preclearance), you can do nothing else in OVDP and go streamlined. However, I think that an IRS representative on a panel yesterday say the, if you are not going to complete the OVDP process, you should write a letter withdrawing from the process. I don't think there is a hold procedure on that.

    There is a further nuance for those who have already submitted their OVDL intake letter but have not submitted the final package. Those people can withdraw before July 1, 2014 (should do that by letter) and proceed only under streamlined. If persons in this category do not withdraw by 7/1/14, they will be processed under the transition rules which are not quite as favorable in key respects as just proceeding under streamlined.

    Jack Townsend

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  128. Jack,
    For a tax payer who submits the certification in SDOP citing that he wasn't aware, negligent etc... is the burden of challenging that and proving willfullness on IRS? is that quite a bit of work on their part or can they simply send a letter saying that hey taxpayer we think you are willful...
    (without substantial facts)

    (On the flip side, the certification that a lay person submits in SDOP stating that he was unaware/mistaken etc... is there a burden on him/her to somehow demonstrate non-willfulness. Is that why the certification last page is asking for "specific reasons"?). Thx

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  129. Jack, what is that based on? That is not in transitional rules per se, which refer only to intake letter being fied as determining point it would make sense, though.

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  130. Notice that the article, in a back-door sort of way, praises the prosecutors on the UBS case (during the Bush years) and is critical of the prosecutors in the Credit Suisse case (Obama).

    What Ms. Browning fails to disclose is that she was very close to the prosecutors in the Bush Tax Division. She routinely published their quotes as anonymous sources when they were forbidden from speaking on those matters, and even when the information contained within those quotes was often misleading. She got so close to one of them that she knew the details of his family situation and schooling of his children. Her reporting almost bordered on cheer leading the DOJ back then but all that stopped when these prosecutors left the DOJ.

    She was carrying the Bush DOJ prosecutors' water back then and she continues to do so today with this recent article. These former prosecutors from the Bush era on the UBS case can't resist giving a backhanded slap to their successors in the Obama DOJ on the Credit Suisse case. Sometimes, they don't know when to stop trying to pump their own tires and their own egos to the detriment of their successors in the same job. Politics is a year-round obsession in DC, even at the DOJ.

    But hats off to Senator Levin's subcommittee. The bipartisan carpet bombing that Senators Levin and McCain gave to the DOJ brought instant results, even though the account holders' names at Credit Suisse were not surrendered. The lack of names is a valid criticism. But the undercurrent of "I was better than you are" between these prosecutors is embarrassing.

    UBS got off very easy in its own way, but that's a story for another day.

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  131. Milan, looking for a CPA to help. Can you please post your contact info? Thanks

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  132. Jack that is incredibly helpful. Where does it say that? I understood the transition rules to say if your letter and attachments had been submitted, you had no choice but to seek permission to benefit from the reduced OSP penalty

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  133. Michael J. MillerJune 26, 2014 at 4:49 AM

    At least ordinarily, signature-only accounts are not subject to the miscellaneous offshore penalty in the OVDP. See FAQ 38 (albeit with some wiggle room for the IRS in certain situations). I'm sure the same rule applies under the SDOP, e.g., because they would not have intended to treat SDOP taxpayers more harshly than OVDP participants.

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  134. Michael J. MillerJune 26, 2014 at 5:32 AM

    MM, two things to point out. First, I don't assume that a non-filer LPR would automatically be presumed willful. If the person was aware that LPRs are required to file returns and/or FBARs (the latter only since 2010), then of course s/he would be willful, but that may or may not be true in a given case. Second, such a person could still (if s/he moved VERY quickly) join the 2012 OVDP in order for the 5% to still apply (assuming the requirements are met) by submitting the OVDP intake letter with attachments by June 30. Whether that's the best option, I don't know, but it IS an option.

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  135. Michael J. MillerJune 26, 2014 at 5:36 AM

    A word of caution about the 5% for inherited accounts: it's difficult to meet The IRS is very stingy about it. But if I thought I qualified I'd strongly consider hurrying into the OVDP (including submission of the intake letter and attachments) by June 30.


    Also, just an observation about the "old" 5% penalties that disappear under the new FAQs. In my view, at least, the IRS was using the requirements for the 5% as imprecise but relatively objective proxies for non willfulness. Since they've now introduced a special rule for nonwillness, and accepted that they'll take on the burden of making that subjective determination, there's no need for the relatively objective proxies. So, from this perspective, it actually makes sense that the old 5% categories no longer exist.

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  136. Swede, I think there is a subtle difference between the certification in streamlined and the statement in OVDI. In streamlined you are certifying the conclusion that you are non-willful (as well as the facts you are presenting.) Under OVDI optout you are not certifying that you are non-willful; you are saying that the facts that you are presenting are true, but are asserting (or similar word which does not rise to the level of "certifying") that you are not willful, and are asking the IRS to come to the conclusion. So the risk is that after making the certification is Streamlined, the IRS may come back and say "you were clearly willful and your certification of nonwilfulness was untrue." That at least is how I understand it. So for those in the gray area it's an issue.

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  137. You are asked to file delinquent FBARs. In the case above 2013 is not delinquent since it was already filed prior to June 30, 2014. Keep in mind that the past-due (nicer word than delinquent) FBARs are filed electronically (Form 114 with the explanation under "Other" that it is for the Streamlined Program.) So you would not re-file 2013 if you have already filed it on time.

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  138. The 2013 due date may be over for you and others who did not request an extension. Those who have an extension until 10/15/2014 to file taxes would, as I understand the FAQs) have to file 2010 as well, and this would be the case even if they filed the 2013 return since the extended due date is hwat counts.

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  139. a) 2010, 2011, 2012
    b) 2008 to 2012
    This is how I understand it, not legal advice.

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  140. Can the transition form OVDI to Streamlined be done during the signing process of the Closing Agreement? The announcement of the new Streamlined procedures, caught me in limbo: I have signed the Form 906 Closing Agreement (after a long debate whether to opt out or not), but have not received yet the Form 906 signed by IRS. My case is a clear non-willful case (confirmed verbally by both agent and manager during previous conversations), which makes me a good candidate for the new Streamlined path. Can I still apply for the Streamlined Process, or is it too late. Do you know of similar cases?

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  141. I like your comment, but not sure what your point is.

    I like the Asimov quote, no matter how invalid of a defense it may be in a court or examination setting. Yes, Delaware is worst than Bermuda, or the Caymans. I'm pasting a link from the NY Times here to vouch for that. I had read it long ago, and it's still on google.

    http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?pagewanted=all&_r=0

    Yes, the US tax system is complex, inequitable, and needs improvement. Join the "queue."

    And yes, there are bad & good actors in Switzerland. But that's why we have US income tax treaties (model on United Nations models for such treaties), W8-BEN forms for nonresidents which Anonymous points out below, and why we also have enforcement by US treasury and its counterpart in other countries. Yes, the snowbirds get caught sometimes, but that's why the govt is trying hard (SDOP, SFOP, OVDP, now in its fourth incarnation).

    You don't propose any alternative. If the US had no enforcement, the terrorists (the inspiration for the Patriot Act and enforcement of Code 5329), druglords, mobsters, corrupt businessmen & various other white (and nonwhite) collar criminals would have a field day.

    We need a good balance between enforcement, compliance, explanation of the law, reprieves, and tax collections. The OVDP programs have only collected $6B; I believe the IRS's budget is only $12 B. So the OVDP is run at far below cost. The IRS is trying I think, and they deserve some credit for now coming up with SDOP & SFOP.

    As long as America is on the map for criminals, terrorists, and other would be wannabes, the US Citizenship based tax system is here to stay.

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  142. An American being a CEO of a multinational corporation is no different than an Indian-American being a CEO of an American multinational corporation (Indra Nooyi of Pepsi), and provides no relevance to any purported racism by anybody, anywhere. Point blank. Jack's blog is the best forum for understanding OVDP and IRS laws I've seen till date. We all owe a great debt of gratitude to Professor Townsend. I certainly do.

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  143. If Jack stopped making generalizations, then I would have nothing to criticize. A good undersanding of OVDP doesn't excuse bigotry.

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