The prepared remarks cover the history of the offshore enforcement initiative since UBS in 2009. But the remarks acknowledges that the design of the voluntary compliance programs is not as fine-tuned to meet the overall goals of enforcement and fairness as they should be. Here are the key excerpts (bold face supplied by JAT):
Now, while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don't necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn't involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn't involve the threat of substantial penalties.
We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes. We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. We expect we will have much more to say on these program enhancements in the very near future. So stay tuned.The remarks also offer high level discussions of (i) FATCA and its implementation and (ii) the Base Erosion and Profit Shifting initiative, commonly referred to as BEPS. Readers of this blog are well aware of FATCA, although the key discussion in this blog has been in comments where readers express concern about FATCA itself and about some inconveniencies they believe have been visited on them by what they believe is the poor design of FATCA. BEPS has not appeared on this blog because it really is a larger issue dealing with the general subject of transfer pricing -- how to allocate the profts from cross-border economic activity of multinational corporations to the various countries contributing to the profit. I have heard it said that transfer pricing can be the tool for far more sophisticated tax evasion than bullshit tax shelters, but I have not spent time on it because it does not be a subject of criminal tax enforcement. Maybe it should, but it hasn't, so I just have not spent time on it in this blog.
Some early comments on Commissioner Koskinen's teaser about changes to OVDP are contained in the following Tax Notes article: Jaime Arora and William Hoffman, OVDP Relief Coming for Non-Willful Compliance Failures (TNT 6/4/14). [I do not have permission to offer the whole article, but those with a Tax Notes subscription can review the article.] Essentially, the article covers the ground covered above and then offers the comments of three practitioners to the effect that revision of the system to recognize more nuance and more fairness is appropriate. Since Commissioner Koskinen did not offer particulars, however, the comments are necessarily vague and general.
One of the comments in the article did suggest that the IRS could be more transparent about the real risks of opting out and would make the revisions retroactive if they would produce a better result than the taxpayer had previously agreed to. Caution: Those are just hopes as to what the revisions may include.
I will post details as soon as I become aware of them.
All in all, this is good news, at least from a hope perspective. Let's hope that the hope is justified and realized.
Just some comments:
1. One of the ironies of the design of the offshore voluntary disclosure iterations since the beginning was that it benefited the worst offenders the most. They were the ones who really needed relief from the risk of criminal prosecution and would be subject to the most onerous monetary penalties. But, those taxpayers whose conduct was less offensive to the tax system, did not need relief from criminal prosecution and should not be subject to onerous monetary penalties. But because of uncertainties as to how they may be treated should they not join OVDI/P, they often joined and then were discouraged from opting out because of the black box nature of what the IRS was doing with potential large monetary penalties should they opt out. For example, there was a risk that the IRS could imagine and assert at least willful blindness-- a concept that is of uncertain scope of and operation -- as a substitute for willful conduct to assert the willful FBAR penalty. My actual experience on opt outs have shown a reasonable application of the monetary penalties in all except one case -- a case which, in my mind, fully justifies the fears of persons who are actually nonwillful in their FBAR filings. My hope has been that, at least, the IRS would offer more concrete guidance about what it is doing and will do in opt outs so that taxpayers can make informed decisions. I have never understood the IRS's need to persist in black-boxing the opt out process.