IRS Issues More Liberal Streamlined Procedures and Makes Some Changes to OVDP (6/18/14)

The key documents on the changes are:

• IRS Commissioner Koskinen's News Release is here.
• IR-2014-73, June 18, 2014 is here; announces the changes.
• OVDP 2012 (as changed 6/18/14), here.
• Streamline Filing Compliance Process (as changed 6/18/14), here.  This is the description.  There are two types of Streamline filings:  Non-resident and Resident.  The Nonresident program -- referred to as Streamlined Foreign Offshore Procedures -- is described on a web page titled: U.S. Taxpayers Residing Outside the United States, here. The Resident program -- referred to as Streamlined Domestic Offshore Procedures -- is described on a web page titled U.S. Taxpayers Residing in the United States, here.
• Delinquent FBAR Submission Procedures (as changed 6/18/14), here. 
• Delinquent International Information Return Submission Procedures (as changed 6/18/14), here. (This relates to the Forms required for entities, such as CFC's, trusts,etc.)
• IRS OVDP 2014 FAQs, here.  Note particularly par. 1.1 on the changes from the original OVDP 2012.
• Transition Rules FAQs, here.
• Foreign Financial Institutions or Facilitators List (formerly Bank and Promoter List), here.  This list is the basis for the 50% penalty in OVDP 2014 (See FAQ 7.2 in the OVDP 2014 FAQs, here.)  I should note that the description in FAQ 7.2 is not clear as to whether the key cut off date is the date listed on the bank and promoter list or the date of the public disclosure as defined in FAQ 7.2).  Readers should look at the list.  For those who have been watching this area, the institutions should be familiar.

The new procedures apply as follows:

1. Foreign residents (requiring only foreign residence in the 3 year period):  File 3 years of delinquent or amended returns and pay tax and interest.  No penalties (including FBAR or miscellaneous) will be assessed.  Must also complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (i) eligibility for the procedure, (ii) filing of all required FBARs, and (iii) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

2.  Nonforeign residents (Domestic residents):  Must file 3 years of returns and pay tax and interest.  No penalties other than a 5% miscellaneous penalty on foreign financial accounts only will be assessed.  Must complete and Sign the Certification by U.S. Person Residing in the U.S. that (i) eligibility is met; (ii) all FBARs have been filed; (iii) "the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct;" and (iv) that the miscellaneous penalty amount is accurate.

Nonwillful conduct for the purposes of #1 and #2 is:  "conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law; 

The taxpayers can be audited under the income tax audit guidelines but will not be automatically audited.

A couple of the material changes to OVDP 2012 are described in par. 1.1 of the FAQs as follows:

• A 50% offshore penalty applies if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation. See FAQ 7.2.
• FAQ 7 has been modified to require that the offshore penalty be paid at the time of the OVDP submission.

I will be back with more later.