Saturday, June 7, 2014

Tidbits from the IRS on Offshore Account Issues (6/7/14)

I understand from practitioners that the IRS has indicated the following.  This is second hand, so those desiring to implement strategy based on the following might make their own inquiries to the IRS.

1.  Readers may be aware that some or all Swiss Category 2 banks are requesting the U.S. depositor to supply proof of U.S. tax compliance.  That proof can be used to mitigate the Swiss Category 2 bank's penalty in the program with the U.S. DOJ.  In my limited experience with such requests, the banks may ask for various forms of proof (from the IRS preclearance letter into OVDP to the Form 906).  The U.S. depositor is not required to provide that proof to the Swiss bank, of course.*  The question has arisen, however, what if anything to provide the Swiss bank if the request comes after the U.S. depositor has submitted the request for preclearance but has not yet received the IRS letter of preclearance.  I understand that the IRS believes banks will accept the preclearance request letter and perhaps a letter from the taxpayer or the representative to the bank that the preclearance request letter was filed and  has not yet been acted on.  I am sure the bank will make a follow through request for something more definite.

2.  Clients concerned about the interim period between deciding to do something (whether OVDP or streamlined) might make a preclearance letter request for OVDP and then, if streamlined is appropriate, withdraw from OVDP.  The advantage of filing the preclearance where the ultimate choice to do OVDP is not made is that the process of dealing with the issue, having been started with the preclearance letter, should be some protection if the IRS starts an audit later before the alternative strategy is implemented.  If, after filing the preclearance letter, the client decides to pursue another strategy, the client should withdraw by letter advising of the withdrawal submitted before the due date for the intake letter to CI.  The letter should be clear that the client is withdrawing.  (Note, withdrawal is not the same as opting out; hence, unless the client qualifies for and completes streamlined procedure, the client will not have assurance of no criminal prosecution.)  As I received the information, this withdrawal process might work also for later determining to proceed in some other way under 2011-13.  Both the streamlined and the 2011-13, here, routes offer considerable uncertainties, but perhaps these uncertainties may be mitigated by the upcoming changes in the program that Commissioner Koskinen announced were coming.  See IRS Commissioner Koskinen Announces that Changes -- Liberalizations -- Are In the Offing for OVDP 2012 (Federal Tax Crimes Blog 6/4/12), here.

3.  If the client does not withdraw, the case will be processed under OVDP under normal procedures with the right to opt out.

I and readers will appreciate comments and strategies from the readers.

* There seems to be significant controversy in the practitioner community as to whether banks can offer to pay the U.S. depositor as an inducement to provide the proof of U.S. tax compliance and whether U.S. depositors can request such payment as an inducement.  At least one bank's counsel has alleged that a U.S. depositor request for payment violates both U.S. and Swiss law.  I probably will write a blog on that later, but I would appreciate hearing from any reader with their experience in the area of bearing offered compensation or requesting compensation.  Readers can write me at  I will maintain confidence for all such information received unless the readers providing the information specifically authorize me to use it in some way.  Thanks.

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