Wednesday, July 9, 2014

Interesting Article from the Swiss Bankers Side (7/9/14)

The New York Times has an interesting article looking at the fallout to Swiss bankers who implemented the offshore evasion of taxes in the U.S. and other countries.  Doreen Carvajal, Swiss Banks’ Tradition of Secrecy Clashes With Quests Abroad for Disclosure (NYT 7/8/14), here.  

After describing the U.S. initiative against offshore banks and the hoped for change in Swiss attitudes on enabling tax evasion, the article continues:
But the impression of change is misleading, regulators and members of the insular banking fraternity here say. The reality, they say, remains closer to business as usual. 
Even as the Swiss authorities have nodded at cooperation with frustrated governments abroad, at home laws on the books since 1934 make violating client confidentiality a crime and require bankers to guard secrecy like priests or lawyers. Bankers who cooperate with foreign officials and violate their “duty of absolute silence,” as it is known here, potentially face home raids, prison, fines for secrecy violations and industrial espionage, and the ostracism of colleagues and friends. 
* * * * 
*** [B]ankers — caught in a vise of competing legal forces — are damned if they help either side. In the meantime, those being pressured to reveal their secrets or those of their clients to American and other foreign authorities investigating tax evasion and other crimes are maintaining their code of silence. For those bankers whose roles have brought legal charges abroad or the threat of them, that means avoiding extradition by staying within Switzerland, living life in legal and personal limbo. 
* * * * 
The situation is particularly galling to bankers — most at the midlevel — who say they are being pressured to take the fall for more powerful superiors in an industry that still jealously guards itself by closing its ranks. 
Describing a life of secretive techniques worthy of James Bond (who quipped in a 1999 film, “If you can’t trust a Swiss banker, then what’s the world come to?”), bankers who were interviewed said that one of the practices under most intensive criminal investigation — the clandestine recruitment of clients in the United States — was not only known to their bosses, but was also part of a business model. 
The bankers roamed the West and East Coasts of the United States with company instructions to recruit rich clients on a luxury circuit of five-star hotels, art exhibitions and tennis matches. Their bonuses, they said, depended on the business they cultivated and protected.
After describing anecdotes of how the bankers operated, the article continues:
While such tales might seem to come from the heyday of Swiss banking, the culture continues, bankers, regulators and other experts say. 
“Strictly nothing has fundamentally changed,” said Jean Ziegler, a Swiss sociologist and author. “The big issue in these banks is that violating secrecy is considered treachery.” 
* * *  * 
Now employees are bracing as 100 or more Swiss banks are expected to turn over more than 1,000 names and information to the United States, according to the Swiss Bank Employees Association, a trade group. The Justice Department said those names would be used to investigate Americans who evaded taxes along with the banks, bankers and advisers. 
“We are going to look very carefully that employees don’t have to pay for the strategies of their bosses,” said Denise Chervet, a spokeswoman for the association. “It’s unbelievable now that some of the top executives claim they didn’t know.”


  1. Researcher, do you mean the accuracy related penalty? Yes, those would very much be at play (except in SDOP/SFOP). These are not civil fraud penalty for which intent is required. 40% is only in the certain instances of a gross valuation misstatement, nondisclosed noneconomic substance transactions, & undisclosed foreign financial asset understatements.

    Any amount which is attributable to civil fraud is NOT subject to the 20%/40% accuracy related penalties.

  2. ANON,

    With most of the 'devil's advocate' accusations you prognosticate the IRS would level, I would argue that intent is the most important element of the government's case. Was there intent? Just looking at the Fraud Handbok, the IRS says the following in

    "Civil fraud penalties will be asserted when there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud. Such evidence must show the taxpayer’s intent to evade the assessment of tax which the taxpayer believed to be owing. Intent is distinguished from inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence or carelessness."

    Now, looking at many of the tax crime cases which Jack has posted, the further question to ask, is, on the original filings, was there willful blindness and conscious avoidance of one's legal duty for reporting of global income & assets. Willful, is the burden of the IRS.

  3. I particularly like the rhetorical device here: "I am not fear mongering, just trying to provide the worst case scenario". The only fallacy is that in providing the worst case scenario, there is inevitably a certain element of fear mongering. The reality is, the government can argue a lot of things and can bring tremendous resources to bear in making those arguments. With Williams and Mcbride in hand, they can pretty much argue that recklessness, proven by a preponderance of the evidence, is sufficient to show wilfulness (that would be the, should have known, should have sought legal advice, should have read Schedule B instructions). They can they follow up with Zwirner and threaten to charge you wilfulness on multiple years, perhaps all 6 if they are feeling frisky. I imagine most people reading this blog for information know that by now. Indeed, I would say the worst case scenario is the most publicised thing about the FBAR now. What they don't know (and why the come here) is whether the government will bring those arguments to bear, the types of cases that might warrant those arguments and the types of cases that don't. They want to know whether the government is expanding these programs because they want to avoid people entering OVDP with the intention of opting out (something many are probably doing due to the worst case scenario), or because they, from a policy perspective, want to bring a large number of people into compliance with ruinous fees, or indeed, whether they have still incredibly strict criteria for eligibility, intend to use those with laser precision and have allocated resource to aggressively pursue the people who don't fit.

  4. Thanks, Milan.

    The paragraph I cut and pasted does not deal with the precise situation but close enough in the reverse that inferences could be drawn.

    Jack Townsend

  5. correction .... it is Mr. Zwerner not Zwirner

  6. RC on his original filings ? Sorry how about to just find a way to cheat on not paying ones income taxes / this could not be more obvious in this case . It is interesting how we are shifting away from paying ones taxes voluntarily to how to pimp ones RC arguments.
    I rest my case.

  7. I was told by an OVDP examiner that, if the client wanted to streamline, we would have to edit the certification as appropriate, and should include account information for all of the OVDP years. I have not heard that from other sources, and I don't think that is the final word on the subject.

    Jack Townsend

  8. I think this is the best response I have gotten from you on a burdening question of mine. Should a taxpayer, whether he enters Streamlined or QD, do more than 3 years of amendment to display that his original submissions were not fraud? Yes, barring characteristics of fraud (which has a 6 year statute anyways), it's just taxes he has to pay. I appreciate you also mentioning the lack of a foreign information form being filed as one which keeps the statute open. Barring that also, however, if it's not too much effort, why not have the taxpayer simply do the 6 years, like you mention.

    I think it's more of a case by case situation for me. Thank you for your reply on this.

  9. You would be fine is that you can just take the OVDP result without further ado. I was told that would happen by the examiner in a case. She did not commit that nothing further would happen if there were a clearly false certification that they can recognize from the materials they will have -- the OVDL letter, the taxpayer submissions and, in some cases, records from the bank(s). So, I am still uncomfortable in advising a client with a host of bad factors to certify. But that is a client choice, not mine. And, it requires making decisions in an environment of uncertainty.

    Jack Townsend

  10. Correct. I read your response. So assuming a 3520, 3520-A, 5471, 8938, etc. etc..("information returns") was not needed, a QD or even an amendment for those years would not be needed due to the 6 year statute. Am I understanding this correctly?

  11. Thanks Jack. Helpful. I did not know this. Can I paste this for readers? I found this from Rev Proc 94-69.,-1994

    ".10 Sections 1.6661-6(c)(2) and 1.6664-2(c)(3) generally provide that for purposes of the substantial understatement penalty and the accuracy-related penalty, respectively, a "qualified amended return" is an amended return that is filed after the due date of the return for the taxable year and before the time the taxpayer is first contacted regarding an examination of the return. A qualified amended return also includes an amended return that is filed within such time frame solely to disclose information but does not report any additional tax liability. In addition, sections 1.6661-6(c)(4) and 1.6664-2(c)(4) provide that the Commissioner may prescribe by revenue procedure the manner in which the rules governing qualified amended returns apply to particular classes of taxpayers."

    "In the case of additional tax shown or adequate disclosure made on a "qualified amended return," however, section 1.6661-6(c) provides for an automatic waiver of any penalty that would not have been imposed if the additional tax shown or the adequate disclosure made had been included on the taxpayer's original return. Section 1.6661-4 describes what constitutes adequate disclosure."

  12. I edited the template for a client who streamlined, and the OVDP examiner was okay with it. So I was just making an educated guess that it's 'ok' to edit, and judging by your comment, I now think it is. Thanks Jack!

  13. I remain in OVDP even if the transition from OVDP to SDOP has been approved and the NW certification accepted? Can I still opt out rather than pay the 5%?
    If the certification has been accepted it means I have passed the NW test. I am trying to figure out if this would be a possible path where I can try my chances with reasonable cause.

  14. Jack, I am wondering the value of disclosing to a client the potential (no matter how far fetched), the risk of criminal prosecution and 50% FBAR penalties, on small undisclosed accounts (5 digits) for the last few years, for which income taxes are de minimis. Yes, that's a worst case. But how about mentioning just the worst case in terms of reasonable probability, rather than stark possibility. Sorry, I am brow beating here. ;)

  15. Suzanne, I got a call from OVDP Hotline. Interesting stuff:

    1) When I asked him the question of the signatory accounts being subject to the 5% penalty in SDOP, he said, "Maybe." He said they are debating it and there would be information on that shortly. He recognized that the penalty base in SDOP could potentially be broader than that what was in OVDP, but mentioned he did not have any concrete information on this currently. He said to wait for IRS notices or just check the SDOP webpage regularly. I found this interesting.

    2) He said that no one has to necessarily "qualify" for SDOP or SFOP. Just follow the instructions and submit your returns & FBARS accordingly, along with the NW certification, penalty check, and income taxes with interest, and that would be it. There would be NO examiner assigned, NO 906 closing statement, "nada."

    3) Those who transition from OVDP would need approval to go into SDOP/SFOP, which most of us know, however, once granted approval, they also would NOT receive any 906 once their case is completed in SDOP/SFOP. He specifically mentioned that the taxpayer would be LEAVING OVDP were they to be granted approval to go into SDOP/SFOP. This makes sense as the taxpayer has to sign the NW certification, which would not be needed were the taxpayer to remain in OVDP and enjoy the willful protection that program provides to a OVDP participant.

    4) It's okay to edit the NW form, for the necessary covered years. White out. write over, etc, until they get a proper editable template.

    That's all I have for now. I have the OVDP hotline person's name, if you want to know, but I will not be posting his name here.

  16. Milan,

    I just posted this comment to the blog entry above so that more casual readers of this blog could quickly have access to it.



  17. I think each practitioner has to make a professional judgment call as to how best to communicate all of the risks to the unique client he is dealing with. There is no magic here. Just establishing a professional relationship with the client where the professional has some comfort that the professional is adequately communicating with the client.

    Jack Townsend

  18. Jack, have you had any update on whether the pre July 1 "withdrawal" from OVDP was an acceptable approach to go directly into streamlined?

  19. You are right to consider whether, as a "certified" SDOP, you could get a better result on opt out than with the SDOP result. For sure, had you opted out rather than entered SDOP via certification, you might have achieved a better result -- perhaps even just a warning letter.

    But, my understanding is that, if you request SDOP and are accepted, that is what you get. At least as I understand it, you are not now able to opt out.

    And, I would caution you that, even if you do opt out, the IRS determination on the SDOP phase would not necessarily be controlling in opt out. All the IRS is doing when they accept your SDOP request is saying that they have no reason to contest your certification. If they later have such reason and choose to act on it, you will be in the soup. Similarly, should you be able to avoid your SDOP request and opt out, the IRS can make a new and more focused determination of willfulness after your interview and interviews and document production from your return preparer (if you had one) and really anyone else who might have pertinent information. In other words, if you got approval of your SDOP request, you should strongly consider moving on. I don't know your specific facts, but do think you should not rely upon any inference you may perceive in the IRS's acceptance of your SDOP request.

    Jack Townsend

  20. I think it is OK to edit, provided that your editing is fair under the circumstances. If you try to hide some bad facts or otherwise change the substance of the certification (say you hide it some disavowal of anything said about nonwillfulness), then I think you may be creating more problems than solving.

    For that reason, I strongly recommend that you send a "redline" copy along with the certification to clearly identify the items you have changed.

    Jack Townsend

  21. Many thanks, Jack and Milan, for your responses. Glad to know that my interpretation of the FBAR filing requirements is correct. However, I see ambiguity when I re-read what IRS says about filing tax returns: "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 (the
    “covered tax return period”), file amended tax returns". Let me explain.

    I said in my previous post, and it appears that both of you agree that
    after I file my 2013 taxes (before the extended deadline), I would need
    to file amended returns for 2012, 11, and 10 when I enter SDOP.

    Assume that I'm entering SDOP in August after filing 2013 taxes correctly, whether that was done by April 15, or sometime this month (after properly applying for an extension by April 15).

    In this case, the "most recent 3 years" are 2013,12, and 11. If I had not filed 2013 correctly (to include overseas income etc), I would need to file amended 2013,12, and 11 with SDOP. When I enter SDOP in August, it seems to me I should include a copy of my correctly filed 2013 return, and amended returns for 2012, and 2011. Please tell me if my revised interpretation of tax filing is correct.

    This is what doesn't make sense when one reads the IRS wording about the "extended due date has passed" : someone who filed 2013 taxes by April 15 incorrectly (without including overseas income), has to file amended 2013,12, and 11, and pay the taxes due for those 3 years. But if I filed my 2013 taxes correctly (after applying for an extension) in July including overseas income, why should I have amend returns for 2012, 2011, AND 2010? In other words, the extra "penalty" for filing taxes correctly before the extended deadline for 2013 is filing an additional amended year (2010) AND paying the taxes for 2010?

  22. More info-All my Qs relate to the TRANSITION program

    1. Apparently IRS examiners are calling their open OVDP cases to make them aware of the transition option and FAQs. However, that's about it, the agent was not sure which years would be covered under the Transition rules, or what to do in ANY of the Qs I asked.

    Specifically, for OVDP 2011,

    1. Would the OVDP Transition participant have to RESUBMIT All 8 years () 2003 to 2010) of returns? ( Or only 2008, 2009, 2010) the most recent 3 years on Page 1 of the " Certification by US person.. for SDP".

    2. OR If the Tax payer had received but not closed out a Form 4549A- would it be sufficient to simply pay the amount due and NOT file the returns.

    3. Table(s) showing FBAR balances in " Certification by US person .. for SDP" template for 5% penalty . Again, the agent was not sure if this would be 6 years or 8 years fr Transition

    The agent WAS clear that the old submission under OVDP would NOT hold as that was based on the highest aggregate balance.

    I would have to RECALCULATE the YEAR end balance per the SDP requirements.This may marginally help the taxpayer , but now you have to do another 8 years of calculations X number of accounts

    4. Certification of non -willfulness. Is the IRS expecting a brief " I certify I'm not -willful because I didnt know' on the specific reason for not showing all income or does it want all the background on why you didnt know etc.

    If I dont state the tax preparer as a reason, will the IRS still interview them and ask for all files as under Opt out?

    Bottom line, the Agent did'nt know very much. The agent also informed me that the Transition package would be reviewed by the agent, technical advisor, agent's manager AND a commitee

    I would appreciate feedback on what others have heard on #1 to 4 above. This seems like a mere editing detail and I've seen posts that its ok to edit the template etc. but it also says in the

    ALSO, it seems absurd to include accounts with signature authority in the calculation- why would you even bring up such a thing to the IRS

    Also I read a post about someone's examiner being' very nice about it' - count your blessings, the one I have drawn seems to think all OVDP particpants are crooks and had never seen any of the TAS reports. It seems unfair to have to deal with the SAME examiner as in OVDP- specially if you get an unsympathetic one that thinks all OVDP participants are crooks

    Jack, you are really helping a lot of people with this blog and are a voice for .I hear some rants now and then from subscribers about the US and IRS, but mine is a vote of confidence - you are doing a public service.

  23. I had the exact same case 2010 I filed an FBAR ( Also didnt know for sure which accounts I had signature authority over and even found one ' account ' I owned- a Mutual fund certificate that got converted to electonic or Demat form in India and therefore qualifies as an ' account ' per the IRS
    I did not include 2010 foreign income - untl entering OVDI
    The IRS agent included 2010 ( though FBAR was timely filed)

  24. I was told OVDP Transition cases WOULD have to sign a 906 by the agent - looks like ' nobody knows'
    Also Transition is not leaving OVDP- if the IRS doesnt agree with the NW certification you pay the OVDP penalty or Opt out
    The Transition ' Approval' is more or less automatic- its just a CYA for the IRS IN case they have different ideas

  25. Thank you Jack. That was very useful to keep me on track.

  26. ......"Yes, barring characteristics of fraud (which has a 6 year statute anyways)"....Milan,what are you talking about ?

    Correct would be : No Statute of Limitations if there is a "willful attempt to evade or
    defeat tax", there is no statute of limitations for assessment. The IRS
    can audit your return at anytime if they can prove fraud or evasion.

  27. I certainly did not mean to suggest that the worst case scenario is not a fundamental part of the overall risk analysis; rather, I was simply remarking that it seems to be by far the more popular and well publicised of considerations for FBAR violations (inadvertent or otherwise). As to whether practitioners are indeed bringing a quality of advice that includes the full spectrum as well as a thoughtful approach to actual client risk, I cannot say. That is not my personal experience, however. (I imagine it would make an interesting analysis if someone could interview OVDP participants and see whether they felt that received actual advocacy for their money or simply paid for administrative form filing)
    As to the fear mongering issue, I was simply remarking that for anyone looking into this issue for the first time (at least prior to the recent streamlined program), the immediate impression can be scary enough, with many "commentators" publishing the following:
    - the IRS is very focused on offshore enforcement and devoting significant resources to it
    - there are very few opportunities to come in without entering the OVDP
    - the IRS will be following QDs and GDs very closely and there is a real risk that such a strategy could be worse than entering OVDP and opting out
    - if you get this wrong, lose the audit lottery, lose the IRS is reasonable lottery, you are likely to face significant civil penalties and even criminal prosecution
    - unless you have reasonable cause (which is almost impossible to establish), then you are looking at multiple non-wilful penalties at least, and if you are wilful, they can give multiple year penalties up to 300% of you account value
    - the standard for wilfulness has been watered down to the extent that the IRS can easily prove it with a few simple indicia
    I am not saying that any or all of the above impressions are true but they are indeed the most publicised. This blog was the only one that I found that started with the premise that OVDP was for those with material criminal risk, the a QD, done well, could still be an appropriate way to disclose and that the wilfulness standard was much more nuanced that it might first appear.

  28. Yes I agree the facts of this case do not pass the smell test and it seems that the IRS is shifting towards a more laissez faire attitude. Good for the tax cheats who can pimp their RC arguments to slip through certification.

  29. no you are clearly says FTF not FTP ... that is the important difference her.

  30. I am in a big quandary deciding whether to go QD or SDOP. I hear good arguments for both. On one hand, with SDOP I would be making it easy for IRS to pull up my case for audit but it seems like the "right thing". With QD on the other hand, I do duty under law, pay my tax due, and hopefully stay off the audit radar but worry about what if I don't.

    Since I filed my first FBAR for 2013, I want to come into compliance ASAP by filing all the rest and amendments. So I am considering going ahead with QD with RC arguments attached. A few months later look at what's happening with SDOP cases and decide. If I join SDOP later in this year once from SDOP results come out, would that be an issue with IRS?

    Can one of professionals here (Milan, Jack, Suzanne, anybody else) check when you talk to the hotline folk next time? I can call them myself but I understand they require SSN before they talk to you.

  31. Jack, Milan,

    Doesn't amending for more years increase risk of being caught on the audit radar?

  32. I don't know.

    However, I will remind you that QDs should be done only by those who have determined that the audit result would not be that bad.

    Jack Townsend

  33. SSD,

    The hotline representatives I have spoken with have not required either my SSN or my CAF or other number. Just name.

    Jack Townsend

  34. .....QDs should be done only by those who have determined that the audit result would not be that bad.....!!
    SSD, that sentence you should hang over your bed as a reality check of your facts.

  35. honestabe1947,

    You have asked a lot of good questions. I think the IRS is still inventing the wheel on how it will implement the new streamlined procedures, including the transition within OVDI/P. I can't add anything to what you say above except that what you say is basically consistent with my understanding. I probably could extrapolate some inferences, but that would be speculation and that is not that helpful in the milieu we are in right now. Best to wait for better clarification from good sources.

    Jack Townsend

  36. Saw your post about the covered years. Transition FAQ 9 says it is the 8 years once you're in SDOP. However, yes, you'll have to recalculate all the years Dec. 31st balances in order to know what the penalty base would be for the purposes of the 5%. I don't think "transition" to SDOP is "automatic", as your case has to be reviewed by a comittee of managers (this is NOT a fact, but as far as I know, the IRS is using the committee for most OVDP cases).

    I think that once you transition to SDOP (or SFOP), you are no longer offered the protection of OVDP, because of the NW certification you have to sign. You ask a great question on the reasoning you would have to provide on the NW certification reasonable cause page as far as why you didn't disclose global income/assets on the original filings. I personally do not know the answer, but I have been pretty brief.

    I disagree that a 906 would be provided once a OVDP taxpayer has moved over to SDOP, because the only mitigation is the 5% penalty. That's it. I confirmed this with OVDP hotline yesterday.

    I think your and many other OVDP participants' examiners are still learning about SDOP & SFOP, including the 5% penalty on signatory accounts (which has not been formalized yet). So it's probably a GOOD question to ask before once requests to move over into SDOP. But even before that, perhaps a recalculation of the penalty based on Dec. 31st balances, and about the willful characteristics about one's case, the actual banks which might have been publicly disclosed as participating with the IRS, and other things should all be looked at before going into SDOP.

    I am personally on the fence with SDOP due to the 6 year statute on civil fraud and CI, especially if someone has had several missing information returns he/she has not filed (3520, 926, 5471, 3520-A, 8938, etc.). So I guess it's safe to say, we need to wait for more informaiton about SDOP & SFOP from the IRS.

    Thanks for you input.

  37. In its June 30-July 13 issue, New York magazine (not to be confused with The New Yorker) had a cover story "New York Real Estate is the New Swiss Bank Account: Foreigners are flooding the market to stash, hide, and sometimes launder their money" by Andrew Rice.
    Some tidbits: of 170 recently recorded sales in a certain building, 87 (just over half) were either through an anonymous entity or the only contact information listed is for a lawyer. The US is the second easiest place in the world to set up an untraceable shell company (Kenya is #1.) "Behind the [deed] there may be a Delaware LLC."

  38. The identifying info (SSN etc.) is only if you ask them (or they ask you for permission) to look at your case file. You do not need to give such info to ask general questions.

    As to SDOP results, keep in mind that 1) after years of optouts there is still very little information available to the public as to what happens and 2) for those who go directly into streamline (not transitioning from 2012 OVDP) there is no 906 and you may hear back after years or not at all.

  39. When I called the IRS agent handling my OVDI, I was asked hey have you heard about the transition into streamline, but as far as I know there is no outreach to inform those with pending cases, at least in the office I dealt with.

    Also I knew more from this blog than the agent did so I was answering the agent's questions. Not a good thing!

    Under transition you are apparently not redoing your original submission or updating it with more recent (compliant) years.

    Though the certification form asks for year end balances (different than high balance, and eliminates need to account for interbank transfers as you are taking a snapshot of one day) the penalty base also includes tax-compliant unreported foreign accounts, as well as foreign stocks/bonds not held in a financial account.

  40. The answer you got for #3 differs from the transition FAQs. Those transitioning and approved would get a 906, according to the FAQs.

  41. Thanks Anonymous.

    I just moved a couple of the items up to the blog entry itself.

    Jack Townsend

  42. I think there may be an open issue as to whether no 906 after transitioning to streamlined. But, keep in mind, that even a 906 can be open for "fraud, malfeasance, or misrepresentation of material fact." An improper certification of nonwillfulness could conceivably permit re-opening. In this regard, a recent fifth circuit case held that culpability was not required under the misrepresentation leg -- just a material misrepresentation, whether culpable or not, will do.

    Jack Townsend

  43. ANON, this is what I have from, but I think you mean from a criminal standpoint, the statute doesn't run until the last offense occurs, where as in a civil fraud case, the statute is clearly 6 years. Both statutes use the willful definition a little differently. Perhaps Jack can chime in when he has time.

    CRIMINAL: (05-15-2008)
    26 USC §7205 - Statute of Limitations

    "It is unclear whether willful failure to supply information to an employer is a continuing offense for purposes of determining when the statute of limitations begins to run, in which case the limitations period would begin when the last act of the offense had occurred. The safe practice is to assume that it is not a continuing offense, and that the statute of limitations runs from the date the information was required to be supplied. However, if all other facts indicate that prosecution should be recommended for this offense, the continuing offense theory may be argued."

    CIVIL: (01-06-2009)
    Civil Penalties in Title 31 Investigations

    "Civil penalty assessments for Title 31 violations are assessed by the Secretary of the Treasury. The statute of limitations for such assessments expires six years from the date of the transaction that is the basis for the civil penalty."

    WILLFUL DEFINITION: (01-06-2009)
    Civil Penalties

    "When the term "willfulness" is found in a civil penalty statute, it means actions "knowingly" , " consciously" , or "intentionally" taken. A voluntary course of action, rather than an accidental cause of action, would seem to satisfy the civil requirements. When used in criminal revenue statutes, the word willful means a voluntary, intentional violation of a known legal duty. The word is also employed to characterize a thing done without ground for believing it is lawful or conduct marked by careless disregard whether or not one has the right to so act."

  44. From the text above and the same IRS page, I am pasting here that anyone who has failed to report and pay income taxes, can STILL use this option if not going through an OVDP or SDOP/SFOP. Thus, anyone using this option, who wants

    " file delinquent or amended tax returns to report and pay additional tax.."

    can do so, so long as they are not under examination, have reasonable cause for not timely filing the information returns (3520, 5471, ec.), have not filed one or more required international information returns (again, 3520, 5472, 926, etc.), and have not already been contacted by teh RIS about the delinquent information returns.

  45. SSD, It's hart to do make a decision until you write all your facts down on paper. Perhaps, if you were to write down all the actions you took, over the years, to be tax compliant, both with your domestic & global income, would be helpful. Have a look at anon5percent's letter. This fact pattern can help you then assert reasonable cause. Some might say that reasonable conduct started, possibly with your 2013 tax return and FBAR, but if you can validate and verify what you did with your domestic US tax filings as well as to be compliant with your global income (or at least find out about your US responsibilities on global income), then that also might help to assert RC. Also, in the years you filed your taxes online, did the software have any issues, like did it even allow you to check a box for foreign income or assets? Did it ask you if you had any foreign income & assets, and is there a way for you to find old copies of that software for you to check that? Reasonable cause is such a wide area, so it's best to see what, if any reasonable causes you could have for leaving off your global income on your original filings. What about your lack of knowledge in law & tax? How many times have you consulted a tax accountant, CPA, or a tax attorney? Or anyone in the tax arena?

    Again, I am not sure what, if much, you could show, if you did not do really anything., but have it down on paper first.

  46. Milan,

    The criminal statute for most of the tax crimes that get charged is 6 years; for some related crimes (Title 18, such as conspiracy or false statements), the criminal statute is 6 years. If civil fraud is involved in an income tax violation, the statute is open forever. Section 6501(c)(1). The statute is here.

    Jack Townsend

  47. I would say that, as a general rule, it is helpful to write down all facts relevant to a decision before taking the decision. Go through all the facts and all the steps from A to Z.

    That is why, for the initial meeting, I have clients prepare a narrative. I seek the good, bad and the ugly written down in the client's own words. If the client is diligent and honest (it is all protected by the attorney-client privilege), I can bring efficient service to the client. If the client is not diligent and is not honest with me (particularly as to the bad and ugly), then I cannot be efficient and the client risks getting bad advice.

    But the point is to write it down and be intellectually honest about the facts as they are and not what you would prefer them to be.

    That can help you focus on the merits of your case and can help anyone advising you focus on the merits of your case.

    Jack Townsend

  48. Hmm, CPA mentioned nothing about excise taxes on premiums paid. How does an individual taxpayer pay an excise tax. Would not the insurance company itself be responsible for paying those as part of their reporting if they send premium bills into the US?

  49. ANON ,

    You may be right , But it is really confusing to make selection between option 2 and Option 4.

    Option 4 also talks about both paying additional tax and Delinquent International Information. It is not clear who is not eligible for option 4.
    Most of the people who missed reporting foreign income also not filed related information returns. So option 4 gives the opportunity to file delinquent information return and also pay additional tax. I think we need to check with IRS on this.

  50. Milan ,

    i have simple facts.

    1) Relied on CPA
    2) Never seen Schedule B till this year and Not had US Bank interest to report
    So CPA not added Schedule B and I have not seen schedule B while reviewing tax returns.
    3) CPA questioner does have any information about foreign bank account.

    4) Never knew about US global taxation. Not read anywhere.
    5) Used to transfer money regularly to my home country as I am not sure
    how log will be in USA since I didn't have GC and Had plan go back after few years.

    Are above facts not sufficient explanation for failure to file and report foreign tax.

  51. Jack, Milan ,

    My apologies for asking the Q a 2nd time, but the OVDP agent is pushing me to provide a sreamlined package ASAP or Opt out, or pay the OVDP penalty $$$ . Its a bit of a Catch -22- the agent does'nt have the responses on which years count etc. either and keeps referring me to the FAQs.
    So, I'd rather just make a a Transition submission but I want to make sure I atleast get the logistics right .
    I dont want to call the Hot line because then you are only adding more confusion and I cant wait till some final guidance comes out

    Specifically, for OVDP 2011:

    1. Would the OVDP Transition participant have to RESUBMIT All 8 years () 2003 to 2010) of returns? ( Or only 2008, 2009, 2010) the most recent 3 years on Page 1 of the " Certification by US person.. for SDP".

    2. OR If the Tax payer had received, but not closed out a Form 4549A- " tax Due" would it be sufficient to simply pay the amount due and NOT file the returns?

    3. Table(s) showing FBAR balances in " Certification by US person .. for SDP" template for 5% penalty . Again, the agent was not sure if this would be 6 years or 8 years for Transition

    All feedback on what anyone has found worked, very welcome.

  52. Hi Anonymous,

    Re : Foreign stocks bonds not held in a financial account, I think the IRS is trying to close what WAS an inconsistency or loophole.

    Specifically, the FBAR, only requires FInancial accounts to be disclosed ( NOT paper stock certificates)
    India in the 2000's went through a process of DE-materialization or " Demat" wherein the Govt of India required stock certificates to be converted to an electronic or de- materialized form.
    Therefore, these stock certificates in paper form were not subject to being put in the FBAR or to FBAR penalites ( but ARE required to be entered in Form 8468)
    The IRS wants to make sure it does'nt miss collecting any revenue, so it includes stocks/ bonds NOT held in a financial account in the certification. Now, that ' loophole' is closed under streamlined.

    It seems most of the attention is on India ( not a tax haven) , Switzerland , Bermuda etc- I don't believe the IRS could get get any useful compliance from other countries - eg. our largest trading partner- China.

    One thing that bothers me immensely about all this,- the citizens bearing this unfairly harsh attention and penalty from the IRS are mostly if not ALL, foreign born.
    And therefore, are not as influential, politically, nor as confident

  53. unfortunately SSD it is a question of risk assessment and risk tolerance not how much can I pimp my RC arguments....I think we all know by now what RC is... "I know when I see it". But If you have been a US citizen for over 10 years, if you have not declared offshore interest income for over 10 years, if you have been a self filer for over 10 years , if your secret offshore CDs and foreign mutual funds amount to $500K and if your willful blindness or conscious avoidance let you to not once contact either a CPA or a tax lawyer in those 10 years to ask for help how to deal with multiple offshore investments that will not pass the smell test I am afraid.

  54. honestabe,

    I empathize with your need for certainty where there is little. I will try to answer your questions, indicating uncertainty where I see it exists.

    1. I don't think you have to re-submit amended returns. I was told that, for the transition submission, you should modify the certification to include all 8 years and to change to the year end figures.

    2. I presume that you are asking this on the possibility that re-submission would be required. I don't think re-submission is required.

    3. I was told 8 years. But that was by a single agent just learning the ropes.

    I don't think any of that gives you any certainty. Hopefully others will contribute what they can.


    Jack Townsend

  55. Jack do you know if here is a concerted effort to lobby the IRS to treat those already in the OVDP as well as those entering the streamlined programs?. Those in the OVDP have had to endure the the legal and accounting expense of filing 8 years of returns, paying 8 years of interest and the 20% accuracy penalty. They have been the in OVDP program for 2 or more years, under great stress. It seems very unfair that for those that have waited to the 11th hour to come forward should get much better treatment. In my case if I had entered the SDOP today my total exposure would a penalty of $11,000 and no back taxes due. Under the OVDP I have paid over $500,000 in back taxes and penalties and I am looking at a $2 million miscellaneous 27.5% of my highest asset balance which was mostly real estate in my home country which I acquired 20 years before I stepped foot in the USA. I would think the TSA would have an opinion on this bias?. I am going to argue very hard that I want the same treatment when I transition. Do you think I have a chance of getting my 20% accuracy penally back, or the IRS will say that is water under the bridge. I can see many others that are still in the OVDP arguing that if they had waited they would have been much better off. They are being penalized for coming forward. Those coming forward now are only doing so because they have no choice, as FATCA reporting has them trapped.

  56. Blackseal1234,

    I am not aware of an organized lobby to conform OVDI/P results to Streamlined. Such an effort would not surprise me, but it may be handled low key by the circle of DC lawyers with clients in the situation and easy access to the powers that be at the IRS.

    Right now, as you know, if you streamline inside OVDI/P, the accuracy related penalty applies.

    However, I have a basic question. If you could certify nonwillful, why don't you just opt out?

    After all, the purpose of the new Streamlined programs was to avoid a taxpayer having to get in and opt out. In other words, it was designed for the taxpayer who would otherwise opt out because he or she was nonwillful.

    And, of course, if you opt out, the real estate goes out. I understand that there may be facts (many accounts, entities, etc.) that might make even the nonwillful exposure on opt out too great. But, I would think that most of those who would have been good Streamline candidates ab initio except for the fact that they are already in OVDI/P would be good opt out candidates.

    And, depending on facts, you might get better that the Streamlined result, although if you are foreign resident you can't get better than 0% on the offshore penalty.

    Jack Townsend

  57. Delaware is the new Bermuda & Caymans:

    And I think a lot of these real estate buyers are Chinese

    But of course, US tax authorities know all this and request 30% withholding for these foreigners owning US real estate.

  58. Take a look at Moby's reasonable cause opt out letter. You'll find it useful, considering what you wrote.

  59. Jack,

    Truly appreciate the open and rapid response.

    ( Numbered per above)

    3. Changing the FBAR certification under transition to 8 years ( vs or 6) makes sense.

    2. Changing the Transition's 3 year Certification to 8 years for Tax Owed -ALSO makes sense.

    In my case, I did not include a foreign retirement account in my Amended OVDP returns, so the IRS sent me a 4549A Income tax adjustment form along with the original 906

    My assumption for the " Certification of tax Owed" is Under the "Tax Owed" column I'd put the balance due per the 4549-A and under " "Interest Due" put the penalty and Interest per the 4549- a as well OVDP. - with an explanation.- does this make sense?

    For tax payers in Transition with NO 4549A ( ie no further tax due ) the Tax Owed and Interest owed would be zero

    Looking at the 4549 was a reminder of how abusive the OVDP program is- on income of $900 - the OVDP Interest and penalty come to ~$800!
    and this is NOT counting the Title 26 penalty

    This is more of a CPA or general Q, ( vs a legal one)- so anyone's response welcome!

  60. I like this part of your response Jack,

    "After all, the purpose of the new Streamlined programs was to avoid a taxpayer having to get in and opt out. In other words, it was designed for the taxpayer who would otherwise opt out because he or she was nonwillful."

    The SDOP/SFOP was to "cut loose", those nonwillful participants who got caught up in the nasty large trap of OVDP, mostly meant for willful violators ("whales", "cheats").

    I still think it's good for an OVDP taxpayer to still write out all his RC arguments even if he/she is going to transition into streamlined; if anything, it allows one to be prepared for any sort of examination, post festum.

  61. there are better and more updated ones out there now and btw. when are you sharing with us your 48 page RC masterpiece ??

  62. I just filed my 2013 taxes (after getting an extension in April), and for 2013 I included my overseas income. So for 2013, I'm compliant with IRS requirements.

    When I submit my SDOP package in August, is it correct that I file amended 2012, 2011, and a copy of my 2013 returns (the "most recent 3 years")? I do not see a reason why I have to amend 2010.

  63. HonestAbe, I agree with you that IRS penalties unfortunately are targeting immigrants, and in my opinion mostly inherited accounts.

  64. Jack, thanks for this. So civil penalties for Title 31 transactions is 6 years. I found the same verbage you pasted from Cornell law school, within the IRM: (10-01-2010)
    Fraudulent Return

    "There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax.

    An amended non-fraudulent return submitted after a fraudulent return does not begin the period of limitations. See Badaracco v. Commissioner, 464 U.S. 386 (1984)."

    For anyone looking to know more about consent procedures, I am pasting this link:

  65. Jack, do you have any specific word count quantity or format for the narrative? Or you just tell the client to spill his/her guts as much as possible?

  66. There is no unlimited statute for FBAR penalties. The FBAR civil penalty statute is 6 years; the FBAR criminal penalty statute is 5 years.

    As you know, the IRS does ask the taxpayer in OVDI/P to sign a waiver of the statute of limitations. That waiver may be effective even for years that are barred at the time it is signed. (By contrast, the income tax civil statute is not waived for a year that is closed when the waiver / consent is signed.)

    Civil fraud is only relevant in the current context to the income tax aspects -- it could allow an unlimited statute of limitations and the civil fraud penalty (75% of the amount attributable to civil fraud).

    Of course, just to tie the loop, at least in my mind, there is not a whole lot of difference between civil fraud for income tax purposes and the willful FBAR penalty when the object of the FBAR violation was to avoid disclosing the income tax fraud.

    Having said that, there is a difference in proof for civil fraud for income tax and willfulness for civil FBAR penalties. Hence, in a case I have, the IRS is asserting willfulness for the FBAR penalty based on a pattern of conduct stretching back years but did not assert the civil fraud penalty for any year (or attempt to open up any statute of limitations for years outside the normal 3-year statute). I infer that the IRS did not think they could prove fraud by clear and convincing evidence, but apparently think they can prove willfulness by a preponderance of the evidence. We'll see, and of course I will strive mightily to assert that the proper standard of proof for FBAR willfulness is clear and convincing rather than preponderance.

    Jack Townsend

  67. Jack this is very helpful. I think you caught something which I have been reading (I am a novice of course). Both involve willful violations of the statutes in question (FBAR & Income tax).

    See here. I see that the definition of willfulness (statutorily) by the IRS does not necessarily mean that one has actual knowledge of the illegality of one's willful violation of the law. It just means someone who was, perhaps, 'willfully blind' or 'consciously avoided' finding out about the illegaility of his/her conduct. So this is for civil fraud. This seems to be easier to prove rather than the FBAR willful definition. Or am I missing something here. See below. (01-06-2009)
    Civil Penalties

    "When the term "willfulness" is found in a civil penalty statute, it means actions "knowingly" , " consciously" , or "intentionally" taken. A voluntary course of action, rather than an accidental cause of action, would seem to satisfy the civil requirements. When used in criminal revenue statutes, the word willful means a voluntary, intentional violation of a known legal duty. The word is also employed to characterize a thing done without ground for believing it is lawful or conduct marked by careless disregard whether or not one has the right to so act."

  68. Here's the link for more thorough reading. It's VERY easy to read, and not so terse and disconnected like code.

    But you know, it's one area, that I am specifically not so well informed. But I believe, that most of the revenue rulings & code dealing with foreign life insurance policies and insurance deal with foreign life insurance companies owning domestic insurance companies and reinsuring risks. There is a large part of the statutes dealing with, for, e.g., "cascading tax", which has nothign to do with a typical individual US taxpayer having a foreign life insurance policy.

    However, there is a small part that deals with just the basics of excise tax.

    Anyone can correct me if I'm wrong, but from my understanding, the excise tax is applied to anyone (insured, insurerer, broker, etc.) and where the risk of loss (life or property) is in the USA. There are statutory exemptions as well as treaty exemptions from the excise tax (like, if your country is listed as a treaty country with the USA, it's a "qualified exemption", and if not, it's "unqualified exemption" country). Those insureds who have policies with companies from a country with whom the USA has tax treaties, would, ostensibly be "exempt" without requiring any sort of excise tax from any party of a foreign life insurance policy, no matter where the risk of loss is located. To be an qualified exempt country, the country has to have at least something known as a "anti-conduit provision", and two, "valid closing agreement or proof of limitations on benefits" on the treaty to which the country is a signatory to with the USA. Both are relatively easy to understand, but there is a chart on the IRS webpage showing wich countries are qualifed exempt and which countries are unqualified exempt.

    Having said that, it looks like ONLY the foreign insurer based in countries with treaty based exemptions ("qualified exemptions") would have to file the exemption from tax form (treaty based form 8833). This is because the IRS has waived the requirment for insureds to specifically file form 8833 and pay any excise tax if their policies are from a treaty based country ("qualified exemption"). Treasury Regulation § 301.6114-1(c)(1)(vii),

    I am very sorry to be verbose.

  69. Jack, what was the pattern of conduct stretching back years the IRS looked upon willful ??

  70. sks, yes, this is my take also.

    It specifically says this:

    " file delinquent or amended tax returns to report and pay additional tax.."

    I posted above, a similar response to ANON's response yesterday.

  71. Haha. Mine is not a masterpiece. anon5percent's the TRUE masterpiece. anon5percent's roped in information from Moby & JustMe. I merely copied from anon5percent, so one would say, mine is just one, in series of progressions, I would end up posting.. However, it's more tailored to my client's facts, and those facts were clearly not as good as anon5percent's. I imagine I'll post it in a few weeks with adequate permission..

  72. I can't get into the details other than we are midstream and the IRS can't prove it (in my judgment, even by a preponderance of the evidence). As they say, the fat lady has not sung.

    Jack Townsend

  73. Yes, change everything to 8 years. Everything is going to be the same, except for the 5% penalty, which is on your DEC. 31st balances. So you'll have to recalculate your dec. 31st balances. The examiner will correct the interest once he/she puts everything in computer. Make sure you know when you paid the taxes, because that's the date the interest should be calculated to, whether in OVDP or in SDOP/SFOP. 5% penalty is only in SDOP.

    This has been my experience so far with the one only client in SDOP.

  74. I did not know about the paper certificates not being subject to the penalty. I'll look this up on my end. Thanks.

  75. Jack you and your teasers....... please keep us updated with details if and when the fat lady has sung !!

  76. yes please do this if and when you get permission

  77. I will say this, teasingly. In my judgment, the IRS has, at least tentatively, picked off a fight it will regret. Of course, losing any particular case is not a big deal to the Government. I think that losing this case will be a big deal. Let's see where it goes.

    As I can share, I will. But, the process takes time for new developments. When Appeals acts, if it is unfavorable, we can be in our preferred court in a week and make the process move pretty fast.

    Jack Townsend

  78. Blackseal1234,

    I have never seen the IRS assert the maximum nonwillful penalty. I have had some with significant numbers of accounts and the opt out penalty ended up being far less than the maximum the IRS could assert.

    I have seen such large numbers of accounts in two fact patterns. The first was with a large number of operating CFCs with a sprawling business enterprise. We are not at the end of that.

    The second was in several Asian Indian situations. For some reason, my data set of Asian Indians have had a large number of small accounts rather than a small number of large accounts. In that setting, the $10,000 per account per year possibility is an issue that needs to be addressed. However, I have to say that I have not seen the IRS aggressively pursue that issue because Asian Indians usually have a good story to tell about the number of accounts relative to any possible tax avoidance motive. So, the cases settle out on opt out without that being a major issue. It obviously is a concern on the opt out in the beginning, but it ends up not being a driver of the final penalty.

    Jack Townsend

  79. I understood from my agent that I have to re-submit the amended returns. Although the agent had the amended returns for a long time now and all my penalties (including the 25% OVDI) and interest have been paid, they still want me to re-submit. I guess this makes their life easier. Note that the conversation took place almost 2 weeks ago and instructions might have changed.

    I wonder whether for transitioning I have to resubmit them with the "Streamlined Domestic Offshore" written in red as instructed by IRS for SDOP.

  80. The original anon5percent's masterpiece was intended to prove reasonable cause for opt out and had paragraphs aiming for NW and others aiming for RC. Now you need only to show NW.
    - Do you still keep the original format with RC arguments and references to the IRM? I guess there is no harm in listing RC arguments, but do you refer to them specifically as RC?
    - Would a bullet list of facts, events, etc. be OK, or I need to use the more elaborate, narrative style?

    I am interested because I cannot wait for too long with my submission for transition (until you publish your version of the masterpiece) and I don't know what would be adequate for this situation.

  81. ...."I have never seen the IRS assert the maximum nonwillful penalty"......
    except in the case of Mr. Hom of course

  82. Falling Asleep, you raise an interesting point regarding having a solid argument for RC if you submit a NW certification. I think the advantage of the NW certification is that you do not actually need reasonable cause. The guidance seems to recognise that because it includes negligence in its definition of nonwillfulness. "Non-willful conduct 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." I would agree with you that reasonable cause is best but if someone has reasonable cause and a lot on the line in potential penalties then an opt out would seem to be a better route because the 5% penalty could be abated.

  83. You are absolutely correct that the IRS asserted the maximium $10,000 per account but did so in each case only for a single year. The IRS claims that it can assert that penalty for multiple years. It did not do the multiple year penalty in Hom.

    So, to go back to my experience, I have never seen the IRS assert the maximum nonwillful penalty either (1) per year as in Hom or (2) with multilple accounts in multiple years.

    Everything is driven by the facts. If you are a drug dealer or have some other bad facts, I can see the IRS tempted to do the maximum nonwillful per year per account. Hom was not a drug dealer (so far as I know), but I think Hom had some bad facts not typical of the prototypical nonwillful FBAR violator who has no reasonable cause. If you don't have those bad facts but fall in the large group of persons who are (1) not willful but (2) have no reasonable cause for their nonwillful failure to file, the IRS will not go to the max on the nonwillful penalty. Where will it go? I think that is dependent upon being able to marshal facts that will put you on the lighter end of the spectrum.

    But again, the key point I want to make is that just because the IRS can does not mean that it will. My experience is that the IRS exercises that power sparingly (indeed in my cases, not at all).

    However, before I do an opt out, I go over the worst case -- testing whether the facts would support willfulness. I do not recommend opt out if the facts would reasonably support willfulness. Then, I do the worst case calculation - $10,000 per account per year for all open years. Depending upon the number of accounts (some taxpayers have multiple small accounts), the max possible nonwillful penalty can exceed the willful penalty (certainly if the willful penalty were asserted for a single year as is typically, but not always, the case). I then consider the taxpayer's unique facts to see whether there is something that might want to cause the IRS to have the incentive to be aggressively punitive by asserting the maximum nonwillful penalty. If I am comfortable that the really bad facts are not there, I can recommend that the client consider the opt out. And, in every case so far, indeed, even where the IRS did not accept our willful cause argument for relied from penalty altogether, the IRS has asserted a very small nonwillful penalties, a small fraction of the possible maximum nonwillful penalties it would have asserted.

    But, to return, you are right that the IRS asserted the maximum nonwillful penalty in Hom but for a single year only for each of the accounts.

    Readers might want to look at the most recent blog on the Hom case:

    Jack Townsend

  84. RON,

    I saw the posting, but have just not had time to look at the plethora of detail. I am just rucuperating from an operation, so have generally avoided focusing on the comments except enough to approve them. I have responded to some where I could do it quickly. In your case, the way you posited the question, to do a proper answer, I think it would require considerable work -- perhaps 1/2 hour to parse out all the implications of the facts as you present them and provide the grade you request per fact.

    So, I doubt that I will be responding to it. Indeed, even after I recuperate, I doubt that I will find a half hour to devote to trying to look for the pitfalls in the multiple facts as you present them. So, at this point, I don't think I will be responding. If you are truly concerned about these matters, I recommend that you engage a professional -- I have a list of qualified attorneys on the blog -- and get advice with the proper give and takes so that you can rely upon it.

    Jack Townsend

  85. Thanks, Suzanne. That seems right. Of course, a taxpayer with this profile joining the streamlined program will likely not be questioned by the IRS (provided it is laid out summarily in the certification), so the advantage of the streamlined program is that it gets resolved with minimum hassle (albeit with no Form 906). The opt out will likely require a taxpayer interview and a return preparer interview (with document request for the organizer or other documents). So, the streamlined might be the path of least engagement in most cases. That might be worth just paying 5% and moving on.

    Jack Townsend

  86. That is fair, Jack. I do understand. Really! And I do hope you recover well and soon. I think all of us here really enjoy you and appreciate and respect you very much! Get better!

  87. Jack or Milan ,
    Do you think there will updated guidelines or FAQ for SDOP?. Also we are required to amend only 3 years tax return for SDOP , Do we required to change content of certification to reflect that since In really we are paying all the tax for properly for 3 years. there may be some tax due for previous to 3 years. of course if we pay 5% penalty that may compensate for all those years. I feel it is better if certification reflect what exactly we do i.e correcting 3 years tax return. Or they consider the certification for only for those 3 years in terms of accuracy of tax?. What is your opinion on this?.

  88. sks,

    I am not sure what you are asking. Just answer the questions and provide the information requested by the certification. You don't have to confess prior year sins.

    It may be that in your explanation of the income tx and FBAR delinquencies you may have to deal with prior years. That's a judgment about how to provide enough information to support your nonwillfulness certification. But, if you do go into prior years in that explanation, but sure that the explanation is fair and balanced. Do not misstate or mislead.

    Jack Townsend

  89. Milan

    Thanks -8 years makes sense.

    As regards paper Stock Certificates -

    8938 requireds them to be reported. FBAR does not

    See IRS Pub
    Under " Foreign stock or securities not held in a financial account"

    It makes sense that if Paper certificates are NOT required to reported on an FBAR- then , no FBAR penalty applies to them

  90. Jack

    We are all sending good thoughts and wishes your way. I know you will power through this to a full and quick recovery
    Get well soon!

  91. Milan, I find the tread of interest to my case. In OVDP and probably transitioning. What is the difference between RC arguments and NW arguments? I mean, for the streamlined certification I realize one must provide Nonwilfull data/arguments. But how about RC arguments? Should they be provided as well?
    I mean, for example, would something like this have to be provided:

    Taxpayer took action "A" (which was neglectful of him but was not willful of trying to evade tax or reporting etc.).

    RC Argument: Taxpayer did not seek professional help, rather he took action "A" after reading a tax treaty on his own and feeling he understood it and therefore acted on his understanding.

    Does this make sense? Showing NW and RC on the OVDP transition to streamlined certification?

  92. OVDP TRANSITIONING TO STREAMLINED. Any more news as to whether we know what happens if the IRS disagrees with the nonwilful certification? Do they send you back to the OVDP and that is it, or do they open a full blown examination with potential worst outcomes than even the 27.5% OVDP penalty?

  93. All I have heard is that, upon denial of certification, it will be processed under OVDP. The agent I discussed it with indicated that they are still developing / learning the processes, so she was vague as to whether any special treatment would be given to those for whom transition is denied. If it is just processed under OVDP the same as before, then there is no risk to trying to get streamlined. If, however, they are going to investigate some of the certifications to see if they were so off base that something more should be done, then there may be some risk. So, I don't think we know enough now as to what the risks of improperly certifying for transition in OVDP.

    My guess is that there will be something more on this -- either formally from the IRS shortly or anecdotally from other practitioners in the next couple of weeks.

    Jack Townsend

  94. Thank you very much!

    Jack Townsend

  95. Jack or Milan or sks,

    Are we also suppose to submit State Tax returns that we owe for the 3 years along with the SDOP? or is just the Federal returns? How do we handle the State liability?

    Also for Nonwillful explanation, how many pages of explanation should we attach? I have 1 page i.e. 20 lines .. would that suffice?

    Can you also please share how to calculate the Interest that we owe on the Tax for the past 3 years? My CPA doesn't seem to know this.

    Best wishes

  96. Hello Jack. You are in our prayers.. Hope you a speedy recovery..

    Best wishes

  97. I was not being necessarily detailed and was only referring to rents. However, since most foreign individual investors of US real estate are not of the develor variety, they are the ones whose activity is construed as NOT effectively connected income (ECI), and thus are subject to either 30% withholding of gross rents received, or some lower treaty percentage, assuming there is a treaty with the foreigners' home country. If the foreigner is of the developer variety, then the income is effectively connected with a US trade or business, and thus, NOT subject to the backup withholding. Foreigners can also elect to be treated as having ECI also, The nonresident withholding for the nondeveloper seems to be one which is personally liable against any "agent" or property manager of a foreign owner of real estate, and where applicalbe, subject to criminal sanctions.

    For rental withholding of nonresidents, see this:

    For cash sales, I think you mean "dispositions", which is subject to FIRPTA (of 1980) Withholding, and which means "sales, exchanges, liquidations, redemptions, gifts, transfers", etc. In this case it's 10% (or 35% if a foreign corp is distributing the real estate to its shareholders). There seem to be several exceptions, however. See here:

  98. SDOP wants the last 3 years of amendments for which the deadline has passed. That's why you have to include the 2010 amendment. You would still show and include the 2013 return in the packet, and mark, "Copy", to show you were compliant with your 2013 return. Also include 2013's FBAR which you would have filed on time. Mark "Copy".

  99. 6 years of FBARs. 2007-2012, for which, the deadlines have passed, assuming 2013's fbar was filed on time.

  100. Anyone can correct me if I'm wrong, but here is what is listed from the following link: (10-28-2013)
    FBAR Penalty Statute of Limitations on Assessment (ASED) & (10-28-2013)
    FBAR Penalty Statute of Limitations on Collection

    Failure to File FBAR (willful or NONwillful): 6 years from due date of FBAR report (due date is 06/30/yyyy);

    Failure to maintain required records (either willful or NONwillful): 6 years form date the IRS first asks for records.

    Once assessment has been paid, the Govt has 2 years from when the FBAR is received to file suit to recover an FBAR penalty, and 10 years from when the FBAR is received in which they may obtain payment of teh FBAR by offsetting payments (tax refunds, for e.g.).

  101. correct 2006 and 2007 are currently closed FBAR years outside of OVDI/P

  102. But an information return is not an income tax return. so that does not apply in my case it seems, and no, this is not the same as a QD for non-filed income tax returns, no?

  103. Milan, assume just for argument sake that I had filed 2012 and 2013 correctly. Then according to what you say, the most recent 3 amended returns (emphasis on the word "amended") would be 2009,10, and 11. Is that what SDOP wants?

    Now assume for argument sake that I had filed 2013 incorrectly. In that case I would need to amend 2013, 12, and 11. In my actual case, just because I filed for an extension in April and filed 2013 correctly in July (including taxes on 2013 overseas income etc), I have to pay the "penalty" of amending one extra year (2010) and pay the additional taxes due for that year. It seems like when I filed the 2013 return on July 5, the "deadline" has passed, and July 5 is when the 3 year clock starts, if I needed to amend that return.

    It's a similar situation with FBARS: the IRS says "For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs". I emphasize the word "delinquent". In my case, I filed the 2013 FBAR on time for which the due date has passed, and the delinquent FBARS are 2012, 11, 10, 09, 08. Please tell me what's wrong with my logic.

  104. Jack,
    What is your view of the distinction (if any) between the old FAQ 18 procedures to late-file information returns under the 2012 OVDP and the recently announced Delinquent International Information Return Submission Procedures? I note that the relatively clear statement under FAQ 18 that no penalties would be imposed if there are no underreported tax liabilities seems less certain under this new program. I also note the taxpayer must include a statement of facts establishing reasonable cause for failing to file, and failure to include the statement will trigger penalties. By comparison, no reasonable cause statement is needed for late FBARs under the new "son of FAQ 17" program.
    Have you heard any anecdotal information regarding whether this procedure has changed under the 2014 rules and what level of detail is required for the reasonable cause statement?

  105. Milan, I am sorry to request you to explain again this point you have explained before. I could not understand inspite of re-reading your explanation.

    You mention this option as QD but that option mention it is for "have not filed one or more required international information returns," .Most of us have failed to file taxable income which (I understand) is not same as international information returns. Can you help us understand why this option applies for those will missed reporting foreign income?

  106. That option is not available for those who are U.S. tax noncompliance. It is available only for those who are U.S. tax compliant and merely failed to file the international information forms.

    Jack Townsend

  107. Doug,

    I have not heard anything on this and have not yet had the occasion to really focus on it. Hopefully other readers can offer some insight.

    Jack Townsend

  108. Circling back late on your response. Yes, that was a typo meant to say 8893.

    So my point was if any one has any unreported foreign income/tax to pay, they cannot using option #4. So I guess option 4 is sort of like QD with RC but purely for missed information returns.

  109. I think you still mean 8891, and NOT 8893. I still do not know what you mean by 8893.

    Option 4 is for anyone who has DELINQUENT returns, i.e., they don't qualify for SFOP, do not enter OVDI/P, but want to properly submit original returns which they did not file. Option 4, could even ostensibly be, for those who did not, but could have entered SDOP.

  110. Hi Anna,
    very senior IRS official wrote to me and confirmed that the Snowbird Trap was unintended. this individual is in a position to know

  111. Anna, once a person has a GC (lawful permanent resident of the USA even though he lives abroad), and has visited the US at least for one day after having the GC at any time after getting the GC, the substantial presence test is thrown by the wayside. The substantial presence test is to be applied for a tax year for any person who does NOT have a GC, i.e. for a person who had a business or work visa and stayed and worked in the USA in one calendar year more than 183 days. See example 3 on the SFOP page.

    The GC has it's own, "green card test" rule which says, once a person arrives in the USA after attaining a GC, that person is a lawful permanent resident, even if he NEVER then returns to the USA. That person is a "resident" as far as the Code is then concerned and is subject to worldwide taxation and asset reporting. For SFOP, if that same GC resident, for some reason, didn't file ANYTHING, AND does not have the necessary 330 days abroad in any one calendar year, then yes, he does not qualify for SFOP nor SDOP. But I think the SFOP program says, so long as there is no physical ABODE in the USA, and for ANY one of the calendar years, he was abroad for at least 330 days (does not have to be consecutive), then he can qualify for SFOP. This means he doesn't live in the USA for most of any calendar year, but has 330 days in any calendar year, then he can still do SFOP. See here:

    "Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States."

    If your the GC resident does not have more than 330 days abroad, and never filed returns in USA, then I guess you could supposedly ASK the IRS if they can do SFOP.

    But I don't think it matters. You could still use Option 3 & 4, and attach a note attaching how your client does not qualify for SFOP nor SDOP.

  112. Roy, did he say that there will be a memo we can reference on this?

  113. Doug Andre,

    Are you referring to this? OVDI FAQ 18 points to nonresident taxpayers to use the following link, but in general, resident taxpayers are to just follow the instructions FAQ 18.

    It's strange because this link was updated on August 8th, 2014, but it's probably meant for people who can't get into SFOP.

    If a taxpayer can qualify for SFOP, or transition to it, I am not sure for if nonresident taxpayers should be using this procedure as mentioned above. In both SFOP and in the link above, RC arguments and a certification has to be attached. But the risk assessment for nonresidents has been taken away in SFOP, SFOP is the way to go if the taxpayer is able to qualify. Granted, even SFOP taxpayers have the chances of audit just the same, but the IRS wants taxpayers who qualify, to use SFOP/SDOP. The only reason for nonresidents to use the above link is if they're a citizen or a green card holder, do not qualify for the 330 day out of the country requirement, and have not filed original returns at all during the last 3 years. Thus, even option 4, is out of the question for such nonresident taxpayers.


  114. Jack,

    Thoughts on the following subject.
    If an OVDP Disclosure after being submitted for filing was discovered to be incomplete, but you had not received a response from the IRS about acceptance yet.
    Should you do nothing until you hear from the IRS?
    Or, should you re-file an updated disclosure with an explanation of the reasons why it was incomplete. Would this be permitted/or rejected?

    Or what if there was doubt the original filing had been received by the IRS, could you re-file the OVDP Disclosure?


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