I have just looked through the guidance. I have not studied it closely. The key point that caught my eye on this review is that there are procedures established for some preliminary vetting of the documents that are filed under the SFOP and SDOP procedures. I quote some of them and then offer comments.
IRM 126.96.36.199.2.1 Adjusting Streamlined Filing Compliance Domestic Accounts
- (Streamlined Domestic Offshore - SDO)
3. LB&I will review the submissions for statute considerations. LB&I will complete the "AM Streamline Coversheet" and attach it to the package notating their statute recommendations regarding open statutes and statute extensions.The IRS must determine if the certification is complete -- a table checklist is provided in paragraph 7.
One thing they check for is an open examination. (See par. 8, table). [JAT Note on 7/2/16: This discussion from the guidance as originally published appears to have been redacted in the regulations 188.8.131.52.2.1 (05-01-2015), Adjusting Streamlined Filing Compliance Domestic Accounts - (Streamlined Domestic Offshore - SDO), here, see particularly paragraph 9.F. which apparently is the following paragraph but it is redacted (so I don't know if the guidance has been changed) I have written a subsequent blog entry on this. See IRM Guidance on Processing SDOP - On Flagging Returns for Scrutiny and IRM Redactions (Federal Tax Crimes Blog 7/2/16), here.]
9. To complete adjustments on Form 1040X filed under the SDO:
6. After making the assessment, refer any case with 5 or more foreign information returns (Forms 3520, 3520-A, 5471, 5472, 8938, 926, or 8621) by e-mailing the CIS ID number to "*LB&I OVDP Compliance" with an explanation that the case is being forwarded due to 5 or more foreign information returns. Enter CIS notes indicating the case was referred to *LB&I OVDP Compliance "5 or more foreign income statements"
JAT Comment: The latter requirement for forwarding returns with 5 or more information returns is obviously a critical one in terms of trying to anticipate what the IRS might do. I don't think that less than 5 will mean the taxpayer certifying nonwillfulness has no risk. The returns could be picked up under the regular IRS procedures which, inter alia, score returns for factors unrelated to offshore accounts. Then, once an audit starts, the assumption would be that some level of audit of the certification will take place. But, given the uncertainty in all this process, I personally believe it would be a mistake to make an aggressive certification of nonwillfulness even if the taxpayer can imagine that he understands his audit risk factors. I don't understand audit risk factors, at least not well enough to take any important action based on the understanding. The proper way to analyze this is that you should not certify if you are making a false certification or, if you can't calibrate nowillfulness exactly, a certification of nonwillfulness when the facts put you toward the willful end of the spectrum. That is not legal advice to anyone, for I do not provide legal advice on this blog without specific engagement of my services. This is just a cautionary concern that I think readers should consider.NOTE: The total of 5 forms is a combination of all years filed. For example submissions containing 3 Forms 5471 for 2011 and 3 Forms 5471 for 2012 would be referred since the total is 6. Submissions with a combination totaling less than 5 would not be referred.
Addendum 8/30/14 2:30pm
A commenter on another blog another blog entry here has pointed out that this new IRS posting says something that may or not be consistent with the original instructions as to the years covered for SDOP or SFOP. Those original procedures (still in effect as of today, see the SDOP instructions, here) said that the years for which amended or delinquent returns must be filed are:
each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date)Some taxpayers have been concerned about which 3 years when the taxpayer is on extension for 2013 and has filed prior to the end of the extension period. Say they filed original 1040 and FBAR on June 30, 2014. Does that taxpayer submit returns for 2010, 2011 and 2012 or for 2011, 2012, and 2013 (2013, of course, is compliant because of the recent filing). If the instructions quoted above are read literally, the required years are 2010, 2011 and 2012 because the extended due date has not yet passed. But still it could be a matter of interpretation because, once the return is actually filed, the extended due date is meaningful only to the date of filing. Still, that is not the plain reading of the requirement.
This new IRS publication for changes to the IRM suggests even a further nuance. It says that the returns required are:
each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) is past and the statute of limitations is still open.I have highlighted the language that does not appear in the SDOP and SFOP instructions.
Consider this example. Suppose the taxpayer filed his 2010 return on 4/15/11. Taxpayer will join SDOP on 9/1/14. Which years must be amended? His 2010 year is closed (assuming the normal 3 year statute applies); 2010's statute closed on 4/15/14. So, then presumably, the open years are 2012, 2013 and 2014. So those are the only years that should be amended and submitted (and, if as in the example above, the taxpayer filed a compliant originals for 2013, so the only amended return years are 2011 and 2013).
This is an interesting question. I don't know whether taxpayers should follow the guidance in the SDOP and SFOP general instructions or can rely on the internal guidance in the IRM revisions. The general legal rule is that IRM provisions are for the IRS's internal guidance and confer no rights on the taxpayer.
Of course, a taxpayer can avoid the problem altogether by waiting until 10/16/14 to submit the streamlined submissions.