ABA Tax Section Comments on Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures (9/28/21)

The ABA Section of Taxation has submitted, here, comments on the Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures.  I have not had time to review them.  I post them now to get them out there for those who may not have received or may have overlooked the email notice.

I may comment later.

JAT Comments (added 10/29/21 at 4:00 pm):

On reading through the ABA Tax Section Comments, two items caught my attention:

1.  The problem of requiring disclosure for preclearance in Form 14457, Part I, of the foreign accounts gives the IRS (and DOJ) potentially incriminating information and thus creates the risk that that information may be used against the taxpayer if the IRS denies preclearance.  The recommended solution to the problem is (p. 6 footnote omitted):

• We recommend that the Service remove item #10 from Part I (requiring the disclosure of noncompliant accounts) and move it to Part II of Form 14457, so that the disclosure of the noncompliant accounts is made after (1) the taxpayer is precleared to make a voluntary disclosure and (2) the practitioner has time to conduct due diligence with respect to items that may constitute noncompliant accounts. The goal of preclearance is for the Service to determine that a taxpayer is “eligible for making a voluntary disclosure, including establishing unreported income is from legal sources and that the timeliness requirements are met.” We do not believe the bank account information is required to make such a preclearance determination. Requesting identification of, and information on, noncompliant accounts in advance of the preclearance determination requires the taxpayer to disclose incriminating information before he or she is cleared to proceed with disclosure. This deters taxpayers from using, and practitioners from recommending, the VDP.

Grand Jury Indicts Alleged Offshore Willful Actor Who Should Have Entered OVDP But Attempted SFCP (9/24/21; 9/27/21)

DOJ Tax announced here the indictment of Mark Anthony Gyetvay.  Basically, as  I  understand  it on  quick review, Gytevay made  mega million in Russian related adventures and failed to (i)  pay tax and (ii) file appropriate FBARs.  A fair inference on the facts claimed in the  Press Release (and presumably the indictment) is that those failures were willful.  Then, Gyetvay tried to enter “Streamlined Filing Compliance Procedures in which he attested that his prior failure to file FBARs and tax returns was non-willful.”  Bad moves.

The opening  paragraph says:

A federal grand jury in Fort Myers, Florida, returned an indictment on Sept. 22 charging a Florida businessman with defrauding the United States by not disclosing his substantial offshore assets, failing to report substantial income on his tax returns, failing to pay millions of dollars of taxes and submitting a false offshore compliance filing with the IRS in an attempt to avoid substantial penalties and criminal prosecution.’ 

There is no mention in the opening paragraph of wire fraud.  But  later, the press release  says (emphasis supplied):

If convicted, he faces a maximum penalty of 20 years in prison for each wire fraud count, five years in prison for each failure to file FBAR count, five years in prison for tax evasion, five years in prison for making a false statement, three years in prison for each count of assisting in the preparation of a false tax return and one year in prison for each willful failure to file a tax return count.

I am in travel status now and so only post this for information purposes now.  I  probably will add some detail later after reviewing the indictment and thinking more about it.  In short, though,  for now, this guy has to be incredibly stupid and greedy (or some combination thereof) to forego the regular OVDP  and attempt the  SFCP.

JAT Comments (added 9/27/21):

Indictment for FBAR Charges, False Income Tax Returns and False Streamlined Submission (3/4/21)

Yesterday, DOJ Tax issued this press release:  Businessman Indicted for Not Reporting Foreign Bank Accounts and Filing False Documents with the IRS, here.  The press release announces charges for failure to report accounts on the FBARs for 2010 through 2016 and for false income tax returns for the same years “that did not report to the IRS all of his foreign bank accounts and income.”  The latter seems oddly worded since it does not state that the charge relates to failure to report the income from the accounts.  (I suppose it is possible that the income may have been properly reported and the Forms 8938 may have been false, but that seems odd.)

I think the most important item in the press release is the following:

Rahman is also charged with filing a false “Streamlined Submission” in conjunction with the IRS Streamlined Domestic Offshore Procedures. Those procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS and to pay a reduced penalty if their conduct was non-willful. The indictment alleges that Rahman’s Streamlined Submission did not truthfully disclose all the foreign bank accounts in which he had an interest, and falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was non-willful.

In other words, Rahman omitted from the Streamlined Submission accounts he should have disclose and falsely certified his alleged nonwillfulness.  I just wonder whether, had he disclosed all accounts in the Streamlined Submission and certified nonwillfulness, the Government would have prosecuted for that certification alone.  I don't know the answer to that, but the Government has asserted that it is prepared to charge false nonwillful certifications.

I previously reported on charges for false Streamlined Submissions in the following (reverse chronological order):

• Recent Article on Prosecution for False Certification of Nonwillfulness (Federal Tax Crimes Blog 4/1/20), here.
• Taxpayer Charged with False SFCP NonWillful Certification (Federal Tax Crimes Blog 8/26/19), here.

I did a Pacer search to find the indictment but the search returned the following information: Proceedings for case 1:21-cr-00022-LMB are not available.  The CourtListener docket entries for the case are here.  I created an alert in CourtListener, so when I should get an alert when the CL docket entries are refreshed.  I may then add something to this blog entry.

Report that Prominent Billionaires Are Subject to Criminal Investigation (8/24/20)

This is a fascinating report of a tax investigation in process against two very prominent billionaires, Robert Brockman and David Smith.  David Voreacos & Neil Weinberg, Billionaire Robert Smith Fighting U.S. Criminal Tax Inquiry (1) (BloombergLaw 8/21/20), here.  This is an ongoing investigation, so charges may never be brought and, if they are, the  shape of the charges are uncertain.

What caught my eye and, I think may be of interest to readers of this blog is the following discussing divorce proceedings between Smith and his estranged wife:

            Experts on both sides of the divorce pored over the family finances. In 2014, Smith approached the IRS seeking amnesty from prosecution under a program used by more than 56,000 Americans who failed to report offshore assets, according to two of the people familiar with the matter. Through the program, the IRS collected more than $11 billion in back taxes, fines and penalties, while learning who enabled offshore tax evaders.

            But the IRS rejected Smith, according to people familiar with the matter. The agency typically turned down taxpayers if it already knew they had undeclared offshore accounts.

Now, I don’t know but assume that, because of the specificity (although limited), the investigators are correct about his attempt to go into the voluntary disclosure program and being rejected.  The article does not state whether Smith attempted the OVDP or Streamlined or OVDP with Streamline transition.  The Streamlined Procedures were adopted in 2014 the year that the article indicates he approached the IRS.  Of course, if Smith’s tax underpayment and FBAR failure to file (or file correctly) are the subject of a criminal investigation, the IRS must now think him willful which would have in 2014 disqualified for the Streamlined Procedures (even the Transition).  But, if the IRS already had Smith on the radar screen knew when he attempted to join OVDP, he would have been disqualified as the article notes. 

We don’t know whether he was disqualified from OVDP because of already being on the radar screen or he attempted Streamlined (either direct or through transition from OVDP) and was rejected because his nonwillful certification was inadequate.  Of course, if he attempted Streamlined via OVDP transition and was rejected, he still could have solved his criminal problem by staying in OVDP and not opting out.

Some unanswered questions and surely there must be more questions.  And the statutes of limitations may be an issue since one would assume that the targets of the investigation have kept their income tax filings current and, within a range, proper, at least in the case of Smith who knew when he was rejected (in 2014) that he had potential criminal issues.

Taxpayers Who Entered OVDP Closing Agreement Seek Their Money Back Under the APA (8/24/20)

In Harrison v. IRS (D. D.C. Dkt. 1:20-cv-00828) (key pleadings at CourtListener here), the taxpayers, husband and wife, joined the IRS OVDP at a time when the miscellaneous (or in lieu of penalty) was 27 1/2% of the high amount in the account(s) over the covered years.  While taxpayers were in process on the OVDP, the IRS announced the Streamlined Process which would permit nonwillful taxpayers to obtain the same relief with a 5% miscellaneous penalty.  The IRS announced also that qualifying taxpayers in OVDP process could transition to the Streamlined Process.  The key qualification for the Streamlined Process was that taxpayers be nonwillful.  The taxpayers attempted to transition into the Streamline Process but were denied transition by the IRS committee that must approve the transition.  (Taxpayers refer to this process as governed by Transition Rules.)  At that point, their options were to either accept the OVDP civil penalty result or opt out and hope to achieve a lesser costs (principally the FBAR nonwillful penalty or no penalty at all).  The taxpayers did not opt out and entered a Closing Agreement under the OVDP penalty structure (notably 27 1/2% miscellaneous penalty as noted).

One would think that the Closing Agreement put the matter behind the taxpayers and the IRS.  But, the taxpayers had another trick (real or imagined) up their sleeves.  

In this case, taxpayers seek their money back and have packaged the request in APA clothing (rather than refund clothing), urging that the IRS had failed to provide guidance for when the request for transition relief would be approved and failed to provide guidance as to willfulness.  Moreover, they assert, the IRS did not adopt the rules (whatever they were) by informal rulemaking procedure (notice and comment), which would have given interested parties an opportunity to comment.  I presume that the claim is that the transition process and whatever unpublished guidance governed it were legislative rules (with force and effect of law) under the APA, for only legislative rules require notice and comment; interpretive and procedural rules do not require notice and comment.  The claim also is that the Transition Rules denying them transition (whatever those Rules are) are arbitrary and capricious.  Further they allege that the Transition Rules violate Due Process.  Finally, they reallege all of the foregoing and assert that the Closing Agreement is invalid.  They seek declaratory relief and a "refund of all money that Plaintiffs paid to Defendant through their participation in OVDP's penalty structure.

DOJ moved for summary judgment.  Taxpayers responded.  No decision on the motion to date.  These motion documents can be retrieved from the Court Listener docket sheet linked above.

JAT Comments:

Taxpayer Charged with False SFCP NonWillful Certification (8/26/19)

DOJ Tax issued a press release titled "Former CPA Indicted for Failing to Report Foreign Bank Accounts and Filing False Documents with the IRS," here.

This is the first time (at least that I can recall) that DOJ Tax has included a charge for false non-willful declaration in a SFCP submission.  Here are the pertinent parts of the press release:

According to the superseding indictment, Booker, a former Certified Public Accountant, owned a cocoa trading company that was organized under the laws of the Republic of Panama.  Booker allegedly operated that company from Venezuela, Panama, and his former residence in Fort Lauderdale, Florida.  The superseding indictment further alleges that, for calendar years 2011 through 2013, Booker failed to disclose his interest in financial accounts located in Switzerland, Singapore, and Panama on annual Reports of Foreign Bank and Financial Accounts (FBARs) as required by law.  Booker also allegedly filed false individual income tax returns for tax years 2010 through 2012 that failed to report to the IRS all of Booker’s foreign bank accounts. 

Booker is also charged with filing a false “Streamlined Submission” in conjunction with the Streamlined Domestic Offshore Procedures. The IRS Streamlined procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS.  The superseding indictment alleges that Booker’s Streamlined submission falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was due to non-willful conduct.

The press release has a link to the superseding indictment here.  The key allegations on Streamlined are in paragraphs 39-41 on p. 11 of the Superseding Indictment.  These allegations are:

39. The Streamlined Domestic Offshore Procedures (the "Streamlined procedures") allowed eligible taxpayers residing within the United States who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial aceounts, to voluntarily disclose their conduct to the IRS.  Taxpayers who were eligible under the Streamlined procedures were subject to substantially lower penalties than those provided by other 1RS programs. 

40.  In order to be eligible for treatment under the Streamlined procedures, taxpayers were required to file amended tax returns for the most recent three years for which the U.S. tax return due date had passed. Taxpayers who wished to take advantage of the Streamlined procedures were required to certify under the penalties of perjury that their failure to report all income, pay all tax or submit all required returns was due to non-willful conduct. Under the terms of the Streamlined procedures, the IRS defined non-willful conduct as conduct that was due to negligence, inadvertence, or mistake, or conduct that was the result of a good faith misunderstanding of the law. 

41. On or about October 14, 2015, BRIAN NELSON BOOKER submitted to the IRS a Certification by U .S. Person Residing in the United States for Streamlined Domestic Offshore Procedures (IRS Form 14654, "Streamlined submission"). In his Streamlined submission, the defendant certified under the penalties of perjury that he "learned about the FBAR filing requirements in 2008" and that he "mistakenly believed that only personal financial accounts had to be reported on the FBAR." The defendant also certified under the penalties of perjury that he was eligible for treatment under the Streamlined procedures and that his failure to report all income, pay all tax, and submit all required information returns, including FBARS, was due to non-willful conduct.

Court Listener has the docket entries, here,

JAT Comments:

OVDP Closes Friday; So What? (9/26/18)

There is a lot of buzz in the legal community and among commentators about the closing of the OVDP program this Friday.  I picked up substantial buzz from a listserv I am on and from posting on the web, including most prominently Peter Reilly's posting, Window Closing On IRS Program To Lessen Penalties, Avoid Prison For Offshore Shenanigans (9/25/18), here.

Some readers might find the following short comments helpful.

1.  The OVDP program is for the bad actor -- the taxpayer who was willful in filing or failing to file income tax returns and FBARs.  The willful bad actor is at risk of criminal prosecution and civil monetary costs (income tax, income tax penalties, interest and FBAR willful penalties).  The bad actor can square up with the IRS via OVDP and get substantial peace of mind.  After OVDP closes on Friday, the bad actor has no clear path to squaring up and getting peace of mind.  However, the IRS will have the traditional voluntary disclosure program which most the bad actor can use to square up and get peace of mind, assuming the bad actor qualifies, although, even if he mitigates the risk of criminal prosecution, the risk of higher financial costs is greater.

2.  For those who are not bad actors, the Streamlined Programs are still available.  The key to the Streamlined Programs is the nonwillful certification and narrative supporting the nonwillful certification.  The risk in entering the Streamlined Programs is that a taxpayer's certification and supporting narrative may be false or perceived by the IRS to be false or even suspect.  This could lead to an audit in which the IRS can test the validity of the certification and supporting narrative.  And, if those are false or misleading, the IRS could take away the financial benefit of the Streamlined Programs by making the taxpayer pay the income tax, income tax penalties (possibly the 50% civil fraud penalty), interest on both, and the FBAR willful penalty which is generally, by IRS exercise of discretion, a single 50% of high amount penalty, but might be more).  And, if the certification and supporting narrative are false, the taxpayer is at risk of criminal prosecution for that submission, as well as for the prior conduct the taxpayer was trying to absolve in the Streamlined Program.  Of course, that risk in the Streamlined Programs only apply to bad actors who should not have gotten into the program in the first place.

In short, the closing of OVDP on Friday only posits risks for bad actors -- those whose tax and FBAR noncompliance was willful.  Even for that category, there are fixes.  Those at risk of falling in that category should consult counsel.

IRS to Ramp Down and Then End OVDP on 9/28/18, But the Streamlined Procedures for Offshore Assets Will Continue for Now (3/13/18)

The IRS has announced that it will "begin to ramp down [OVDP] * * * and close the program on Sept. 28, 2018."  IR-2018-52, here   Related FAQs, titled Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers are here.  I discuss the FAQs at the end of the blog.

First, the contents of the news release are:

Issue Number:    IR-2018-52 

IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now 

WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.  

“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.” 

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations. 

The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017. 

The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns. 

Tax Enforcement 

The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations. 

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS." 

Streamlined Procedures and Other Options 

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point. 

The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets.  Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets: 

• IRS-Criminal Investigation Voluntary Disclosure Program;
• Streamlined Filing Compliance Procedures;
• Delinquent FBAR submission procedures; and
• Delinquent international information return submission procedures. 

Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.

IRS OVDP Declines-Withdrawals Campaign (2/27/18)

Late last year, IRS LB&I announced here certain compliance "campaigns" for examinations.  Among the campaigns is the following:

OVDP Declines-Withdrawals Campaign 

The Practice Area is Withholding & International Individual Compliance 

Lead Executive: Pamela Drenthe 

The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported offshore income and failure to file foreign information returns. This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. Taxpayers, who have yet to resolve their non-compliance and who meet the eligibility criteria, are encouraged to consider entering one of the offshore programs currently available. The IRS will address continued noncompliance through a variety of treatment streams including examination and letters.

 The linked letter which notifies the taxpayer of inclusion in this campaign is Letter 5935, here.  The letter is actually the second two pages of the pdf.  The letter indicates that a Form 15023, here, is included with the letter.  Note that the Form bears a creation date of January 2018, so I suspect that taxpayers did not start receiving the Letter and Form until

A commenter who received the Letter and Form called them to my attention here, and I provided a response just below it.  In the commenter's case, after his withdrawal in 2011 the commenter was in full compliance for 2011 forward and filed 3 years amended returns and original FBARs for the years 2008, 2009 and 2010.  It appeared therefore that the commenter's six-year statute of limitations for FBAR penalties for the latest originally noncompliant year (2010) was June 30, 2017 and statute of limitations for the income tax had expired for all years absent civil fraud.  needless to say, the criminal statute of limitations had expired, something to suspend the statute of limitations.  He says that he is a resident, so the criminal statute under § 6531 was not suspended for absence from the country.

Some issues just off the top of my head:

1.  The letter offers in Option 1 the opportunity to do a Streamlined Filing.  I thought (but have not double checked) that people who filed for preclearance in OVDP did not have the opportunity to do Streamlined.  Apparently, this letter suggests that they can.

D.C. Circuit Rejects Injunction End-Run by OVDP Taxpayers Seeking Streamlined Procedures Relief (7/14/17)

The DC Circuit Court of Appeals dismissed an attempt by participants in OVDP before the more robust Streamlined Procedures opportunity was announced in 2014.  Maze v. United States, ___ F.3d ___ (D.C. Cir. 2017), here.  They were relegated to the transition relief which, if nonwillful, would have qualified them for transition treatment reducing the miscellaneous offshore penalty ("MOP"), but would not relieve them from the eight years of income tax, penalty and interest on both required by OVDP.  By contrast, the new Streamlined Procedures would have require only 3 years of income tax and interest, with no accuracy related penalties.

I always thought the transition opportunity was unfair to those who got into OVDP rather than waited.  Taxpayers were rewarded for holding out.  But often life is unfair and taxes are not fair.

The plaintiffs in this action thought this was unfair as well and brought suit to compel the IRS to treat them under the Streamlined Procedures.  They ran squarely into the prohibition against injunctions in § 7421(a), often called the Anti-Injunction Act ("AIA").  Basically, the AIA prevents suits in any form which have the effect of enjoining the IRS in its tax enforcement and collection activities.  This particular suit failed for that reason.

I don't know that there is anything else to really say about this, except, if the taxpayers involved in the suit really were nonwillful, they could opt out of OVDP, take the audit and get an appropriate civil cost (tax, penalty and interest) result that way.  All of their income tax years would be subject to the normal statute of limitations (usually three years, with an exception for substantial omission or fraud (with the fraud unlmited statute not apply if they were nonwillful)).

Indeed, the design of the Streamlined Procedures, as I understand it, was to roughly give nonwillful taxpayers the result they could obtain by joining OVDP and opting out.  True, joining OVDP and opting out of the OVDP penalty structure involves commotion not encountered in Streamlined Procedures but, if taxpayers with a good story to tell (which is a requirement for Streamlined Procedures) can tell the good story in the opt out of OVDP penalty structure and achieve, in broad strokes, a more or  less similar result.  (Note there is some fuzziness there.) And, by staying in OVDP and just opting out of the OVDP penalty structure they get some marginal assurance of no criminal prosecution.

This story reminded me about Jesus' parable of the workers.  The taxpayers in Maze got what they bargained for -- the OVDP and the opportunity to opt out if dissatisfied.  So, too, the workers in Jesus' parable which can be read in Matthew 20:1-16, here.  In the parable, it is an equal reward that causes the problem for the early workers as compared to the late workers, but on an hourly basis, the late workers get paid a lot more for waiting than the early workers.  In the Streamlined Procedures, the late joiners get benefits not allowed the early joiners.  But, in both cases, they get what they bargained for.  (Actually, the early OVDP joiners got the benefit of Streamlined MOP by transitioning.)  What is the complaint?  (Having said that, I have already said that I thought excluding people in OVDP from the Streamlined Procedures benefits -- both income tax and MOP -- is unfair for reasons other than that the OVDP participants shut out of Streamlined Procedures did not get the deal -- even better deal -- they accepted in joining OVDP.)

Conference Report on IRS Offshore and Voluntary Disclosure Efforts (12/18/16)

The ABA recently held a conference titled National Institute on Criminal Tax Fraud and Institute on Tax Controversy.  This is a report on part of the events:  Andrew Velarde, IRS Offers Hints About Future of John Doe Summonses (Tax Notes Today 12/12/16) [no link available].  Key points of my interest from that report are:

1. Expect continued IRS and DOJ activity against offshore service providers with respect to foreign accounts and in the John Doe Summons "JDS" area.

2. Discussion of the bitcoin JDS.  A senior IRS official, John McDougal, is quoted as saying that users of virtual currency "presented the same risk profile as [users of] an offshore account."  He also said that users of bitcoin have ranges of understanding with respect to tax compliance -- "from innocent misunderstanding of what the filing obligations are to tax evasion."

3.  Discussion of influx of information about offshore accounts from FATCA, voluntary disclosure and other sources.

4.  Discussion of certification of nonwillfulness in streamlined procedures. Reports that Scott Michel of Caplin & Drysdale analyzed the certification process where things are rarely black and white under the familiar tax penalty concepts of reasonable basis, substantial authority, and more likely than not.  Michel is quoted as saying:  "The scary thing to me, and I think a lot of others, is it is probably not good enough to have a reasonable basis."  [I infer that the thinking is, at least with respect to any legal issues (including legal issues in fact analysis), this range of levels of comfort in traditional tax penalty analysis may have some effect, at least in terms of practitioner behavior in advising taxpayers and perhaps in arguing cases, although I have not seen that in the application of the FBAR penalty and in the certification of nonwillfulness.]

5.  Discussion of potential problems, particularly criminal from improper certifications of nonwillfulness.  A senior DOJ Tax CES lawyer, Mark Daly, is quoted as saying that he has been looking at a lot of certifications recently.  Some have "patently ludicrous" narratives presented to support the nonwillful certification.  And, they are checking against information from other sources.  He cautioned better due diligence by practitioners.

6.  Discusses the salutary effect of streamlined to channel most taxpayers into streamlined rather than OVDP.  The article cites McDougal of saying that the average $10,000 payment in streamlined suggests that it is working and that, at least in most cases, practitioners are appropriately channeling the clients.  The article quotes statistics that show 18,000 streamlined submissions in the last year compared with 1,800 new OVDP submissions.

Packman on State of Offshore Voluntary Disclosure, Particularly Due Diligence for Streamlined NonWillful Certification (12/14/16)

I call readers' attention to a blog entry by Kevin Packman, here, a significant player in offshore account representation.  Kevin Packman, The High Cost of Being Noncompliant with the Internal Revenue Code (Tax Compliance Blog 12/7/16), here.

In the blog entry, Kevin surveys current key issues for the IRS's offshore voluntary compliance programs.

The whole entry is worth a read, but I point out particularly the continuing concerns about the propriety of nonwillful certifications in the Streamlined programs.  Kevin cautions practitioners to test their clients certifications of nonwillfulness to insure that the narrative support for the certification and the real underlying facts support the certification.  Kevin notes (footnotes omitted):

The Government is reviewing the taxpayer streamline certifications, which makes it more crucial for taxpayers to be truthful and not stretch the truth.  Thomas E. Bishop, Director of Field Operations (International) spoke on a panel at the 4th annual International Tax Enforcement and Controversy Conference in Washington DC on October 28, 2016 (DC Conference).  During his comments, Bishop warned practitioners to challenge the taxpayer's assertion of nonwillful behavior.  He stated, "[j]ust keep in mind that we are looking at the actual account documents, the things that we see that show that the particular account holders are acting in a knowledgeable and intended way to conceal their wealth and income from the IRS." 

Caroline D. Ciraolo, Principal Deputy Assistant Attorney General in the Justice Department Tax Division also spoke at the DC Conference.  Ciraolo mentioned that "it's our job to make sure that those people who chose the streamlined program chose appropriately."  She indicated that those who "lied their way through a streamlined narrative," would be prosecuted. Additionally, Ciraolo noted that the Government has a great deal of information that it has received from the banks, which it can compare against the certifications.  More chillingly, they are following the money that left Switzerland "into jurisdictions around the world" and looking at institutions other than banks, such as "asset management companies, corporate service providers financial advisers, and insurance companies." 

A few days after the DC Conference, Ciraolo delivered the keynote address on November 2, 2016 at the American Bar Association's 27th Annual Philadelphia Tax Conference.  During her prepared remarks, she reiterated the warning to taxpayers thinking they can skirt through with a streamline filing.  She indicated that the "Tax Division prosecutors are reviewing certain streamlined filings and will investigate and prosecute taxpayers who willfully submit false statements in an effort to obstruct and impede the IRS and evade the payment of tax due."  She also referenced that DOJ has three dozen FBAR cases currently being litigated.  

On November 14, 2016, Ciraolo was at the American Institute of CPAs National Conference and speaking again about taxpayers inappropriately using streamline when she said "these are potential criminal investigations and we're pursuing them." 

It is not just the possibility of having your certification challenged that should worry taxpayers it is the fact that the false certification can lead to a prosecution.  Tino M. Lisella, Assistant Chief of the Western Criminal Investigation Section of the Tax Division stated at the DC Conference a false streamlined submission could "lead to charges under section 7206(1) for filing a false document signed under perjury, section 7212(a) for tax obstruction, and evasion under section 7201." 

These warnings from Government officials must, however, be weighed against those from John McDougal, special trial attorney and division counsel, IRS Small Business/Self Employed Division.  On October 21, 2016 when speaking at the University of San Diego School of Law-Procopio's International Tax Institute annual conference he said that taxpayers who were grossly negligent could use streamline. McDougal said, "[as long as you were not fraudulent or willful in the FBAR sense...even gross negligence is an appropriate basis for filing streamlined"

DOJ Tax Principal DAAG Recent Review of Activities Related to Federal Tax Crimes (11/13/16)

DOJ Tax issued this press release:  Principal Deputy Assistant Attorney General Caroline D. Ciraolo Delivers Keynote Address at the American Bar Association’s 27th Annual Philadelphia Tax Conference (11/2/16), here.  The following are excerpts related to the topics discussed on this blog (with JAT bold-face to draw readers' attention):

Tax Division prosecutors authorized, investigated and prosecuted traditional tax crimes, such as tax evasion, false returns, obstructing and impeding the due administration of the internal revenue laws, employment tax violations and the concealment of assets and income offshore, as well as aggravated identity theft and fraudulent return preparation.  Since 2014, our division prosecutors obtained more than 200 indictments, negotiated more than 100 guilty pleas and achieved a conviction rate in more than 30 trials of over 95 percent.  This does not include the additional criminal tax prosecutions authorized by the Tax Division and assigned to the U.S. Attorneys’ Offices.  

* * * * 

We are also prioritizing criminal investigations and prosecutions of willful employment tax violations.  For example, in September, the former owner of a trucking company in Kansas was sentenced to three years in prison for evading the payment of more than $900,000 in employment taxes and for filing a false statement with the IRS concealing his ownership interest in assets when the IRS began collection efforts. 

On the offshore front, we completed 78 non-prosecution agreements with 80 Swiss banks that admitted assisting in the concealment of U.S. related accounts and facilitating the evasion of U.S. tax, and that completed the requirements of Category 2 of the Swiss Bank Program.  We collected more than $1.3 billion in penalties and received substantial, detailed information regarding U.S. related accounts, U.S. accountholders and foreign and domestic individuals and entities that assisted the U.S. accountholders to evade U.S. tax and reporting requirements. 

In addition, since 2008, the department, working with our colleagues in IRS Criminal Investigation (IRS-CI), charged more than 160 U.S. accountholders with tax evasion and willful failure to report foreign accounts and more than 50 individuals who assisted in this criminal conduct. We also reached resolutions with nine foreign financial institutions outside of the Swiss Bank Program and continue to pursue investigations of entities located within and outside Switzerland. 

Our criminal offshore enforcement efforts have encouraged participation in the IRS offshore voluntary disclosure programs, through which more than 55,000 taxpayers have come into compliance and paid nearly $10 billion in tax, interest and penalties since 2009.  In addition, filing of Reports of Foreign Bank and Financial Accounts (FBARs) has increased from 332,000 reports for calendar year 2007, to over a million reports for 2015. 

Our civil trial attorneys also furthered our offshore tax enforcement efforts, seeking the issuance of John Doe summonses to identify U.S. taxpayers whose identities are unknown and who are engaged in violations of the internal revenue laws and initiating summons enforcement proceedings to assist the IRS in conducting its examinations and determining the accurate tax due. The information we seek is often located in the United States; however, as we recently demonstrated in a district court in Miami, we will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers. 

Our civil trial attorneys also are actively engaged in suits involving penalties assessed for failing to file FBARs. These suits include affirmative litigation to collect unpaid penalties, and defensive litigation raising a variety of issues.  We have approximately three dozen cases involving FBAR issues pending, the vast majority of which include a willfulness penalty for at least one of the years at issue.  These suits have raised issues related to the computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act. 

* * * * 

* * * * Let me take a moment to share my forecast of what I think you will see in 2017. 

First, the Tax Division is now well into the legacy phase of the Swiss Bank Program, reviewing the substantial data provided by the banks and obtained from other sources.  We are working closely with our colleagues in the IRS and using information gathered in pending investigations and to identify new individuals, entities and areas of interest for both civil tax enforcement and criminal tax investigations and prosecutions.  We are following the money outside Switzerland and into jurisdictions around the world and investigating activities by asset management companies, corporate service providers, financial advisers, insurance companies and other financial entities.  As a result of our enforcement efforts, entities are contacting us to acknowledge their role in facilitating U.S. tax evasion, disclose the individuals engaged in this conduct, and cooperate with the department in an effort to address and resolve criminal exposure. 

In addition, the IRS recently announced that 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and paid approximately $450 million in taxes, interest and penalties.  While we certainly encourage taxpayers to come into compliance, Tax Division prosecutors are reviewing certain streamlined filings and will investigate and prosecute taxpayers who willfully submit false statements in an effort to obstruct and impede the IRS and evade the payment of tax due. 

When requested by the IRS, the Tax Division will ask courts to authorize John Doe summonses, pursue summons enforcement proceedings, and when appropriate, will seek to enforce Bank of Nova Scotia summonses and issue and enforce Bank of Nova Scotia subpoenas to obtain information located outside the United States. 

In conducting civil and criminal investigations, the Tax Division will also continue to seek and review information pursuant to our bilateral and multilateral international treaties and agreements, respond to requests from treaty partners, and work closely with foreign counterparts to promote financial transparency and combat global tax evasion. 

In addition, the Tax Division is working closely with IRS-CI to prioritize traditional legal source tax prosecutions.  Our voluntary tax system only works when the honest taxpayer has faith in the process and believes that those who break the law will be held accountable.  When a local business owner, the neighborhood doctor or dentist, the mechanic down the street, or an investment banker is prosecuted for skimming from their business, using nominee accounts and shell companies to conceal assets and evade tax, filing false returns, conspiring to defraud the IRS, or obstructing the due administration of the internal revenue laws, there is an immediate and substantial impact among the defendant’s family, friends and neighbors, in the local and regional community and throughout the applicable industry.  These high-impact cases send a clear message that no one is above the law and that those who engage in this criminal conduct will pay a heavy price, including incarceration, fines, restitution and collateral consequences.

District Court Rejects Complaint Denying Full Streamlined Relief for OVDP Participants (7/26/16)

The District Court for the District of Columbia has rejected taxpayers' attempt to force the IRS to admit them into the full Streamlined Procedures rather than the Streamlined Transition Treatment in OVDP 2012.  Maze v. IRS, 2016 U.S. Dist. LEXIS 96471 (D. D.C. 2016), here.  The fight, as it usually is, is about money, but seasoned by the risk of criminal prosecution theoretically looming in the background (relief from which is the common inducement to join any IRS voluntary disclosure program).  In order to follow the money, I first have to review key features of the programs in question:

The common features of the various iterations of the IRS offshore voluntary disclosure programs (referred to here collectively as OVDP) have been:  (i) filing delinquent or amended income tax returns for 8 years, (ii) payment of income tax penalties (20% accuracy related penalty for amended returns or the delinquency penalties (up to 45+%) for delinquent returns), (iii) filing 8 years of delinquent or amended FBARs, and (iv) a Title 26 Miscellaneous Offshore Penalty ("MOP") based upon a percentage -- currently 27 1/2% (increasing to 50% if a bad bank is involved) -- of the highest balance in the offshore accounts for the 8 year period.  The inducement was that, with completion of the OVDP process via a closing agreement, the IRS will not refer the taxpayer to DOJ Tax for criminal prosecution.  A taxpayer joining OVDP who thought the OVDP civil penalty structure was too high under the circumstances could opt out and be subject to a regular IRS audit that covered both income tax and FBAR noncompliance.  Usually, taxpayers who were relatively innocent -- i.e., nonwillful -- with respect to income tax and FBAR noncompliance might want to either forego joining OVDP altogether or joining OVDP and opting out.  If they were relatively innocent -- nonwillful -- the results of the audit would often be much better than the OVDP civil penalty regime, except possibly if certain other returns or forms (such as for foreign corporations or trusts) were not filed.  But the "typical" U.S. taxpayer would only have foreign accounts with no foreign entities to muddy the water with other penalties that might apply and could, in any event, probably avoid those penalties with true nonwillfulness.  The risk of opting out was that the taxpayer has miscalibrated as to his nonwillfulness.

In 2014, the IRS substantially amended its Streamlined Filing Compliance Procedures.  As I understand it, the design of the revision was to catch relatively innocent taxpayers -- those who could certify nonwillfulness and provide a supporting narrative -- who would otherwise choose not to join OVDP or, if they joined OVDP, would opt out.  The Streamlined tax and penalty regime was calibrated to impose, roughly, the result they might obtain upon audit (either audit if they did not join OVDP or audit after opt out if they did join OVDP).  The key to this procedure with substantially less financial cost than OVDP was that the taxpayer must certify that his income tax and FBAR noncompliance was nonwillful and provide a narrative supporting the certification.  Based upon that certification and narrative, the procedure requires 3 years of amended returns or, in the case of foreign resident taxpayers, delinquent returns during the period (a domestic taxpayer does not qualify if he filed no return in the key 3 year period) and 6 years for delinquent or amended FBARs (although the narrative make take some explaining about bank accounts omitted from original FBARs).  The income tax and interest is due for the three years; there is no accuracy related or other income tax penalties.  The MOP will be 0% for the foreign resident taxpayer and 5% for the domestic resident, based upon the high year-end balance in the 6 year period.  The Streamlined Procedure does not result in a closing agreement, the taxpayer can be audited (although as an initial step such an audit might focus on the validity of the certification and narrative), and the taxpayer is given no assurance that he will not be criminally prosecuted.  (I have recently noted that DOJ Tax has noised about potential criminal prosecutions for improper certifications and narratives, as well as the underlying conduct.)

IRM Guidance on Processing SDOP - On Flagging Returns for Scrutiny and IRM Redactions (7/2/16)

In a prior posting in 2014, I discussed some internal guidance on the IRS web site for processing Streamlined Submissions.  New IRS Internal Guidance on Processing Streamlined Submissions (8/29/14; 8/30/14), here.  A reader of the Blog, Andrew Jones, here, advised me that the IRS has taken down the link to the guidance and incorporated some of the guidance, with some modifications, in IRM 21.8.1.27.2.1  (05-01-2015), Adjusting Streamlined Filing Compliance Domestic Accounts - (Streamlined Domestic Offshore - SDO), here.  I have revised that prior blog entry to so indicate.

Andrew also noted that a key part of the guidance as I had posted it in 2014 related to flagging the presence of "5 or more information returns" in SDOP submissions appears to have been redacted in IRM 21.8.1.27.2.1 (linked above). but Andrew recounts his sleuthing on this issue and significance of the redaction as follows:

I was spending some time working up some advice for a client re: the "5 or more information returns" metric imposed on Streamlined Domestic filings (maybe SFOP too).  I was stumped for some time because I couldn't find that language that you cited at http://federaltaxcrimes.blogspot.com/2014/08/new-irs-internal-guidance-on-processing.html.   

When I visited the IRS' posting of the IRM (https://www.irs.gov/irm/part21/irm_21-008-001r-cont03.html), that phrase was nowhere to be found.

I was finally able to discover that the IRS has redacted this detail (you'll find the === notations obscuring the original text, right below the line, "Allow the adjustment notices to generate and serve as the closing correspondence."  That position in the IRM is exactly where your blog post cited, and the May 1, 2015 date of the section posting to the IRM is also after the posting date of your blog entry which mentioned that language. 

I'd tend to think that anything which the IRS decides - after the fact - to redact, is probably of some significance.  In that case, you seemed to feel (and I definitely agreed) that this was an important insight into how/why Streamlined filings are or are not accepted as filed.  In the context of what is otherwise a largely 'black box' process, the IRS' efforts to hide their rules-of-thumb is particularly valuable.

Thanks to Andrew for calling it to my attention so that I can pass it on to readers of this blog.

TIGTA Report on Improvement in Some Features of OVDP (6/21/16)

The Treasury Inspector General for Tax Administration has released a report titled Improvements Are Needed in Offshore Voluntary Disclosure Compliance and Processing Efforts (June 2, 2016 Reference Number: 2016-30-030), here.  The key highlights presented are:

WHAT TIGTA FOUND 

The IRS needs to improve its efforts to address the noncompliance of taxpayers who are denied access to or withdraw from the OVDP. TIGTA reviewed a stratified random sample of 100 taxpayers from a population of 3,182 OVDP requests that were either denied or withdrawn from the OVDP. Although 29 of these 100 taxpayers should have been potentially subject to FBAR penalties, the IRS did not initiate any compliance actions. Projecting the sample results to the population of denied or withdrawn requests, the IRS did not assess approximately $21.6 million in delinquent FBAR penalties. 

TIGTA also identified internal control weaknesses that led to delayed or incorrect processing of OVDP requests through poor communication among IRS functions involved in the OVDP. These weaknesses include the use of separate inventory controls and two separate IRS addresses for taxpayers to send correspondence, which contributed to incorrect processing of some taxpayer disclosure requests. In addition, the IRS does not have a process to determine the appropriate skill level needed for revenue agents to work OVDP request certifications. OVDP cases are not equivalent to audits of taxpayers’ returns and generally do not require as much technical analysis as traditional tax audits. 

WHAT TIGTA RECOMMENDED 

TIGTA recommended that the IRS: 1) review all denied or withdrawn offshore voluntary disclosure requests identified in this report for potential FBAR penalty assessments and criminal investigation; 2) develop procedures for reviewing denied and withdrawn cases for further compliance actions; 3) centrally track and control OVDP requests; 4) establish one mailing address for taxpayer correspondence; 5) ensure that employees adhere to timeliness guidelines throughout the entire OVDP process; and 6) classify OVDP certifications so that some can be worked by lower-graded revenue agents.  

IRS management agreed with all six recommendations and has taken or plans to take corrective action on five of them. Although the IRS agreed with the potential value of establishing one mailing address for taxpayer correspondence, this recommendation has been put on hold until a decision is made about the future status of the OVDP.

The report has a summary of the development of the various programs over the years since 2009 and the processing system.  The report focuses on taxpayers who were denied access to OVDP or who, having entered, withdrew or opted out.  Those persons were subject at a minimum to civil audit and some were potentially subject to criminal investigation and prosecution.  The report concludes that the IRS should have better following-through mechanisms.  Based on what it believes was an appropriate representative sample, the report suggests that there is some revenue from auditing and/or investigating those individuals.  I have not analyzed the report otherwise, but do find the following interesting.

1. Withdrawn OVDP Requests.  The sample selected included 50 taxpayers out of a total population of 781 withdrawn OVDP requests.  Only 20% of those in the sample had some form of compliance action or were included in the Streamlined Procedure.  "Of the Streamlined Procedure cases that have closed, 10 taxpayers were assessed $142,711 in penalties."  (JAT Note:  It is not clear to me what the group that withdrew and then were accepted in Streamlined Procedure is comprised of; my understanding was that those who were in OVDP up to the point of the intake letter could not withdraw and must either seek Streamlined Transition within OVDP or must opt out (different than witndrawing); I suppose it could include the class of people who had passed preclearance but not yet submitted the intake letter.)

2. Denied OVDP Request.  TIGTA reviewed 50 of 2,401 taxpayers who were denied entry to OVDP.  Only 12 of the 50 "were denied participation in the OVDP were either subjected to further criminal investigation or examination efforts, or were deceased."  Then, these is some detail behind the 34 (68 percent) of taxpayers in the sample.  (JAT Comment:  I have to say that I have had only taxpayer who failed preclearance because he had been scheduled for NRP audit; he ultimately got the OVDP result without formally being in the program.)

3. Recommendation to Review Denied or Withdrawn Requests. TIGTA recommended that the LB&I Division review all denied or withdrawn requests for FBAR penalty assessments and possible referral to CI.  In the Management's Response the IRS agreed and had technical specialists review all withdrawn and denied requests, with follow up indicated for 17.  The IRS disagreed with the revenue potential from such follow-throughs.

4. Recommendation for Immediate Review of Denied or Withdrawn Requests  TIGTA recommended (Recommendation 2) that "The Commissioner, LB&I Division, and the Chief, CI, should develop procedures to require the immediate review of any future denied or withdrawn offshore voluntary disclosure requests for further compliance actions."  IRS agreed.

5.  Other Administrative Recommendations. The balance of the recommendation dealt with processing and administration procedures.  However, I did find that, in response to a recommendation (Recommendation 4) that the IRS have one mailing address for submitting offshore voluntary disclosure requests and related documentation:

The IRS agreed with this recommendation, but is putting the recommendation on hold until a decision is made about the future status of the OVDP. While the IRS agreed with the potential value in this recommendation, at this time and in light of the nonpermanent status of the OVDP, it cannot commit the resources needed for making this change.

I infer from this that there is some current consideration being given about "the future status of the OVDP."  The IRS has always said that it could modify or withdraw the terms of OVDP at any time (although it would be expected to be prospective only and may even have a delayed effective date).

Selected Items from ABA Tax Section Civil and Criminal Penalties Session (5/9/16; 5/10/16)

On 5/10/16, I added item 7 regarding whether, in Streamlined, the IRS might require adjustments for earlier years where the statute of limitations might otherwise be open.

I attended the ABA Tax Section May Meeting this past week.  My favorite session at these meetings is the Civil and Criminal Tax Penalties Meeting on Saturday.  I cover here the highlights from my perspective, but do not cover those items that I have previously covered in earlier blog entries:

1. Panama Papers.  Not much new was provided regarding the Panama Papers Disclosures.  See my  posting from last Friday, Articles on ICIJ's Panama Papers and Ramifications (Federal Tax Crimes Blog 5/6/16), here.  I expect to offer soon more on the President's and related initiatives announced.

2. Luis v. United States, No. 14-419, 578 U.S. ____, 130 S. Ct. 1083, 2016 U.S. LEXIS 2272 (March 30, 2016), here.  The Supreme Court held that untainted assets -- assets not obtained from the alleged illegal conduct -- could not be forfeited or restrained in violation of the owner's Sixth Amendment  right to retain counsel.  Prior cases permitted forfeiture or restraint of tainted funds.  See Kaley v. United States, 571 U.S. ___, 134 S. Ct. 1090 (2014), Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, (1989), and United States v. Monsanto, 491 U.S. 600, (1989).  The Government wanted to preserve the untainted funds for payment of restitution and penalties.  The Court adopted a balancing of interest approach rather than a clear rule.

3. Anecdotal evidence indicates that the IRS may be focusing on attorney Form 8300 compliance.  Form 8300 if a joint IRS and FinCEN form to report cash payments over $10,000 received in a trade or business.  Exams are focusing on aggregation issues, correct and timely filing of Form 8300, and timely notice to the payor of the currency.

4. The key recent inclusion in the Domestic Voluntary Disclosure Program is the requirement for preclearance, a procedure clearly inspired by preclearance in OVDP.  If the preclearance clears (meaning the IRS has no disqualifying indication), the IRS sends for completion a 10 question "intake" letter.  Rather than focusing on others involved as the OVDP intake letter does, the Domestic Voluntary Disclosures intake letter focuses on the actions of the taxpayer.  Assuming the intake responses clear, the taxpayer will be directed to send amended or delinquent returns to an IRS office in Massachusetts.  It is reported that the IRS has been reasonable in the number of years of amended or delinquent returns required.  It is not clear where "quiet disclosures" fit in the new scheme, but presumably the formal program with preclearance and intake letters would be appropriate only for the "nonwillful." (JAT conclusion)  I will try to do a blog entry on the state of domestic voluntary disclosures this week.

5. There was discussion of potential criminal prosecution of false Streamlined Certification.  It was generally agreed that a streamlined certification (Foreign or Domestic) which has a robust narrative of the material good and bad facts should not generate a criminal action for false certification even if the IRS disagrees with the taxpayer's conclusion that those facts support nonwillfulness.  Where, however, the taxpayer fails to properly and fairly disclose the material facts-- good and bad -- the taxpayer may be at risk of prosecution.  I suppose the one caveat would be where the facts fully and fairly disclosed do not in any reasonable way support nonwillfulness, there might be prosecution or some other untoward response.

6. With regard to Streamlined Voluntary Disclosures, there was some noise that the IRS will be deploying incoming information from other sources to ensure that the Streamlined Voluntary Disclosures are complete.  If the amended returns and FBARs submitted in the Streamlined Voluntary Disclosure process are not reasonably complete, the taxpayer will be at considerable risk to explain why.

7. One key discussion at the meeting involved whether the Streamlined Program which requires three years of amended returns (and in the case of SFOP, delinquent returns) and 6 years of FBARs effectively closes out exposure for earlier years.  Years other than the latest three years for which amended returns are required could be open for a couple of reasons.  Since the predicate for Streamlined qualification is that the taxpayer acted nonwillfully (same as civil fraud), I assume that the earlier years are not open under the fraud exception that keeps the statute open forever.  So, absent fraud, why would earlier years be open, keeping in mind that the general statute is three years and the taxpayer is delivering 3 years of amended or delinquent returns?  First, all years in which the taxpayer failed to file a return could be open.  For example, if the taxpayer moved overseas 10 years ago for legitimate reasons but failed to file returns after the move, all of those years would otherwise be open.  Second, for those taxpayers filing returns (and assuming no fraud), the statute could be open for 6 years rather than the normal three years for two years -- a 25% income omission or a $5,000+ income omission for Form 8938 assets.  So, the question was whether, as to any year before the covered three years in the Streamlined program that might otherwise be open, is there any assurance that the IRS will not require adjustments for those years?  The Streamlined programs textually offer no such assurance, but most practitioners have assumed that, given its design and the way voluntary disclosure programs have worked in the past, earlier years would not be subject to adjustment.  John McDougal, an IRS attorney who has been a major player in the IRS's offshore initiatives since the inception, said that, while he could only speak for himself and not the IRS (the standard disclaimer), he thinks there is practical assurance because that is the design of the program and seems to be implicit.  He said that, should the IRS choose to go after earlier years, that action would impede the effectiveness of the program that encourages people to get back into the system to the extent they have not in the past.  Fewer people would join the program, and the IRS will have shot itself in the foot.  While Mr. McDougal is a lone voice not speaking for the IRS, he is an authoritative voice whose comments need to be considered by taxpayers and practitioners.

Interview of Acting Assistant Attorney General Ciraolo on Tax Enforcement (3/23/16)

The New York Law Journal has published this article of an interview of Acting AAG Caroline Ciraolo.  Jeremy H. Temkin, DOJ Tax Division Today: Interview With Acting Assistant Attorney General, 255 NYLJ No. 55 (3/23/16), here.  The interview is a general overview of the Tax Division's work, with particular focus on offshore accounts that have been perhaps its most visible effort over the past few years.  Of course, there is the expected claims of great success on the offshore efforts starting in 2009, with many prosecutions of individuals and financial institutions and much revenue gathered.

I focus in the balance of this blog only on matters that I found particularly interesting.

1.  Regarding follow-through, Ciarolo says that DOJ  and the IRS are following leads they have obtained in the various efforts and are continuing to obtain from various sources "to identify and investigate U.S. accountholders who willfully concealed their foreign accounts and evaded U.S. tax, as well as those entities and individuals, foreign and domestic, that facilitated this criminal conduct."

2.  Category 3 and 4 information:

Finally, Tax Division attorneys and IRS personnel are reviewing the information received from Swiss banks that fall under Category 3 and Category 4 of the program. Category 3 and 4 banks maintain that they did not commit any violations of U.S. law, and seek a non-target letter after providing information required by the program.

I have written before that I am baffled that any Swiss Financial Institution would have proceeded under Category 3 or 4.  See US DOJ Swiss Bank Program Categories 3 and 4 Comments (Federal Tax Crimes Blog 2/4/16; 2/7/16), here.  Certainly, though, the Financial Institutions that did join under Categories 3 or 4 would have expected to have been closely scrutinized.

3.  Countries Other than Switzerland:

Revised Streamlined Certification Forms 14653 SFOP and 14654 (SDOP) (3/11/6)

In February, the IRS revised the Foreign and Domestic certifications (Forms 14653, here, and 14654, here, respectively) in February 2016.  I set forth the principal revisions below:  (In my browser, the links doe not permit actually viewing the form, but it can be downloaded or saved and should work fine with a pdf program.)

The Non-Resident Certification form 14653 (Feb 2016) now includes:

1. A chart asking the filer to declare for each year whether they were out of the country for at least 330 days
2. If the  person is not a citizen or lawful permanent resident, the calculations for the application of the substantial presence test under section 7701(b)(3) for 5 years (the 3 years in return covered period and the two previous years).
3. An enlarged explanation of the facts that the IRS deems important to include in the Streamline statement, emphasizing that the taxpayer should provide specific reasons for noncompliance and tell the complete story.  
4. A Paid Preparer Section for the preparer of the Certification and box to indicate whether the filer allows the IRS to speak with that person.

The Resident Certification Form 14654 (Feb 2016) now includes:

1. An enlarged explanation of the facts that the IRS deems important to include in the Streamline statement, emphasizing that the taxpayer should provide specific reasons for noncompliance and tell the complete story. 
2. A Paid Preparer Section for the preparer of the Certification and box to indicate whether the filer allows the IRS to speak with that person.

If I missed any key differences, please let me know either by comment or email.

AICPA Recommends Changes to OVDP and SFCP (3/10/16 & 3/11/16)

On March 9, 2016, the AICPA (American Institute of Certified Public Accountants) sent the IRS recommendations on the OVDP and SFCP.  The letter with the recommendations is here.  The recommendations as summarized in the letter are:

For the 2014 Offshore Voluntary Disclosure Program, we recommend that the IRS: 

1) Restore the previous practice of not requiring an upfront payment of the miscellaneous offshore penalty by taxpayers.
2) Apply the 50% miscellaneous “Super” penalty only to accounts held at institutions listed on the Foreign Financial Facilitators List.
3) Allow the waiver of the passive foreign investment company (PFIC) computations for small account cases. 

For the Streamlined Filing Compliance Procedures, we recommend that the IRS: 

1) Modify the penalty base to include only those assets associated with tax non-compliance.
2) Expand the Streamlined Filing Compliance Procedures to include certain classes of nonwillful individuals who are currently ineligible for either the Streamlined Foreign Offshore Procedures (SFOP) or the Streamlined Domestic Offshore Procedures (SDOP).
3) Provide additional guidance in the SFOP and SDOP filing instructions to taxpayers on the specific factors the IRS will consider in judging whether their non-compliance was willful.

See the letter for more detail.  I think the recommendations generally are good ones I am concerned but some of them come a little late in the implementation of these programs to be adopted after many cases have already been processed.

Addendum 3/11/16:  I am advised that the AICPA comments overlap somewhat prior recommendations by the American Bar Association in October 2015, here.