Wednesday, June 27, 2012

IRS Websites on OVDP 2012 (6/27/12)

These are the key new webites:

2012 Offshore Voluntary Disclosure Program, here.
This is the key web site with links to the related web sites (including FAQs and various documents to submit.
Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, here.

Offshore Voluntary Disclosure Program Submission Requirements, here.

Options Available to Help Taxpayers With Offshore Interests, here.

JAT Comments:

1.  From FAQ 21, regarding how taxpayers may become ineligible for OVDP 2012.
Second, the IRS may announce that certain taxpayer groups that have or had accounts at specific financial instructions will be ineligible due to U.S. government actions in connection with the specific financial institution. Such announcements will provide notice of the prospective date upon which eligibility for specific taxpayer groups will be posted to the 2012 Offshore Voluntary Disclosure Program page.
2.  FAQ 24 requires the OVDL (the form letter to IRS CI after preclearance is received) and an attachment for each foreign financial account.  The attachment requires a lot of information about how the particular foreign account operated, including identifying enablers and their roles.

3.  FAQ 9 describes the disclosure period (the period for which amended returns and delinquent or amended FBARs will be required).  I am not sure I understand the logic of the calculation of the period, but in broad strokes, it is to calculate the period as the preceding 8 calendar years for which the latest year filing date (including extensions) has not already passed.  Thus, the example:  "for taxpayers who submit a voluntary disclosure prior to April 15, 2012 (or other 2011 due date under extension), the disclosure must include each of the years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities."  I assume, therefore, that for calendar year taxpayers filing for OVDP after 4/15/12 (without extensions) and after 10/15/12 (with extensions), the eight year period starts for the year 2004 at the earliest with seriatim years dropping off after each due date (original or with extensions) expires. And, if the taxpayer became compliant in any of those eight years, those years will not be included in the 8 year disclosure period (i.e., the 8 year disclosure period is reduced by the compliant years).  [I am not sure that this latter rule will have a major effect in most cases unless the taxpayer increased the amounts in foreign banks or foreign assets during the compliant years; perhaps readers can comment.]


  1. Just read RRSP on FAQ 54.  Yes, they will give all RRSP holders the same treatment.  Further, they seem to be willing to consider other offshore retirement plan that is not covered by treaty as well FAQ 55.

    Good move on IRS and, of course, they are the smartest/elite and finally figure it out 

  2. I see from the FAQ that the IRS still clings to the ridiculous threat that they could penalize an account with around 1- 1.4M over 5 years 3,825,000 in FBAR penalties (50% for every year). I doubt there is anyone in the IRS who believes those penalties would be sustained by the Supreme Court. even for the very worst case (say  a violent terrorist or a drug lord). Why present those ridiculous penalties except to terrorize people ?

  3. Jack, to your query regarding FAQ 9:  In my experience, it is unlikely that one year (e.g., 2008) was tax-compliant, whereas 2004-2007 and again from 2009 onward, the account was not disclosed.  Thus, usually, all years will be included within the range of the OVDI/OVDP. 

    The issue becomes whether we can get 2011 out of the range.  This is important if 2011 represented the year with the highest aggregate balance for penalty purposes, i.e., the 27.5% penalty would apply to 2011.  So, how can we take the position that 2011 was tax-compliant?  If taxpayer (1) "checked the box" on his or her 2011 Form 1040 Schedule B, (2) taxpayer declared and paid tax on all foreign income during 2011, and (3) taxpayer timely filed his or her 2011 FBAR.  If 2011 is tax-compliant, we can take the position that 2011 is not within the range of the OVDI/OVDP and the penalty would apply to a year prior to 2011.  Again, this calculation is important if 2011 is the year with the highest aggregate balance for offshore assets.

  4. Bankruptcy AnonymousJune 27, 2012 at 11:39 AM


    Also of significance are FAQs 17 and 18.    FAQ 17 says as follows:

    For taxpayers who reported, and paid tax on, all their taxable income
    for prior years but did not file FBARs, you should file the delinquent
    FBAR reports according to the instructions (send to Department of
    Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a
    statement explaining why the reports are filed late.

    The IRS will not impose a penalty for the failure to file the
    delinquent FBARs if there are no underreported tax liabilities and you
    have not previously been contacted regarding an income tax examination
    or a request for delinquent returns.

    THere is a similar rule with respect to Forms 5471 and 3520 in FAQ 18.

    Curiously, the two sentences quoted above are seemingly inconsistent. The first sentence seems to indicate that the "no penalty" rule applies only if income was reported (and all tax on that income paid).  The second sentence appears to key the "no penalty" rule to a lack of an underreported tax liability.  There are  situations where there can be omitted income from foreign accounts/sources but there are no additional taxes owed. The FAQs are less than a model of clarity on how the IRS will deal with these situations going forward, which makes things more difficult for taxpayers and practitioners.

    Bankruptcy Anonymous

  5. Thanks, Asher.  Do you regard 2011 as income tax compliant meaning only if the income is properly reported regardless of whether the taxpayer filed Forms 3520, 5471 or 8938?

  6. Isn't there a way to challenge this programme in court. One size fits all approach and scaring people with maximum penalty threats against the mitigation guidelines, isn't this abuse of the law. Each option is a suicide. Even the media is not highlighting this from the perspective of minnows.  

    If yes, a fund can be established by a law firm and people would happily donate for this worthy cause. Just a thought.

  7.  Not a lawyer, but I would say definitely not. Its voluntary, for one, and technically the IRS is giving you a break on what the law allows (never mind that the full penalty is likely not constitutional).

    However, you can well challenge the IRS individually if you opt out or on a go forward audit.

  8. So why do they give an example with 0 tax liability? I though that in that case, people could just file FBARs with reasonable cause and not enter the program. What am I missing here?

  9. Since have have already run this torture course, I am probably not digesting all the new or changed FAQs as closely as I could, however, I am stunned to see that FAQ 52.2 is still there…
    That appears to me to be a BIG conflict with IR-2012-65 that makes no sense at all, given what they have said about with the new (non OVDI) program for non residents with minor non reported income levels.
    In the 2012 OVDP, they are still implying that those…
    “Taxpayers who are foreign residents and who were unaware they were U.S. citizens.”
    ….have to join the OVDP and the IRS is still wanting to extract a 5% penalty of the most innocent of innocent non compliant U.S. Citizens.  Those who could NOT have possibly known they were technically citizens, the IRS still wants to take your money!!!  A tribute, I guess.  Pay up for the wonderful discovery you just made, and then continue to file 1040s, the FWhat? forms and pay tax to the U.S. for the rest of your life?!  More renunciations are coming, if they continue to insist on this. 
    Now how does that align with the Press Release statement Issue Number:    IR-2012-65 ?? 
    This is just so outrageous as to be unbelievable. Given IR-2012-65 is there any practitioner who really is going to advise that a "foreign resident who did not know they were American",  to join the OVDP?  Should they really go this route? REALLY??
    Do we have a disagreement between Departments in the IRS? Or is there a lack of communication between those that are administering the 2012 OVDP and those that are writing the Press Releases for something still to come?  I guess that is possible. 
    These comments at the Canadian Globe and Mail tweaked my interest.
    "The IRS initially promised details of the amnesty late last year. But U.S. officials have struggled internally over whether people who haven’t filed for years deserve any special leniency."Maybe I am reading too much into those comments, but given the TAS 2013 report I am sure that Nina and the OVDP creators disagree on how to administer this program.  This OVDP monster has become so ugly and confusing that the IRS doesn't even know what all the conflicting provisions are as related to what mitigation for "some" minnows is supposed to come.  They really should just shoot this pig, and take a Canadian approach. KISS.

  10. Just me, 
    IR-2012-65 is only for certain expats (who are low compliance risks such as less than $1500/year tax due) while  FAQ 52 includes expats who are not considered as low compliance risk.

    Agree, they should let all expats off the hock.   I wonder if this is another Obama's class divisive approach on those who owe less than 1500 tax (99%?) and those who owe more than 1500 tax   (1%) ?

  11. In a way that's a bit stupid. But at least they are now saying that is just how it would work out under the program and point out that there is another policy for such cases.

    (The original version 52.2 without these niceties was what convinced me that the IRS management is doggedly unfair. Huge fines for people who don't know.)

  12. ij,
    I understand that IR-2012-65 is only for a certain subclass of minnow expats, but I would think that foreign non residents who didn't know they were U.S. Citizens (ie Accidental Americans) would fit a low compliance risk profile no matter what the calculated tax due would be even on a technical basis.  How could you be a high risk evader if you didn't know you were a US citizen to evade anything in the first place?  It is so ridiculous to be trying to separate these folks from 5% at all.  What was the crime?  Being born? It is this kind of nonsense that destroys IRS credibility. 

    I will try to give the mismatch of messages the benefit of the doubt, that the IRS has a failure to communicate between departments going on, or that their exceptions, qualifications, technical thresholds, and varying penalty levels with examples has gotten so complex, they have loss track.

    BTW, there is a good analysis of the many unanswered questions related to IR-2012-65 at Moody Tax, which is doing this analysis from the Canadian perspective.  It is here.

    Finally, just looking at my last comment now compared to when I posted it. It was nicely spaced out then, and now it is just a jumble.  Hummm. Wonder why?  Have to figure out what I did wrong.  Probably related to copy / paste or something. 

    Wonder if Jack has a plug in available for blogspot that allows editing of posts before you finalize them.  

  13. Hey Sally, (and ij)

    I have been following your situation in bits and pieces from your comments here and at Hodgen's blog for a long time, or at least comments that I think were yours. (were you the Damsel in distress?)  Have you ever compiled your story from start to finish that could be a reference for other minnows that "fought the process" and won?  That would be great benefit for others.  I often mention  you and Moby in my other postings as an inspiration for others. While I have good links for Moby as a reference, it is harder to search through old threads to find portions of your story to send to folks so very fearful.  

    I would like to invite you over to Isaac Brock Society to tell your story in full there. Give it some consideration.  I am sure many would appreciate it.  

    And note for IJ, when you are done with all of this, your battle would also be a good historical reference for those trying to understand what it means to join the OVDP/OVDI.  Consider telling it for frighten minnow immigrants, as there is no place where immigrants get to tell their story in full for others to see.  Only Expats have a forum (like IBS) and an advocacy group like ACA, but immigrants have nothing!  As we see, by all the questions to Jack, that there is real grief and fear in that community. I do think the minnow immigrant story might even be BIGGER than the Expat one.  I keep telling journalist that I have contact with that there is a BIG story totally uncovered, but it is hard to put a finger on an example that can clearly and easily be followed from "get to go".

  14. Just Me, 

      Thanks... I think I have been one of most out-spoken and transparent FBAR sinners here on Jack's blog. 

      My story is open to public and can be used anywhere for public good. 

  15. Problem is, minnow cannot bear the cost of legal representation on opt out or go forward audits beyond a certain threshold. That may lead the minnow to fold as ultimately, you dont want to pay 20-30K penalty for a honest ignorant mistake but then wont make sense to pay 15-20K legal represenatation with unknown result. But if there is a fund where people voluntarily contributes to support this cause, it may have enough money to get a good legal representation. And once the results are clear, it would serve as guide for all other similar cases.
    Hence a group funded account

  16. Ij, you certainly have, but it requires a lot of reading through a lot of threads to understand it, especially for those new to this blog, or just discovering their "problem." 

    It would be nice sometime to get it all in one place, so it is condensed into one post. That would really help others trying to learn from your experience, if they, unlike me, haven't been following you since your very first comments what seems like years ago now. :)  

  17.  I think that eventually there will be "dolphins" (those with good facts but accounts large enough that they can afford a lawyer) who will opt out and/or take this to court and their cases will be used as precedent, so you will benefit from their experience.  This, I think will be more beneficial than a group-funded effort.

  18. Not only is this program poorly designed but the questions are poorly written.
    Is this the best they can do to revise the program and FAQs after dealing with 33,000 disclosures?

    The answer to FAQ 19 is the same as the question.  Does anyone proofread for errors?  Reminds me of the Abbot and Costello comedy routine in which "Who's on first?" is both the question and the answer.

    Also, the attachment to the voluntary disclosure letter asks, in question 9, "Were you able to access funds in your offshore account by the use of wire transfer made into the US?"  I think the question was intended to mean, did you actually have funds wired from your foreign account to the US, but that's not what it says.  It actually asks about the ability to do so, and this ability exists for pretty much any account.  I'll have to ask my lawyer about this, since although I never wired funds to the US, I suppose I could have done so if I had wanted to.

    The following question, number 10, is just as poorly worded.  It asks "Were you able to access funds in your offshore account through the use of a debit or credit card?"  I never had such a card, so for me the answer is no.  But what about someone who had a card but never used it?  And the question doesn't ask whether the card was used in the US, in the bank's country, or in third countries, which I would think would be important distinctions.

  19.  By mentioning that an SSN or TIN is required to file, they are admitting knowledge that some of these accidental US citizens had such minimal knowledge of their citizenship, that they never even applied for an SSN. 

  20. Jack, 

      This has been discussed before, but  I still do not have a definite answer if FBAR penalty (under title 31) will have to get a court judgement before IRS can take from tax refund, tax credit and authorize debt collectors to go after taxpayers.

      There must be some oversight on this kind penalty given it has wide range of IRS discretion.

  21. I have tried to track down the answer to your question, but have been unable to get anything definitive. My speculation -- somewhat informed, but still speculation -- is that Treasury first has to obtain a judgment and then take collection measures (including refund offsets). But that is speculation.

    Best to you!


  22. Jack, Thanks!
       As minnows, we have three lines of defense on FBAR penalty when opting-out.   
    1. Arguing for reasonable penalty based on facts (less tax owed less FBAR penalty)

    2. Seeking TAS help to settle a reasonable penalty (based on recent National Taxpayer Advocate Report to Congress)

    3. Bloody fight in the court.

  23.  ij,
    Does the 3rd option really exist from a practical perspective. The working assumption with the minnows is that even the 27.5% FBAR in-lieu penalty will be < $50K in most cases. Will not the legal costs of "fighting" the IRS in court approach that amount? It is a de jure option, but not a de facto option.

  24.  There is also IRS Appeals prior to going to court. I doubt the IRS/DoJ Tax is  eager for a court battle either (it costs them time and money and for someone with a good case, could lead to an unfavorable precedent). To date, there has been only one civil FBAR penalty case  actually litigated in court (which DoJ Tax lost, Jack has blogged on this case now in appeal). So I think the service has an incentive to provide some sort of reasonably fair settlement on opt out.

  25. Anon3419,  true, it is highly unlikely but not impossible.  Both sides have to be reasonable to avoid this option. 

       I won't hire a lawyer if I have to face such an option.  This is just a simple argument -- does the  penalty fit the "crime" ? and there is no mandatory penalty (rather it is a wide range at IRS' discretion).  

      Nevertheless, this option is the final defense line and anyone who wants to opt-out has to prepare for that.  

  26.  I agree with ij. Immigrants with not so bad facts should opt out and may not need a lawyer to fight in the court if it gets there.  In most cases if the accounts were not under a sham entity or under sham corporation but in the name of individuals and especially if these assets were acquired before stepping foot in the US it is better to opt out and fight. The risk is higher for IRS to lose.
    It is the fear that the minnows have to overcome.
    If you look at it, if minnows due to fear do not opt out but go ahead and pay the 25 or 27.5% then it is not the IRS that has to be blamed but the fear inherent within the minnows.

    If there is  8 years of non compliance and if the account size is 200k, would a default $80000 of FBAR penalty be imposed? If i came to know about this requirement in 2010 why should i be penalized 10k for each year? I would say a penalty of $1000 for the 8 years is fair. I would like to opt out and argue negligence. what kind of penalties can i reasonably expect assuming IRS threatens me with penalties larger than my account size if i opt out?

    Did you ask your agent as to how much of a penalty you could expect if you opt out.

    Again if we can overcome our fear, i think we can get a better deal on opt out.

    I also feel there are more minnows like Sally, Justme and you, step out and share their story as well as others who are in the process and considering opt out.

  27. Anon,
      My agent only told me "you have the option to opt out, and that will move the case under title 31".  She did not say anything but told me "you were not a tax cheat"

      I am still waiting for 906 to come, but at this point, I am more favor opting-out.  

    I do not want to pay $9000 for missing $2000  tax which I have paid back plus penalty already (with consent extension beyond SOL) -- and will be still labeled as one of 33,000 tax cheats !

  28. Anon,
    The statute of limitations is 6 years for FBAR penalty, so if you filed by 6-30-2012 for 2011, there are only 5  years open, so it would be 50k max if nonwillful.

  29. Isn't it 10k per account per year? 50k would mean that anon only had one account.
    Although I am not sure the IRS would apply it on multiple accounts, but it is definitely what is stated in their manual.
    They have recommendations about how much the FBAR fines should be based on the account balance. Check out the manual.

  30. The penalty has wide range from zero to going-wild.  IRS has the discretion but has either to be consent by the taxpayer or approved by the court.  

  31. Look-back period and pre-clearance request
    Jack: OVDP (2012) FAQ#9 "What years are included in the OVDP disclosure period?" gives a definition of the look-back period. If I want the look-back period to be the years 2004-2011, is it suffiecient to send the offshore voluntary disclosure letter after October 15, 2012, or would I also have to send the pre-clearance request after October 15, 2012? What is the advantage of starting the OVDP process with a pre-clearance request? Thanks, Henry.

  32. Look-back period and pre-clearance request
    Jack: OVDP (2012) FAQ#9 "What years are included in the OVDP disclosure period?" gives a definition of the look-back period. If I want the look-back period to be the years 2004-2011, is it sufficient to send the offshore voluntary disclosure letter after October 15, 2012, or would I also have to send the pre-clearance request after October 15, 2012? What is the advantage of starting the OVDP process with a pre-clearance request? Thanks, Henry.

  33. Jack and Asher: Do you regard 2011 as income tax compliant if the income is properly reported and 8938 has been timely filed with 1040 but FBAR has been filed after June 30? (3520 and 5471 were not required.) Thanks, Henry.

  34. I assume that you are filing the 1040 (with 8938) on extension and, for some reason, you failed to file the FBAR. I presume that you made the decision to be income tax compliant on the extended return after June 30 passed (otherwise, it would be a no brainer to file the FBAR).

    Technically, you would be income tax compliant so that the year 2011 would presumably not enter the penalty calculation.

    But it does look odd.

    Jack Townsend


  35. I just got around to reading the 2012 OVDP FAQs and
    important changes for US persons resident abroad who enter the 2012 OVDP program
    are contained in Examples 4 and 5 of FAQ51.1. US persons abroad eligible for
    the 5% penalty are specifically mentioned.

    Specifically, Examples 4 and 5 in FAQ 51.1 state, “If the taxpayer elects to opt
    out, the taxpayer will still be subject to tax and interest on the unreported
    income, but upon examination, IRS is not likely to assert accuracy related,
    FBAR and/or information return penalties.”

    Brilliant. The IRS is
    finally making clear that mitigation contemplated in the IRM can be applied
    upon opt out. They are also mentioning it with respect to an example of a US person
    resident abroad.

    Why were the OVDI 2011 FAQs not updated with this

    Why is the IRS keelhauling OVDI 2011 participants? What is the reason for the harsher policy
    toward 2011 OVDI participants, who actually tried to comply earlier on?

    Finally, FAQ 51.1 also does not mention whether failure to file
    penalties and failure to pay penalties would be assessed. Since all other penalties are being
    mentioned, why are they not clear about this?


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