Wednesday, September 25, 2013

Reader Question on Temporary Fund Deposit and IRS OVDI/P Penalty (9/25/13)

I recently posted on this blog a series of examples that I think highlight some perhaps unintended consequences in the inside (miscellaneous or in lieu of) penalty in OVDI/P, particularly as a result of interpretations that result in inequity.  See Elimination of Duplications and Short Term Deposits in Miscellaneous Penalty Base - FAQ 37 and Extrapolations (Federal Tax Crimes Blog 9/10/13), here.

A reader has asked that I posit a question to fellow readers who hopefully will offer some feedback either by way of comment or by emailing to me ( and I will forward the email to the person making this request.  The question is:
Have you been able to exclude from the OVDI/P penalty base temporary funds parked in a foreign bank account?  By temporary, I mean that the funds are in the account only for a day or two and did not earn any interest.  The funds came from fully U.S. tax compliant sources and went to a fully U.S. tax compliant destination after the temporary stop in the noncompliant foreign account.
Readers who can and will answer that question, please do so in the ways indicated above.  If possible, the reader asking this question would prefer to be able to establish contact with the readers providing answers (via emailing me), but if the authors desire anonymity, they can still provide meaningful feedback by making comments to this blog.


  1. abrokenmanonahalifaxpierSeptember 25, 2013 at 6:51 PM

    It's a practical question. The reason it becomes important is because with a house sale/purchase in Canada (for all I know anywhere else) the purchase price of the house flows temporarily though the buyer's and seller's accounts. This in all probability will be the highest value of the "foreign accounts" over an eight-year period, and so in effect adds the house to the basis of the OVDI penalty calculation.

  2. One of my lawyers mentioned such a case. He did tell me that they had a really hard time with the agent on this issue. I am not sure whether they ended up a) getting the amount excluded or b) opting out (and if the answer is b, what happened.) I will email Jack the contact information.

  3. The person asking the question said "the funds are in the account only for a day or two and did not earn any interest." Does this mean that a) the funds were placed in a non-interest bearing account, i.e. that the account NEVER earned ANY interest in the year during which the funds were temporarily placed, OR b) that the temporary funds did not generate any interest income, but there was some income in the same account during that year?

    I know this sounds like splitting hairs. If the answer is "a" I have been specifically told that tax-compliant accounts, included accounts that were unreported but earned zero interest, are to be excluded from the penalty base.

    If the answer is "b" it may still be possible to exclude the funds from the penalty base, but I don't have an answer to that. I know one of my lawyers faced a similar case but don't know the outcome but have emailed the lawyer's contact info to Jack.

    Of course, depending on her facts, risk tolerance and ability to bear the aggravation, the reader could consider opting out.

  4. 1. The account was an interest account. However, the bank in question did not allow interest for temporary deposits (I think any deposit less than 10 days).
    2. You are correct that, if the account had no income tax noncompliance, the account is excluded.


    Jack Townsend

  5. On the statute of limitations for audits, what action does the IRS need to take before the SOL deadline? Start an audit? Complete it? Send a bill to the taxpayer? Assess the additional tax? Thanks.


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