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Wednesday, August 27, 2014
36 comments:
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That was very helpful. Thank you for your prompt response.
ReplyDeleteJack, thanks, makes sense.
ReplyDeleteA very basic question came to mind.
ReplyDeleteIRS asks a NW taxpayer enter SDOP and pay 5% as penalty. In return what is the taxpayer getting for entering the program versus if the same taxpayer had done a QD?
In other words, what is the penalty buying the taxpayer?
Jack,
ReplyDeleteBoth OVDP and SDOP are voluntary program, right?
If that is the case, it won't make sense for IRS to say that entering one of these programs is a pre-requisite to come into compliance. I do not think IRS is requiring taxpayer to enter these programs, right?
So if someone has done QD, the tax payer is in compliance. Correct?
In regards to point 1, I've recently gone through the Streamlined Program, and my accountant used the last 3 years for the returns. I would like to renounce my citizenship next year. Does this mean, that I need to submit 2 additional years under the steamline program still to cover me for the 5 years?
ReplyDeletethanks
@Anonymous
ReplyDeleteJack is missing a couple of points.
1. Graubunder Kantonalbank is late with sending out "Secrecy Waivers" . This policy started already as early as 1/2013.
2. If your client wants to keep her account with Graubunder Kantonalbank there is a requirement to give a secrecy waiver.
3. "The taxpayer may seek a market price for doing something he is not required to do"...
There is no "market price" and the taxpayer can "seek" as much as he/she wants to since the swiss banks classify this approach as "Noetigung" and in 95% of the cases refuse such a deal but I have heard of some cases where small sums were exchanged unofficially. As I remember Jack did fail to come to any agreement with his counterparty / swiss bank.
4...."to avoid a penalty on the bank for its own misconduct".... I think Jack is jumping to conclusions here again since we all know that in most of the cases involving one of the 24 Kantonalbanks (without ZH-KB) the misconduct came from the account holders and not from the swiss bank.
I understand that you will have to submit two additional years, but I am not sure it is submitted under the Streamlined program. May just have to send in amended returns (what is traditionally called a QD) for the earlier 2 years.
ReplyDeleteJack Townsend
A QD will bring a taxpayer in compliance. However, the programs offered by the IRS gives some certainty. Even though streamlined submissions are still subject to audit, I doubt that many will be audited.
ReplyDeleteThe QD is more uncertain. The IRS says that it is looking for QDs that report foreign bank income and change the Schedule B foreign bank question to yes and for filings of delinquent or amended FBARs. So, the chances of audit may be greater.
But for most taxpayers who are nonwillful, their FBAR penalties are likely not going to be great if audited, so a QD might be the way to go, particularly if they are willing to accept a possible higher risk of audit.
Jack Townsend
"I would like to renounce my citizenship next year.".....State
ReplyDeleteDepartment to hike renunciation fees 422% to US$2,350; says “no public
benefit” in respecting human right to change nationality
1. I have seen a number of the "waivers." They are individually drafted by the banks to suit their purposes. Some of them are far broader than needed to simply protect the bank from turning over information to the IRS, but indeed waive all sorts of rights. I have not seen Gaubunder Kantonalbank's form of waiver, but U.S. depositors would be well advised to seek counsel before signing. For example, if the banks are looking for future compliance, all that is required is the FATCA documents, not a broadly worded waiver covering the past as well as the future. So GK must be looking to fix some problem with pre-FATCA years, which means they are looking for penalty relief. Keep in mind that, under the program, whether the banks have waivers or not,GK will have to submit aggregate data from which DOJ and IRS will fashion group treaty request (John Doe-type treaty requests) that will be all the authority the Swiss government and the banks need to turn over the information and documents consistent with Swiss law. They simply do not need the waiver (depending upon how it is worded).
ReplyDelete2. Noted.
3. I am not sure that is right. I think that all is required for FATCA compliance is the information required for FATCA compliance. I don't think that is a waiver, but if the bank wants a waiver, the waiver should be prospective only applying to FATCA covered years.
4. I am advised that there is no Swiss law impediment to paying a market price. The "Noetigung" is just a ruse some banks assert, but others have no difficulty figuring out a way to pay something more than a nominal price. Keep in mind that there is no conspiracy, no obstruction, no nothing, except negotiating over a fair price for something that the U.S. depositor has that is valuable to the Swiss bank that engaged in U.S. tax fraud. Some banks are paying. But I did have one bank tell me that it would pay the penalty rather than pay anything meaningful (they offered a small amount). So, to use an example, that bank did offer $3,000 and bust said it would pay no more to avoid a $300,000 penalty. That makes no sense, but if that is what the banks want to do with their shareholders' money, then so be it.
5. The banks would not be in category 2 unless they had self-determined that they committed crimes. If they did not commit crimes, there is no reason to be or to stay in category 2.
Jack Townsend
.....have posted a response but must have ended in the SPAM folder ?
ReplyDeleteJack,
ReplyDeleteI filed my 2013 tax return in July after getting an extension in April, and am compliant with foreign account taxes/reporting etc for 2013, since I also filed the 2013 FBAR in June. For the streamlined program package, would it be correct to include amended returns for 2011, 2012, and a copy of the already filed 2013 return?
I have not taken a fresh look on this , but my recollection is that you use the whole extension period to test. Which would mean that, should you file the streamlined before 10/16/14, you would use 2010, 2012 and 2013.
ReplyDeleteBut I have not rechecked that. My recollection, though, is that a close reading of the streamlined rules will get you the correct answer (I do know that my recollection might not be correct).
Maybe someone else can answer the question.
Jack Townsend
Svtr,
ReplyDeleteI am pondering on the same question. Assuming once has done 2013 return & fbar correctly. This lower boundary year inclusion/exclusion is unclear...
IF one does file SDOP AFTER Oct 15th, what incorrect years should one amend? 11 & 12 only? anything wrong by including 2010? Once
CPA I spoke to seem to think correct your last three that you error'ed on. But that was just his opinion.
Marc,
ReplyDeleteHow is your streamlined submission faring? Did you hear anything back in-terms of push-back or queries back? Did you make the reasons in the certification detailed?
Thanks, Jack, I appreciate your response.
ReplyDeleteIRS says: "for each of the most recent 3 years for which the U.S. tax return due
date (or properly applied for extended due date) has passed (the
“covered tax return period”), file amended tax returns".
When I got an extension in April and filed my 2013 taxes in July, isn't it correct to say that in my specific case, the "properly applied for extended due date" for 2013 passed immediately when I filed my 2013 taxes in July? If so, then would I not only amend 2011, 2012, and just include a copy of the properly filed 2013?
If on the other hand the requirement is to file amended returns for the 3 most recent years which ***need to be amended*** (to pay taxes on overseas accounts), then I would have to amend 2012,2011, and 2010. This doesn't sound right, because if for example someone had filed 2013 and 2012 correctly (as a QD), then they would need to amend 2009, 2010, and 2011.
With the IRS wording quoted above, I would appreciate knowing your thoughts.
U.S. State Department has refused to give me confirmation I am not a U.S. citizen. Instead, I must travel to a U.S. Consulate to apply for a backdated CLN. Some Canadians who did so a year ago are still waiting for it to arrive.
ReplyDeleteFor those who must renounce, DOS just announced fee to do so has more than quadrupled to $2350. Toronto Consulate has no appointments until February 2015, conveniently catching people in the increased fee and the expectation to file into another tax year.
That exorbitant fee for a few minutes of work is money flowing out of the economy of Canada and other countries.
Some Canadian banks and credit unions are now demanding place of
birth--even though Canada Revenue Agency guidelines are clear that they are not required to do so.
These are more reasons why the Canadian lawsuit is so important and why we need people around the world to donate to adcs-adsc.ca.
Just spent 2 hours arguing with my agent about the transition process from OVDP to SDOP. He said once he got the paper work he could get it approved or declined in less than 3 days. When I asked him how could the IRS possibly do something this quickly, when it takes hims week to answer a simple e-mail from me, he laughed. He laughed because the IRS are just turning everyone down, forcing them to take their chances in opt out. So you spend time and money completing the certification under threat of perjury and all along they had no intention of approving you, and now they got a signed certification that they can try to use against you if they find anything out of order.
ReplyDeleteUsing the fear factor once again. My agent knows I indicated that I had foreign accounts in my 1040 and ticked the box yes that I had foreign accounts, but I did not file FBARs. The potential for them to get much more than 5% through the 25% miscellenous penalty or FBAR penalties is requiring them to automatically deny the transition request, and let me take my chances. I will ultimately win, however they will keep me in legal and accounting expenses for the next 2 years. I have already been the program 2 years and have not had a 906 yet. My lawyer is well connected and he says that everyone requesting transition is being denied. The transition option is a complete joke and the agents are afraid to grant it in case they lose big fish.
Again, I have not researched that specific question. However, something rattling around in my brain tells me that it is the extended due date that is the focus and not the earlier actually filed date.
ReplyDeleteNow, for most IRS purposes when the return is filed prior ;to the extended due date, the return is deemed filed on the date actually filed. But, I had the notion -- just a notion -- that this calculation was made with respect to the extended due date.
And, I don't have time to review the instructions now, but I thought that was indicated in the instructions. Could be wrong on that though.
Jack Townsend
Jack,
ReplyDeleteThanks again! It looks like the IRM changes that you posted yesterday answer the question by including statute of limitations in #3, page 5:
"For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) is past and the >>>statute of limitations is still open<<<".
Also, in #2 on page 5:
"Under the SFC described in this section, U.S. taxpayers eligible to use these procedures who have not reported income or paid tax as required by U.S. law for >>>any of the 3 years<<< in the covered period will file amended tax returns together with all required information returns".
Please correct me if my interpretation below is wrong:
1. The statute of limitations for my 2010 tax return which I filed on or before April 15, 2011 is NOT open. But it is open for 2011, 12, and 13.
2. "any of the 3 years" in #2 above (in my specific case) refers to 2012 and 2011. For the 2013 tax year, I did report overseas income and pay tax , when I filed my 2013 return in July after getting an extension in April.
Therefore, it sounds like I need to file amended 2012, 2011, and simply include a copy of 2013.
svtr,
ReplyDeleteFirst, good catch on the IRM addition of the "and" language. That language, as you know, was not in the original guidance, but is contained in the internal operating instructions. So, I am not sure that the IRM governs. (Alternatively, perhaps the IRM is signaling some change in the SDOP / SFOP instructions when they are updated. In the meantime, I suppose, you could try the strategy you outline and see if it works.
Second, assuming the IRM accurately states the program terms, I think your analysis is correct. You would not include 2011.
Third, wouldn't you solve the problem by making the SDOP / SFOP submission on 10/16/14 which is just a few days away?
I hope some other readers will weigh in on this. Perhaps someone has already gotten some feedback from the IRS.
Again, thanks for catching that addition of "and."
Jack Townsend
Jack,
ReplyDeleteYou are right, I could just wait until 10/16/14. My situation happens to be clearly non-willful, and I want to avoid
needlessly paying taxes for 2010 on top of the 5% penalty on my parents'
life savings.
On the other hand, I really want to be done with this for peace of mind before the IRS changes things again. Maybe I'm just being paranoid.
I suppose if I filed 2011,2012, and a copy of 2013 next week, and my interpretation is incorrect, the IRS will contact me and request that I file 2010.
Your blog is really invaluable! It would be too much to ask that the IRS start a similar blog to answer taxpayer questions.
Jack and stvr, I am not following the "and" comment. Would you clarify?
ReplyDeleteJack, I am very confused on statutes of limitations. I am an OVDP participant trying to transition to streamlined. my 8 years are 2004 to 2011. The Consent to Extend Time to Assess Civil Penalties under 31.USC 5321 for FBAR Violations includes all the 8 years. What is my statute of limitations if I go into the streamlined procedure?
ReplyDeleteJack, svtr,
ReplyDeleteFirst, thank to svtr for catching this. It helps a lot of us who are in the same situation.
Jack,
I am wondering if a copy of 2013 has to be filed also with SDOP. Would the informational documents for 2013 be counted toward the magic number of 5, even though everything was done right for 2013.
Tax Walla,
ReplyDeleteI don't know the answer to the question. However, it just stands to reason that, for a fully compliant year (2013) for which no amended return is filed, the compliant year would not be included in the IRM scoring of the returns.
Jack Townsend
The IRS says that, for persons in the OVDP, the only way they can get any streamlined benefit is to transition within OVDP. Those who are approved for transition will only benefit from the offshore penalty structure -- a lesser penalty rate of 5% for all 8 years submitted in the OVDP. There is no income tax benefit. Keep in mind that the transition occurs within the OVDP penalty structure, so statutes of limitations are irrelevant. Only if you opt out of OVDP do statutes of limitations become relevant. And, if you opt out, then you can't claim any potential benefit from the transition rules.
ReplyDeleteJack Townsend
Jack, I understand taxpayer is expected to send amended returns for those open 3 years with the SDOP submission. So why even send 2013?
ReplyDeleteAha! that masks a lot of sense. Thanks.
ReplyDeleteInteresting choice of words.
ReplyDeleteJack Townsend
I can't answer that question.
ReplyDeleteJack Townsend
oooops! LOL. Typos. I meant to say "that MAKES a lot of sense"
ReplyDeleteJack, regarding your point 5, I suspect that the banks going into category 2 are similar to people going into OVDI even when nonwillful because of the same reasons (fear of huge penalties, being railroaded into it by poor legal advice, etc.) Some of the Category 2 are probably willful, just as some of the minnows in OVDI are, but I dont believe all are.
ReplyDeleteOn point 4, if I were a shareholder I would be raising Cain at the next shareholder meeting.
Finally, as to point 4, if a bank is offering to keep the account open in exchange for a release, that is very valuable consideration as I see it. I was very happy when one bank said that if I provided the info they would keep the account open. On tnhe other hand, a bank that closed my account and threw me out, then came back asking for a release/proof of compliance (as a gift to them) I simply ignored that request,
The requirement for the waiver/proof äs a condition of joining streamlined"is NOT correct. This may well be an innocent error by the bank representative. If the rep were intentionally lying to you it might well be fraud and/or obtaining information under false pretenses.
ReplyDeleteJack,
ReplyDeleteHelp me understand the penalties with post-QD audit versus a post-SDOP audit.
Obviously in both case, the NW/W facts remain the same except that in one case the taxpayer has made the certification and paid 5%.
Penalties in case of post-QD audit :
1. Failure to pay for tax underpayment
2. Failure to file for tax underpayment
3. FBAR penalty for not filing FBAR
Penalties in case of a post-SDOP audit:
1. Failure to pay for tax underpayment
2. Failure to file for tax underpayment
Three question based on my incomplete and possibly incorrect understanding:
a. In both cases, the #1 and #2 penalties are likely to be the same. It is primarily #3 (FBAR related penalty) that the one the taxpayer can hope to avoid because of doing SDOP. Is that correct?
b. Law permits FBAR penalties to be devastatingly high ($10K per account per year or 50% of account per year). That is the reason for taxpayers to be wary of FBAR penalties. Is that correct?
c. If my understanding on both a. and b. are correct, then concern about FBAR penalty is an important reason to consider SDOP versus QD.
It is unclear whether you are talking about filing delinquent returns (where no original returns were filed) or amended returns (where original returns were filed). Could you clarify and then I will try to answer the questions.
ReplyDeleteJack Townsend