Monday, November 17, 2014

IRS Documents On OVDI/P From FOIA Request (11/17/14)

Dennis Brager, an outstanding tax practitioner active in the offshore financial account practice, has posted to his web site the documents he received from a FOIA request.  The web site with links to the documents is titled Previously Unreleased IRS Guidelines for FBAR Audits, here.

Brager's firm posted an article about the FOIA request and documents titled Brager Tax Law Group Obtains Over 6,500 Pages in Freedom of Information Act Request for Offshore Voluntary Disclosure Program Documents (Yahoo Finance 11/12/14), here.

I haven't had time to review the documents.  A reader requested that I post a blog entry so that readers who do have the opportunity to look at the documents can comment.  I will post my comments when and as I have time to read the documents.


  1. sure the NW definition is from 6/2014 SFOP and SDOP BUT that has to be the same standard/benchmark for any other civil FBAR audit going forward regardless if it arises from a QD audit or anyhing else.

  2. Yes I would agree .... NW conduct is conduct that is due to negligence, inadvertence, or
    mistake or conduct that is the result of a good faith misunderstanding
    of the requirements of the law....if your examiner applies a different standard during his current FBAR audit that would create 2 different kind of interpretations.

  3. Hello Jack et al, I am currently deciding on SDOP versus QD next steps. i have lived/worked in US for nearly 6 years now and green card holder, originally from UK. I have never completed FBAR or 8938 and have unreportable tax due of approximately $7k over 2013, 2012 and 2011, source being UK savings interest and property rental in UK. My tax attorney is proposing SDOP and it would appear something like $30k penalty and he wants to include my four UK pensions in the penalty base - two of my pensions are considered Deferred Contributions (Group personal pensions) and two are Deferred Benefits (final salary). Based on my limited research i'm wondering if there is any legal angle in not including DB and DC in penalty base, TA says yes need to include DC pensions but not DB. My argument is these four pensions are all dormant, no contributions since last 6 years, no income, no distributions…so why should these be included, i have no / limited argumentation and wondering if anyone can support my arguments here with excluding pensions from SDOP penalty calculation…also wondering if QD is a real option for me and of course consequences of this?

  4. Let me start by saying do not expect anything from your TA outside the "over-report is better than under-report" theme. Look at your Treaty language which typically deals with 3 main elements of the pension: taxation/deduction of contributions; taxation of internal gains; and taxation of distributions. Guidance usually was provided through revenue rulings on a treaty by treaty basis. It’s a very complicated and ill defined area and no two tax professionals or IRS agents agree 100% of the time so I will leave it at that

  5. SDOP5%--you really have to fight to have pension plans removed. I am from cayman, and IRS fought me tooth and nail, but eventually allowed to exclude my pensions because, there were no employer contributions and no deductions taken because I was not yet 65 years old. You have to spoon feed the IRS all the information they need to come to the conclusion they can be excluded. Just keep pushing back, repeat, repeat. Ask to have a review by a technical manager etc. Eventually they will see the light.

  6. Did the TA (I presume you mean tax attorney and not Technical Adviser) give a rationale for including the DC but not DB. I think the question is whether the pension accounts function like a standard financial account. You then have to look at all the characteristics -- current withdrawal rights, etc. -- to see whether they did. That is not very helpful, but perhaps your tax attorney could dig into the characteristics of the two types of plans to craft an argument for exclusion from the penalty base.

    Jack Townsend

  7. Hi Blackseal1234, Globalcapitalism and Jack, Many thanks for all your reflections and knowledge and education on these matters. I really appreciate this, as it is all a bit daunting to say the least. I will certainly consult my Tax attorney and raise the key points with him. Also not exactly sure on the criteria being used by TA to suggest the two DCs should be included, so will get clarification. Thank you again!

  8. Hi -- I've been following discussions on this blog wrt to SDOP, etc. I'm still unclear about the 5% penalty even after reading FAQs, etc, for example:

    If I'm compliant for FBAR and 1040 for 2013.... and only need to amend for:
    Tax -- 2012, 2011 (that is, 2 years)
    FBAR -- 2012, 2011, 2010, 2009, 2008 (that is, 5 years)

    For example my highest total balance in 2013 is $142K and in 2012 is $138K. All other years are less than that because it's all untouched savings. The increase each year is form savings interests.

    Does it mean i've a penalty payment of:
    A) 5% x 7 years (2 years tax + 5 years FBAR) === 35% penalty?
    or is it
    B) one 5% of highest total balance? Which in this case is 5% x $138K == $6,900 ? Do i pay $6,900 and no more to cover all 7 years (2 years tax + 5 years FBAR) ?


  9. 5% on the highest dec 31 st balance over the 5 year FBAR period. Yes only amend for 11 and 2012.

  10. Thanks Blackseal1234.

    My highest dec 31st balance over the 5 year FBAR period is ~ $138K.
    So if i understand you correctly, the TOTAL penalty I pay is:
    B) 5% x $138K
    == $6,900 --> this would cover all 7 years (2 years tax + 5 years FBAR)

    A) 5% x 7 years (of highest dec 31 st balance for each year) == 35% penalty.


  11. B is correct. Pay it and move on as quickly as you can, you got off cheap compared to being in the ovdp.


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