The ABA Tax Section Meeting was in Houston this past weekend. I attended some of the many, many sessions. I offer here what I learned from the meetings I attended, supplemented by an article in TNT today: Andrew Velarde, No Letters of Intent Allowed Before Entering Streamlined Program, 2015 TNT 22-7 (2/3/2015) (no link available).
1. The IRS will not offer for the streamlined programs any analog to preclearance that is offered in the full-blown OVDP. Taxpayers thus, theoretically, are at risk until they make the submissions required by the streamlined programs.
2. The IRS has not yet developed statistics on the streamlined program (taxpayers joining and those rejected). The IRS representative said that it was too early for such statistics, but expects that they will be available eventually. (This was in Velarde's article and the word eventually was not in "quotes," but I presume that is a fair statement of what the IRS representative intended to say.)
3. The flagging of streamlined cases with at least 5 foreign information returns. The IRS representative "said the initial examination referred to in the IRM is more for completeness and coherence, labeling it a 'sanity check.'" See New IRS Internal Guidance on Processing Streamlined Submissions (Federal Tax Crimes Blog 8/29/14; 8/30/14), here.
4. Practitioners complained and the IRS acknowledged its awareness of the long delays for some long-time foreign residents without Social Security Numbers (SSNs). The problem is that those taxpayers, often prime candidates for the streamlined solution, cannot pursue the solution until they get SSNs, but have significant difficulty and time delays in getting SSNs. This is a recurring theme: Report on ABA Criminal Tax Fraud and Tax Controversy Conference (Federal Tax Crimes Blog 12/18/14), here. There is no solution in sight, but the IRS says it is continuing its discussions with the Social Security Administration. The taxpayers' concerns are related to the phenomenon noted above in paragraph 1 that there is no preclearance procedure to give taxpayers some assurance that, despite delays not of their making, they may not be able to complete the submissions until after these difficulties and long delays.
5. The IRS representative said that the IRS will not issue additional guidance on the meaning of willfulness in the streamlined program.
Jack Townsend offers this blog on Federal Tax Crimes principally for tax professionals and tax students. It is not directed to lay readers -- such as persons who are potentially subject to U.S. civil and criminal tax or related consequences. LAY READERS SHOULD READ THE PAGE IN THE RIGHT HAND COLUMN TITLE "INTENDED AUDIENCE FOR BLOG; CAUTIONARY NOTE TO LAY READERS." Thank you.
Tuesday, February 3, 2015
27 comments:
Comments are moderated. Jack Townsend will review and approve comments only to make sure the comments are appropriate. Although comments can be made anonymously, please identify yourself (either by real name or pseudonymn) so that, over a few comments, readers will be able to better judge whether to read the comments and respond to the comments.
Subscribe to:
Post Comments (Atom)
Not only is there no pre-clearance; there is no official confirmation of acceptance. I spoke with a rep at the OVDI/P hotline to confirm that the taxpayer receives no official acceptance if their request is approved. The rep informed me that essentially no news is good news. With a 3 to 6 year potential audit period, that is a little unnerving.
ReplyDeleteOn point number 1, it would seem to me that with no preclearance, taxpayers are at risk even after they submit documents, since they do not know whether the IRS has allready information about them. Thus we seem to be back to square one, if you want preclearance you must go through OVDI and then decide whether to opt out; since transition to streamline i not available to new entrants to OVDI.
ReplyDeleteA reader, Virginia Jeker, who was unable to post, asked that I post the following:
ReplyDeleteJack – the problem is that the IRS’ right hand does not know what the left hand is doing. I have had conversations with IRS representatives at the OVDP Hotline on this matter and explained to them the problems faced by many Americans who, soon after birth, moved overseas with their parents and never returned to the US. Most of them had no idea of their US tax filing obligations since they have been living their lives hundreds of thousands of miles away from America, have been educated abroad, are working abroad and are likely paying taxes to the governments in their country of residence.
Based on my conversations, the IRS has finally devised a means through which one can submit tax returns into either the OVDP or Streamlined programs despite having yet received a SSN. So long as the US taxpayer has begun the process of applying for a SSN, he can submit to the IRS the required Streamlined (or OVDP) paperwork along with a passport copy and a cover letter explaining that the SSN has been applied for. The IRS will issue a special IRS number for that taxpayer to use on all correspondence with the IRS. Once the SSN is obtained, the taxpayer must advise the IRS. This is a fairly painless method to become tax compliant even though one is without a SSN. Jack, I have used this for a client and it has worked! The client entered Offshore Streamlined without a SSN – and we submitted everything as per above. I called the Hotline and followed up several months later and found a very helpful agent. He reviewed the computer files and found my client’s name, advised her returns had been processed and told me the IRSN that she had been assigned. She is to use that for all tax returns till the SSN is received.
Best regards,
Virginia
For: Far East Management Consultants
Dubai, United Arab Emirates
Virginia La Torre Jeker, J.D.
tel. +971 4 885 8202
fax.+971 4 885 8203
mobile +971 50 551 3011
I will say that I have received several other emails on this subject and there have been no consensus develop regarding whether the IRS has some informal procedure to deal with the difficulty in obtaining SSNs. Apparently, the limited results are inconsistent. Hoipefully, the IRS will bring their discussions with SSA to a conclusion and post something.
ReplyDeleteThe problem, of course, is that the nonresidents encountering this situation have uncertainty as to their timing. Based on extremely limited experience, however, I had a client who had already been flagged for audit when he tried to join OVDP and therefore was technically ineligible for OVDP. However, the IRS did the audit in a way mimicking OVDP -- i.e., we gave the IRS amended returns and delinquent FBARs -- and the OVDP result was imposed. I would hope that the IRS would do the same for those showing that they made diligent efforts to get their SSNs and were delayed because of the process.
AFTER Streamlined Domestic Offshore Program (SDOP) ACCEPTANCE:
ReplyDeleteI was in the OVDP, transitioned to SDOP, sent my non will full certification to the IRS and it was accepted within a few days. I received a 906 with the new 5% calculation. I signed the 906, sent the 5% penalty funds to IRS immediately and that was almost 4 months ago. I have not received the 906 signed by the Commissioner yet. Does anyone have any experience with this?
I had transition SDOP accepted and the paperwork came shortly thereafter. Once the IRS accepts the transition SDOP, it seems to me that it is just paper pushing at the point. At least that is my experience, but some paper gets pushed quicker than others. So be patient.
ReplyDeleteBest,
Jack Townsend
Thanks a lot!!
ReplyDeleteRON, it took almost 3 weeks from the phone call I received telling me I was accepted till I received the 906 to sign. It's been now 2 months I've returned it. Still waiting to receive it signed by the IRS. And I guess I'll have to wait even more to receive my refund.
ReplyDeleteJack I remember at some point you made some comments about signing extensions. I have been in OVDP for 3 years and the my agent keeps asking me to sign extensions, which I have done. I opted out about 1 month ago and was given a new agent. The new agent has asked me to sign extensions out to 2017. My lawyers have said that is a bit much and have recommended I say no, enough is enough. I recall you said if you refuse to sign extensions that you will give up the right to go to appeals prior to going to court, and that you will likely invite the IRS to assess max penalties to protect their position. Do you still believe this to be the case.? If so I wonder if my lawyers are suggesting this to keep them in legal fees for the foreseeable future?
ReplyDeleteWhen you opt out, you have placed yourself in the audit environment. You still have the benefit of no criminal prosecution, but from a civil perspective, you are in an audit. I therefore would treat it just as a regular audit. You are not required to give extensions and the IRS cannot / should not punish you for doing so.
ReplyDeleteThat means that the IRS cannot simply impose the worst possible result on you if you refuse to give an extension. But, keep in mind that, unlike many audits, the IRS will already have a lot of information before you opt out, including the OVDP submissions and the narrative statement opt out statement. So, if you decline to give an extension, it might well interpret that information in an IRS-friendly way and impose results accordingly.
So, you need to make a strategic decision, in consultation with your lawyer, whether it is in your interests to execute a decision. Many people do not believe it is in their interest to do so and do decline.
You spotted one of the problems is that, without an extension, you may not be able to obtain an appeals hearing. If the IRS then takes action that upi fee; os punitive, you may be able to pay a little of the FBAR penalty and make a claim for refund which then should put you in line for an Appeals hearing.
These are complex considerations in which your attorney's advice, based on his reading of the unique situation, is critical.
Jack Townsend
Thank you Jack , you have as always put things in perspective.
ReplyDeleteOne thing you might consider is an extension to 12/31/2015 for now (though I assume that as of now, Feb. 2015 they already have an extension to the end of 2015) (almost 10 months) and tell the agent that you will consider whether or not to give further extensions a couple of months before the end of 2015. The way to present it would be to say that you're willing to allow extra time, but not a multi-year extension. Of course make a decision after getting the advice that Jack suggests.
ReplyDeleteBy the way, 3 years isn't unusual.
Similar experience. Not unusual. Probably due to having a huge workload of 906s as a result of SDOP/SFOP. They probably have to go through several steps before signing: make sure the 906 hasn't been altered, all steps have been completed, etc.
ReplyDeleteThere is the tiny possibility that they may be holding up ALL 906 signings because of possible changes (as happened when the SDOP was about to be announced.) But my guess is that if this is the case, it's really intended as a way to delaying the 27.5% OVDP 906s, and that there would be no further relief for SDOP/SFOP. This is only a guess.
I completed a Streamlined Transition very quickly through complete 906. From the time we submitted the narrative and information for streamlined (with certification), perhaps 2-3 months.
ReplyDeleteJack Townsend
My client's transition was fairly quick as well; however, ours took a little longer than yours. We sent the narrative to the examiner, who had a few follow up questions for the client. Once we answered satisfactorily, we received the 906 approximately 30 days thereafter. It took another 90 days for the IRS to send us the signed 906. The entire process took about 4-5 months.
ReplyDeleteHI ANONYMOUS. THANKS FOR YOUR RESPONSE. I AM NOT SURE I UNDERSTAND THE PARAGRAPH BELOW COPIED AND POSTED FROM YUR RESPONSE. WHAT DO YOU MEAN BY "DELAYING THE 27.5% OVDP 906s?
ReplyDeleteAND WHAT DO YOU MEAN BY "NO FURTHER RELIEF FOR SDOP/SFOP"?
THANKS A LOT.
There is the tiny possibility that they may be holding up ALL 906 signings because of possible changes (as happened when the SDOP was about to be announced.) But my guess is that if this is the case, it's really intended as a way to delaying the 27.5% OVDP 906s, and that there would be no further relief for SDOP/SFOP. This is only a guess.
Ron, I was preparing to post here the same question.
ReplyDeleteIn my case, I sent the certification for SDOP at the end of July 2014 and got the 906 four months later (probably it took the "5 or more foreign information returns" detour). And now, 2 months after I sent back the 906 signed, nothing received back from IRS. I am still waiting, ... especially for the refund.
Yeah, it looks like we are all going through the "waiting" hoops now!
ReplyDeletethanks for the info.
It seems like the SDOP program assumes that the taxpayer will owe additional tax after disclosing additional foreign income and amending their returns. However, if you use Foreign Tax Credit after paying tax on the income in the other country, you may end up owing less tax instead. In this situation, should one still use the SDOP, or might it be advisable to simply do QD instead? However, in that case the IRS might not like that they owe you additional money instead?
ReplyDeleteJack,
ReplyDeleteAfter opting out, IRS has asked to extend the SOL for assessing taxes, but only for 2010 (extend it to 2016). However, they are also asking to extend the FBAR SOL to include years - 2008, 2009, and 2010, i.e., extend to 2016.
My questions are:
1. Are years 2008, 2009, 2010 indefinitely open because of not filing 8938 and according to 6501(c)(8) (from your post on 8/31/2013, Ed Robin's blog Extending SOL for international reporting)?
2. If there is no tax deficiency (ex. closed due to expired SOL), can IRS impose FBAR penalties on those years as well?
3. Can you suggest some things to consider before extending SOL for FBAR and assessing taxes after opt out?
1. Failure to file form 8938 does not affect the FBAR statute of limitations. It does affect the income tax statutes of limitations.
ReplyDelete2. The FBAR penalty can be assessed for any failure to file the FBAR. The absence of a U.S. income tax delinquency or deficiency will not affect the ability to assert the FBAR penalty. In the exercise of discretion, however, the IRS does not assert the FBAR penalty in the various programs with respect to accounts that are U.S. tax compliant. But that is an exercise of discretion not necessarily compelled by the statute imposing the FBAR penalty.
3. On the opt out, the IRS can lawfully assess income taxes for any open year. You then have to go through the various statutes that could apply for income tax - 3 years, 6 years and unlimited in the case of fraud. On the opt out the IRS is entitled to assert tax only for open years as of the opt out (including any open by extension while you were in OVDP before opting out). Any income tax extension you sign for an otherwise barred year is not legal and cannot open up an otherwise barred year. The IRS takes the position that that phenomenon does not occur for the FBAR penalty. If a taxpayer signs an extension for an otherwise barred FBAR penalty year, the IRS says that the extension is a waiver of the statute of limitations defense for the otherwise closed FBAR years. NOW, the final question is whether you need to file consents on the opt out audit. The opt out audit is an audit. Generally, you are not required to give consents in audits. A number of practitioners take the position that, once they opt out, there are no further consents. I suspect that, as in regular audits, that is honored in the breach at least sometimes. But I would be very wary of providing any further consents. (I suspect that the IRS will claim that giving consents is part of the cooperation that you promised in entering OVDP, but I am not sure that can or should apply to opt out audits.
Jack Townsend
Jack, Thank you. I am much obliged for your detailed response.
ReplyDeleteHow does one determine if any year is a barred FBAR year?
From an earlier post:
http://federaltaxcrimes.blogspot.com/2013/08/ed-robbins-excellent-blog-on-section.html
The tax return is not complete until the information forms are provided, and only then the SOL clock starts to run. If that is the case, why does IRS need extensions for an audit?
Ron, I've just received my 906 signed by the Commissioner. So it took 4 months. Now I am waiting for my refund. Anyone knows more or less how long it takes? I think I read 6 months in some cases after receiving the 906.
ReplyDeleteMeHere and SecondGuess, thanks for your responses. I still do not have my 906 back signed by the Commissioner. Glad you got it. Reassures me. In my case sit is about 5 months now. Question is you both talk about a refund? My attorney did not talk about any refunds in my case. I wonder if he missed something? I paid back taxes and interest and the other penalties with the application to OVDP. As far as I know, none of that was refundable? What are your refunds about? thanks.
ReplyDeleteRon, long story short, I overpaid the interest and the 20% accuracy penalties of OVDP. I overpaid so much that the surplus is more than the 5% SDOP penalty. So now I am waiting for the refund.
ReplyDeleteI see. Thanks MeHere.
ReplyDeleteRon, several weeks ago I have received back the 906 signed by the Commissioner. An interesting fact is that while my signature was at the end of Nov 2014, the receiving officer (the agent I have been dealing with all the way) signed at the beginning of December, then the reviewing officer signed at the end of December and finally the Commissioner signed it in February. This can give you some information on how long it takes for everybody to review and sign.
ReplyDeleteRegarding the refund I am still waiting for: it is the difference between what I already paid (25%) under the initial OVDI Final Agreement and the lower SDOP penalty.