tag:blogger.com,1999:blog-1519969502186924526.post7471602186293188467..comments2023-10-24T08:00:53.865-05:00Comments on Federal Tax Crimes: "Opting Out" #2 (3/2/12)Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.comBlogger275125tag:blogger.com,1999:blog-1519969502186924526.post-39449601096028839252015-02-16T08:10:50.679-06:002015-02-16T08:10:50.679-06:00Thank you for that explanation.Thank you for that explanation.Blackseal1234noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-16021127662099358832015-02-14T09:39:08.627-06:002015-02-14T09:39:08.627-06:00Jack why are you saying only years 2011 forward ?Jack why are you saying only years 2011 forward ?Blackseal1234noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-48645193395749662602015-02-14T09:28:12.060-06:002015-02-14T09:28:12.060-06:00Blackseal1234,
Thanks for warning the readers tha...Blackseal1234,<br /><br />Thanks for warning the readers that there is a possibility of a 40% accuracy related penalty (Section 6662(a) and (j) that could apply if they opt out. Keep in mind, however, that that penalty applies only to years 2011 and forward. So earlier years are not subject to that penalty.<br /><br />I don't understand the agent's saying the 40% penalty could apply to undisclosed noneconomic transaction. It is were just deposits directly held in a foreign bank, obviously intended as an economic transaction, that penalty should not apply. Now, I suppose that if there were noneconomic structures in place, perhaps the IRS could take that position. But these penalties are not cumulative. I haven't checked the effective date, but suspect that it may be 2011 and forward also. Which would mean that even if both could apply, only one would apply.<br /><br />Finally, of course, in most of the cases I have worked, the big penalty was the FBAR penalty. The 20% accuracy related penalty has not been that material, at least relative to the FBAR. Of course a 40% penalty is more material than a 20% penalty, but still the base is the income, not the amount in the account.<br /><br />Jack TownsendJack Townsendhttp://www.tjtaxlaw.com/noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-51154506256198667922015-02-14T09:07:55.498-06:002015-02-14T09:07:55.498-06:00When I joined the program I filed qualified amende...When I joined the program I filed qualified amended returns and paid the 20% accuracy penalty and interest. I have now opted out. My understanding is on opt out I can claim back the 20% accuracy penalty. However my agent is saying that the iRS can in fact impose a 40% accuracy penalty based on the following:Accuracy-related penalty. You may have to pay an accuracy-related penalty if you underpay your tax if, among others:<br /><br />1. You showed negligence or disregard of the rules or regulations.<br /><br />2. You substantially understated your income tax. <br /><br />3. You claimed tax benefits for a transaction that lacks economic substance.<br /><br />The penalty is equal to 20 percent of the underpayment. The penalty is 40 percent of any portion of the underpayment that is attributable to an undisclosed noneconomic substance transaction or an undisclosed foreign financial asset transaction.- <br /><br /><br /><br />You would not be in the OVDP if you did not have undisclosed foreign assets, so I am wondering if the agent can impose another 20%?Blackseal1234noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-50974665539593200062015-02-12T17:09:36.342-06:002015-02-12T17:09:36.342-06:00Thanks for the information, Jack.Thanks for the information, Jack.OptedOutnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-32401750321111278222015-02-12T08:03:23.810-06:002015-02-12T08:03:23.810-06:00I have handled one Appeal after opting out. A loc...I have handled one Appeal after opting out. A local Appeals Officer with whom I had dealt did handle the Appeal. However, he made clear that his influence over the ultimate outcome would likely not be that great. In other words, there were other unknown IRS personnel who would have the major influence. We got an extremely favorable result (although paperwork is not yet issued), so I really don't know who had the most influence. All we submitted was the protest and a supplement. We had one meeting and, to the extent I could sense how he felt, I think he was sympathetic. That could have influenced the outcome.<br /><br />I do know that at least one other Appeals Officer in Houston is handling this type of case for a local taxpayer. So, based on that limited experience it looks like a local Appeals Officer will be available at least in larger metropolitan areas.<br /><br />Jack TownsendJack Townsendhttp://www.tjtaxlaw.com/noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-50654364166556701272015-02-11T17:02:53.016-06:002015-02-11T17:02:53.016-06:00Does anyone have experience in appealing FBAR pena...Does anyone have experience in appealing FBAR penalties after opting out? Is the Appeal handled by IRS local office, or by a central office?OptedOutnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-38488147989065215282012-06-27T00:30:37.871-05:002012-06-27T00:30:37.871-05:00K3 visa recipients eventually apply to correct sta...<a href="http://www.travelvisamanila.com/articles/k3-visa-spouse-to-the-united-states-of-america/" rel="nofollow">K3 visa</a> recipients eventually apply to correct state to a fixed resident (LPR) with the DHS (Department Of Homeland Security) U.S. Citizenship and Immigration Services (USCIS) upon authorization of the application. .MeMethttp://pulse.yahoo.com/_IGORABANOSRAUBM26VTDMVTYCMnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-33675858598219567672012-04-04T20:14:05.638-05:002012-04-04T20:14:05.638-05:00To Anonymous Apr 4, 2012 07:51 PM
Making the deci...To Anonymous Apr 4, 2012 07:51 PM<br /><br />Making the decision requires much more detail than you offer here. You probably should seek legal advice as to the strategy.<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-69336645639253055572012-04-04T19:51:15.919-05:002012-04-04T19:51:15.919-05:00Dear Jack,
I have more than $10000 in my offshore...Dear Jack,<br /><br />I have more than $10000 in my offshore accounts for the years 2008,2009 and 2010 and I did not report interest income and not filed FBAR for those years. However I paid taxes for that interest income every year in offshore country.<br />If I amend my taxes here with offshore tax credit, I owe nothing as back taxes.<br />What would be the best option for me? OVDI OR soft discosure as I owe nothing as tax.<br /><br />Thanks<br />BDAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-67385433153106673932012-04-04T14:21:40.983-05:002012-04-04T14:21:40.983-05:00Jack
It seems like the number of entries in this ...Jack<br /><br />It seems like the number of entries in this item and the size of some entries is again causing a problem with loading. It would be great if you could create an Opting out: 3 or something similar.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-46269827330241796722012-04-04T13:01:10.807-05:002012-04-04T13:01:10.807-05:00Jack
Indeed, anyone who was concerned with an FBA...Jack<br /><br />Indeed, anyone who was concerned with an FBAR penalty could arrange their affairs to avoid refunds. However, I think, the broader question is whether the IRS would first need a court judgement or not to collect, or whether they could collect without a judgement, even using some of the other methods to collect penalties enumerated in the regulations if the refund offset method does not work. It does seem right to me that the IRS would need a court judgement (especially for the willful penalty or for large amounts). I appreciate the effort you took to try and get a definitive answer, and its unfortunate that there doesn't seem to be any consensus. While this may not be a deciding factor, it might indicate how eager the IRS will be to settle minnow cases.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-44418601622118617432012-04-04T08:18:24.340-05:002012-04-04T08:18:24.340-05:00Thanks for following through with this question. ...Thanks for following through with this question. I really have not researched this matter, but did pose the question to a email list of lawyers who practice in this area of the law. There was considerable uncertainty over whether the IRS could collect by offset of a refund. Some thought that the IRS would need the court judgment in order to do that, and that "seems" right to me. Others were not so sure, but could not cite authority.<br /><br />At the end of the day, it seems that pending more definite answer (which I will post if I ever receive it), a taxpayer with a pending FBAR audit should manage his payments to the IRS so that there are no material amounts of refund to offset. There are ways to do that, so check with your accountant or return preparer.<br /><br />Thanks again for following through on this issue.<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-35652512437068723032012-04-04T06:34:45.762-05:002012-04-04T06:34:45.762-05:00Jack
I am not a lawyer, so my apologies if my ter...Jack<br /><br />I am not a lawyer, so my apologies if my terminology is somewhat unclear. I was going by the link you posted earlier and some of the comments you made in the thread.<br /><br />http://www.taxlitigator.com/main/images/stories/FBAR_Examination.pdf<br /><br />The article says<br /><br />'FBAR penalties constitute debts owed <br />to an U.S. executive agency, and the IRS is authorized to collect debts using any of the methods enumerated in 31 USC §3711 (2008).'<br /><br />This seemed to indicate to me that the IRS can collect a penalty by offsets or as a debt owed to a US treasury agency. What isn't clear to me is whether those procedures are available only AFTER the IRS obtains a judgement, or whether it can do so once the penalty is assessed. <br /><br />I also read the Title 31 statute which says that Treasury can bring a suit to collect Title 31 fines within 2 years, but it doesn't say that is the only method of collection available. What I'm not sure about (and I would very much welcome your thoughts) is whether there is some default method available to a US administrative agency to collect penalties which would be available unless the law authorizing the collection of the penalty specifically forbids it. Your response above seems to indicate that the specific statute has to authorize a collection method, but I'm not sure if there are general collection methods available to a federal agency to collect a penalty short of going to court even if not specifically authorized in the statute under which the penalty is assessed. [ I hope I've phrased this clearly ]<br /><br />The taxpayer could always go to court to challenge a penalty, and the decision in court might be the same. However for minnows, that would involve taking the initiative, considerable expense etc. It would be much better for minnows if the IRS definitely had to be the one to go to Court.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-3571977040617335992012-04-03T07:32:44.339-05:002012-04-03T07:32:44.339-05:00The Government can only collect if it either has a...The Government can only collect if it either has a court judgment (in which case it can use collection tools for the judgment) or it has special statutory authority. The IRS has special statutory authority for collections measures for taxes (liens, levies, seizures, etc.). I am not aware of any statutory collection measures for FBAR penalties -- whether willful or nonwillful). If there are none, then Treasury (via IRS / DOJ) will have to go to court to get the judgment and then collect on the judgment.<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-79079788378539391782012-04-03T07:29:12.273-05:002012-04-03T07:29:12.273-05:00To Anonymous Apr 3, 2012 07:06 AM
1. The in lieu...To Anonymous Apr 3, 2012 07:06 AM<br /><br />1. The in lieu of penalty is a very imprecise proxy for unpaid tax in years before the statute of limitations. Keep in mind that, inside the program, the IRS gets income tax, penalty and interest back to 2003. For many -- perhaps most -- taxpayers joining OVDP or OVDI, some of those years may be closed by the statute of limitations which is generally 3 years (subject to an exception of six years for 25% omissions and unlimited for civil fraud). So, at least for taxpayers who opened their accounts in 2003 and afterwards, the IRS gets the full amount of income tax (at least inside the program). The taxpayers who really make out well inside the program are those taxpayers who played the game for many, many years -- sometimes back to the 60% and knew they were cheating. Those taxpayers who had the income grow tax-free are still left with a bundle of money, only pay six years of income tax, penalty and interest, pay a relatively modest in lieu of penalty, and escape prosecution. Those are the prototypical taxpayers who have the most to gain in the program. The relatively recent players -- immigrants during the period, etc. -- are penalized disproportionately for their relative minor sins, if sins at all.<br /><br />2. The FBAR penalties are indeed independent of the taxes in theory. However, where the taxpayer involved is not a drug dealer or other legal outcast, the failure to file the FBAR was usually related to not reporting the tax liability. So, for this type of taxpayer, there is a correlation between the tax and the FBAR. That is taxpayers will illegal income do not get into the program and tax compliant accounts and assets are not included in the FBAR penalty.<br /><br />3. At least in theory I don't think the IRS should be imposing a greater audit penalty on those going forward and being audited than the IRS would imposed in opt opt audits and quiet disclosure audits. The IRS said, at least for opt outs, the regular audit results would apply. If so, audit results are audit results. It is true that the IRS has some discretion and may feel more warm and fuzzy toward opt outs and quiet disclosures rather than go-forwards, but that is not what the IRS has said it is doing. In other words, the IRS could have said that it was going to treat opt outs and quiet disclosures better than go-forwards, but the IRS has not said that.<br /><br />4. The only immigration issue of which I am aware could arise from a felony conviction for a tax or FBAR crime. Taxpayers who are at risk of criminal prosecution should definitely join the program. Only taxpayers who are not at risk of criminal prosecution should consider quiet disclosure or go-forwards. And, a taxpayer at real risk of criminal prosecution should join the program and not opt out, because the factors that make him or her susceptible to material risk of criminal prosecution, will make him or her susceptible to the big penalties on opt out -- the willfulness FBAR penalty and the civil fraud penalty for income tax purposes (which, of course, would also open up the income tax statute of limitations).<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-32256583534474181412012-04-03T07:06:45.033-05:002012-04-03T07:06:45.033-05:00Jack
My assumption at this point would be that th...Jack<br /><br />My assumption at this point would be that the IRS would try and use the FBAR penalty to roughly compensate the government for any tax loss for income earned in offshore accounts for years that are otherwise closed under the SoL. In fact, I think the in lieu of penalty under the different VD programs were meant to capture precisely this unpaid tax. I do not expect the government to go beyond 10K per year (by fining multiple accounts indpendently) except in unusual cases. I also do expect the IRS to follow its IRM mitigation guidelines, although there is still considerable slop in what would be allowed there. <br /><br />We see the IRS's guidelines in the program -- no unreported income, no FBAR penalty. Later they also said that no tax due might mean no or reduced FBAR penalty. We have some anecdotal evidence here in the case of Sally and Moby who faced no FBAR penalties on opt out because they owed no tax (Sally) or had no taxes due before the VD period (Moby).<br /> <br />I know that the FBAR penalties are theoretically independent of tax penalties, but since they are being used as a club to institute tax penalties in the VD programs, I assume they will be so used in the future. <br /><br />For people who comply going forward, the main advantage is that they may not be audited at all or even if they are, the SOLs of some years might have expired. That could well compensate for any extra penalty the government could collect.<br /> <br />There are 2 main wildcards for going forwards 1) Would the government feel emboldened to assert the willful penalty more vigorously if it wins the current willfulness case in appeals court ?<br />2) Are there immigration issues that could come up later if the person involved is audited by the IRS and was not up to date with past tax obligations ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-79379276881793482152012-04-03T06:47:22.215-05:002012-04-03T06:47:22.215-05:00Jack
There was a little bit of discussion earlier...Jack<br /><br />There was a little bit of discussion earlier on this thread whether the government actually needed to go to court to collect an FBAR penalty, willful or not. It does seem to me merely from reading the law in question that the government can collect a penalty the normal way a non tax penalty (such as an EPA or OSHA penalty) is collected. For willful violations, I think the government has to prove willfulness, so it would have to go to court. I don't know about the smaller non-willful penalty. <br /><br />If an administrative penalty is assessed by another agency (say the SEC, the DoL etc.), once administrative remedies are exhausted, I gather the government can start collecting. The taxpayer can of course sue the IRS in federal court, but that involves expense and hassle. <br /><br />At the very least, I suggest that there is some uncertainty over whether the government needs to go to court to collect.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-46606610014566819482012-04-02T11:34:40.768-05:002012-04-02T11:34:40.768-05:00I don't recall what you are referring to. My ...I don't recall what you are referring to. My recollection is that someone asked about filing a suit against the Government for the OVDP / OVDI and related initiatives. I stated my belief that it would be unavailing, but that the readers wishing to pursue that type of remedy might talk to a lawyer about it. Keep in mind that the basis for OVDP and OVDI is to settle with the IRS without further ado. A taxpayer is not required to settle and may choose to take an audit instead in which case, of course, the IRS will apply the standard audit results and try to reach some agreement with the taxpayer that will prevent the Government from having to suit to collect the penalty it finally thinks is due.<br /><br />On an individual basis, if one does not join the OVDP / OVDI, there may be a good basis for fighting any FBAR penalty the IRS may assert, but that is dependent upon the facts and that is litigated individual by individual.<br /><br />Keep in mind that, in order to collect an FBAR penalty, the Government must file the suit. A defendant might well prevail in that suit if he or she has good facts or, at least, not bad facts.<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-38222504515730802642012-04-02T11:27:05.208-05:002012-04-02T11:27:05.208-05:00Jack, I remember seeing some discussions about mas...Jack, I remember seeing some discussions about mass action/opposition about this ovdi in one of your blogs. IF i remember correct, you had suggested that the parties send mails to you and you can connect them. I was just checking if there was any progress in that direction?<br /><br />Someone informally suggested to me that the basis of this ovdi is questionable and that irs statements against quiet disclosures and only coming in thru ovdi scheme will not hold in court or something. Imposing fines of 27.5% just because your already taxed money was sent to home country and you ignorantly failed to submit a form and din't know that global income is taxable etc where there was not clear quidance available is not fair at all. If we just do for forward or chose to do quiet and if irs audits, he suggested that there is a very good case to fight provided we have the money to fight. He suggested that irs will like to settle with you as they cannot risk going to court for a simple salaried guy whose all assets combined will not be even 100K or in some cases 200K. What will they accomplish. They can't take this entire assets and make the family penniless just because due to ignorance they failed to pay few thousand dollars tax on earned interest. Only issue is we common middle class people cannot go head on with govt. He even suggested that even though opt outs leave all doors open for irs, but chances are they may probably give you a bill at par with 27.5% to make it even as asking to pay 50% happens in most criminal kind of cases. Your thoughts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-52951800815014890562012-04-02T04:43:47.951-05:002012-04-02T04:43:47.951-05:00When I say the clients got acceptable results, som...When I say the clients got acceptable results, some paid the full freight because either (i) they would likely get unacceptable results had they insisted either with FAQ 35 or demanding a formal opt out or (ii) they just did not want to fool with further machinations.<br /><br />Now, you don't say where you were in the <br />FAQ 35 process when the IRS pulled the plug on it, but assuming you qualify for a lesser penalty, I think you could at the end of the day get FAQ 35. Have you thought about Tax Advocate assistance.<br /><br />And, of course, at the end of the day, you may not fit the profile for a lower penalty. So you need to be real sensitive to that issue. If you formally insist on an opt out or you press the IRS real hard on the issue and they kick you out of the civil penalty regime inside OVDP, you could have a worse result. None of my client have so far done that. Now, I have to say that I have several clients still inside OVDP and we just do not know yet where their cases are going. A couple of them have real issues about computing the base because of requested reductions for cost of goods sold that cause the high amounts to be greatly inflated relative to net value of the accounts.<br /><br />Jack TownsendJack Townsendhttps://www.blogger.com/profile/14469823736335455874noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-14748080853607617222012-04-02T00:48:58.031-05:002012-04-02T00:48:58.031-05:00Jack, you state that in OVDP 2009, your clients al...Jack, you state that in OVDP 2009, your clients all obtained acceptable results inside the program and thus did not opt out. Is that because you had no client with respect to which substantial discussions about reduced penalties with IRS supervisors had not yet taken place by Feb of '11, and so none of your clients were adversely affected by the IRS' pulling of FAQ 35 in March '11? Or is it that you in fact had such clients, but were still able to get acceptable results for them?<br /><br />I am asking because I am still in the '09 program, very near being kicked out actually (for not signing the closing agreement), and so far the IRS has no budged from requiring the 20% penalty.anon211https://www.blogger.com/profile/00424635247557204537noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-77875246286807988692012-04-02T00:41:39.135-05:002012-04-02T00:41:39.135-05:00This comment has been removed by a blog administrator.anon211https://www.blogger.com/profile/00424635247557204537noreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-62497995028885619302012-03-30T18:24:35.361-05:002012-03-30T18:24:35.361-05:00To Anonymous Mar 30, 2012 11:39 AM
This is someth...To Anonymous Mar 30, 2012 11:39 AM<br /><br />This is something only Jack can address. My lay- mans opinion is that only if you can prove that you had no financial interest in those accounts, you would not have to pay the penalty, regardless of the fact that your parents paid tax in India. <br /><br />And only Jack and God know how to prove that convincingly. <br /><br />If you fail in convincing the IRS, you are staring at charges of falsification of facts and in the worst case, criminal prosecution as Jack has already mentioned this in this blog in the past.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-61520441790119798682012-03-30T10:39:57.920-05:002012-03-30T10:39:57.920-05:00"Why do you say that if the accounts are tax ..."Why do you say that if the accounts are tax compliant in India then there is no penalty on those accounts in OVDI? "<br /><br />parent -> indian citizen<br />son-> US resident (H1,GC,citizen)<br />Joint Account held in a bank in India.<br />This is the most common scenario.<br /><br />Tax is deducted and paid by parent in India and the funds belong to parent.<br />So there is no tax non compliance in US for the son in the above scenario. He may be FBAR non compliant since he has signatory authority for the above account.<br /><br />This is an example of why the account is tax compliant in India and should not be included in<br />the OVDI though the son is a joint account holder.<br /><br />What would be the Service's position on such <br />accountsAnonymousnoreply@blogger.com