Tidbits from the IRS on Offshore Account Issues (6/7/14)
I understand from practitioners that the IRS has indicated the following. This is second hand, so those desiring to implement strategy based on the following might make their own inquiries to the IRS.
1. Readers may be aware that some or all Swiss Category 2 banks are requesting the U.S. depositor to supply proof of U.S. tax compliance. That proof can be used to mitigate the Swiss Category 2 bank's penalty in the program with the U.S. DOJ. In my limited experience with such requests, the banks may ask for various forms of proof (from the IRS preclearance letter into OVDP to the Form 906). The U.S. depositor is not required to provide that proof to the Swiss bank, of course.* The question has arisen, however, what if anything to provide the Swiss bank if the request comes after the U.S. depositor has submitted the request for preclearance but has not yet received the IRS letter of preclearance. I understand that the IRS believes banks will accept the preclearance request letter and perhaps a letter from the taxpayer or the representative to the bank that the preclearance request letter was filed and has not yet been acted on. I am sure the bank will make a follow through request for something more definite.
2. Clients concerned about the interim period between deciding to do something (whether OVDP or streamlined) might make a preclearance letter request for OVDP and then, if streamlined is appropriate, withdraw from OVDP. The advantage of filing the preclearance where the ultimate choice to do OVDP is not made is that the process of dealing with the issue, having been started with the preclearance letter, should be some protection if the IRS starts an audit later before the alternative strategy is implemented. If, after filing the preclearance letter, the client decides to pursue another strategy, the client should withdraw by letter advising of the withdrawal submitted before the due date for the intake letter to CI. The letter should be clear that the client is withdrawing. (Note, withdrawal is not the same as opting out; hence, unless the client qualifies for and completes streamlined procedure, the client will not have assurance of no criminal prosecution.) As I received the information, this withdrawal process might work also for later determining to proceed in some other way under 2011-13. Both the streamlined and the 2011-13, here, routes offer considerable uncertainties, but perhaps these uncertainties may be mitigated by the upcoming changes in the program that Commissioner Koskinen announced were coming. See IRS Commissioner Koskinen Announces that Changes -- Liberalizations -- Are In the Offing for OVDP 2012 (Federal Tax Crimes Blog 6/4/12), here.
3. If the client does not withdraw, the case will be processed under OVDP under normal procedures with the right to opt out.
1. Readers may be aware that some or all Swiss Category 2 banks are requesting the U.S. depositor to supply proof of U.S. tax compliance. That proof can be used to mitigate the Swiss Category 2 bank's penalty in the program with the U.S. DOJ. In my limited experience with such requests, the banks may ask for various forms of proof (from the IRS preclearance letter into OVDP to the Form 906). The U.S. depositor is not required to provide that proof to the Swiss bank, of course.* The question has arisen, however, what if anything to provide the Swiss bank if the request comes after the U.S. depositor has submitted the request for preclearance but has not yet received the IRS letter of preclearance. I understand that the IRS believes banks will accept the preclearance request letter and perhaps a letter from the taxpayer or the representative to the bank that the preclearance request letter was filed and has not yet been acted on. I am sure the bank will make a follow through request for something more definite.
2. Clients concerned about the interim period between deciding to do something (whether OVDP or streamlined) might make a preclearance letter request for OVDP and then, if streamlined is appropriate, withdraw from OVDP. The advantage of filing the preclearance where the ultimate choice to do OVDP is not made is that the process of dealing with the issue, having been started with the preclearance letter, should be some protection if the IRS starts an audit later before the alternative strategy is implemented. If, after filing the preclearance letter, the client decides to pursue another strategy, the client should withdraw by letter advising of the withdrawal submitted before the due date for the intake letter to CI. The letter should be clear that the client is withdrawing. (Note, withdrawal is not the same as opting out; hence, unless the client qualifies for and completes streamlined procedure, the client will not have assurance of no criminal prosecution.) As I received the information, this withdrawal process might work also for later determining to proceed in some other way under 2011-13. Both the streamlined and the 2011-13, here, routes offer considerable uncertainties, but perhaps these uncertainties may be mitigated by the upcoming changes in the program that Commissioner Koskinen announced were coming. See IRS Commissioner Koskinen Announces that Changes -- Liberalizations -- Are In the Offing for OVDP 2012 (Federal Tax Crimes Blog 6/4/12), here.
3. If the client does not withdraw, the case will be processed under OVDP under normal procedures with the right to opt out.
Wednesday, April 10, 2013
ReplyDeleteIRS FBAR Voluntary Disclosure Initiative, opt out to reduce tax
Lance Wallach
The 2012 OVDI, which is still open, is patterned after the 2011 OVDI, but increases the maximum Report of Foreign Bank and Financial Accounts (FBAR)-related penalty from 25 percent to 27.5 percent of the highest account value at any time between 2003 and 2010. The 2012 OVDI does not have a stated expiration date. In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.
Under the Bank Secrecy Act, U.S. residents or a person in and doing business in the U.S. must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by reporting the account on their income tax return and by filing Form 90–22.1, the FBAR. Willfully failing to file an FBAR can be subject to both criminal sanctions (i.e., imprisonment) and civil penalties equivalent to the greater of $100,000 or 50 percent of the balance in an unreported foreign account — for each year since 2004 for which an FBAR wasn't filed.
The 2009 OVDP brought in at least 14,700 U.S. taxpayers (disclosing accounts in more than 60 countries) through the front door of IRS Criminal Investigation and untold thousands through a process of quietly amending returns and filing delinquent FBARs with the government. For eligible taxpayers who applied the OVDP provided the certainty of no criminal prosecution and civil penalty relief — they were required to pay back-taxes from 2003 to 2008, interest and a 20-25 percent penalty on the delinquent taxes. The IRS also imposed a 20 percent FBAR-related penalty equal to the highest aggregate value of the financial account between 2003 and 2008. In limited situations, the FBAR-related penalty could be reduced to five percent of the account value or $10,000 per tax year. If they got a great CPA with experience to help them, the fine was a lot less.
The 2011 OVDI, brought in an additional 12,000 eligible taxpayers who filed original and amended tax returns and agreed to make payments (or good-faith arrangements to pay) for taxes, interest and accuracy-related penalties. The 2011 OVDI FBAR-related penalty framework required a 25 percent “FBAR-related” penalty equal to the highest value of the financial account between 2003 and 2010. Only one 25 percent offshore penalty is to be applied with respect to voluntary disclosures relating to the same financial account. The penalty may be allocated among the taxpayers with beneficial ownership making the voluntary disclosures in any way they choose. . Participants in the 2011 OVDI also had to pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Subject to certain limitations, financial transactions occurring before 2003 were generally irrelevant for those participating in the OVDI. With good advice many people paid a lot less.