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Enrollment In IRS Disclosure Programs Surpasses 100,000 Mark



Ephraim Moss

The IRS announced that over 100,000 taxpayers have now participated in its disclosure programs, which have been available to delinquent filers since 2009. More specifically, according to the IRS, 55,800 taxpayers have used the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties, while an additional 48,000 taxpayers have used the Streamlined Procedures, paying approximately $450 million.

IRS Commissioner John Koskinen remarked on the success of the disclosure programs, stating “As we continue to receive more information on foreign accounts, people’s ability to avoid detection becomes harder and harder. The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations.”

OVDP versus Streamlined

The OVDP and Streamlined Procedures programs, which serve as the two main amnesty programs, have a number of contrasting facets, including their target participant, requirements, and results, as follows:

1. Streamlined Procedures

Target Taxpayer: These procedures generally can be used if: (1) the taxpayer has failed to report income from a foreign financial asset and failed to pay the required tax, and may have failed to file a required FBAR, and (2) The taxpayer has committed the failures due to non-willful conduct.

Requirements: U.S. expats are required to delinquent file tax returns, with all required information returns, for the prior 3 years, and file any delinquent FBARs for the prior 6 years. They must also file a non-willful certification with their submission.

Result: A taxpayer who complies with the procedures will have to pay previously unpaid taxes with interest, but will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

Most of our expat clients entering the disclosure programs choose the Streamlined Procedures due to the non-willful nature of their tax delinquency and the desire to come clean without incurring onerous penalties. The cost-effectiveness of this program makes it a great way to get on track with your taxes and put your IRS worries behind you for good.

2. OVDP

Target Taxpayer: The OVDP is designed for taxpayers who are concerned that their failure to report income, and failure to disclose foreign financial accounts, might be viewed by the IRS as willful and who seek to avoid potential criminal penalties.

Requirements: U.S. expats are required to file delinquent tax returns, with all required information returns, and FBARs for the prior 8 years.

Result: A taxpayer who complies with the procedures will have to pay back taxes with interest. In lieu of all other penalties that may apply to the undisclosed foreign assets and entities including FBAR, a reduced penalty of 27.5% will be calculated based on the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure. The penalty may be increased to 50% if a taxpayer has or had a foreign financial account, or had a facilitator who helped the taxpayer establish or maintain an offshore arrangement, and the financial institution or the facilitator has been publicly identified as being under investigation by the IRS or Department of Justice.

It is important to keep in mind that eligibility for the above programs will depend on a number of factors. For instance, a taxpayer is not eligible for the streamlined procedures if the IRS has already initiated a civil examination or criminal investigation prior to the taxpayer entering into the program.

Other Options

While the OVDP and Streamlined Procedures are the two main tax amnesty programs, there are a number of additional options available to late filers. For example, there are procedures for taxpayers who have only failed to file FBARs or have failed to include an informational form with their tax return, such as the form for ownership of a foreign corporation. For this reason, if you are a delinquent taxpayer looking to catch up with the IRS, it is critical that you weigh all of the options available to you.

Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.

2 thoughts on “Enrollment In IRS Disclosure Programs Surpasses 100,000 Mark

  1. SwissTechie says:

    Assuming that the government believes in tax transparency, what is the breakdown of the $9.9 billion in taxes, interest and penalties? How much of that is in taxes, how much in interest and how much in penalties? Shouldn’t the order be reversed, with penalties being mentioned first?

  2. American Overseas says:

    Please see below Keith REDMOND’s (American Overseas Representative)e-mail to Nina Olson, IRS Taxpayer Advocate followed by Ms. Olson’s response:

    Please see below my e-mail to Nina OLSON, IRS Taxpayer Advocate

    From: Keith REDMOND
    Sent: 24 October 2016 06:46
    To: Nina OLSON
    Subject: LATEST IRS NEWS ENQUIRY ON BEHALF OF 9M AMERICANS OVERSEAS PLUS ASSOCIATED AFFECTED POPULATIONS
    Importance: High

    Dear Ms. OLSON:
    I hope this e-mail finds you well. First and foremost I would like to thank you for all of your hard work on behalf of the 9 million Americans living overseas (latest US State Dept. figure) plus Accidental Americans plus the associated affected populations vis-à-vis FATCA and the US practice of Citizenship Based Taxation outside the borders of the United States.

    I see that the latest “IRS News” has announced: “Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance” (see below). It is very important to know amongst these “100,000 Taxpayers” who “came back into compliance” how many of them are Americans living overseas and what is the total amount collected in taxes, in interest, and in penalties of these Americans overseas?

    Additionally (if possible), what is the breakdown of monies collected by the IRS from the aforementioned populations due to non-recognition by the IRS (i.e. US government) of key income taxes in the country of residence (e.g. France) and the non-recognition of investments including pensions in the country of residence (e.g. Australia). Additionally figures which would be nice to have would be how many of these individuals are “complying” for the first time and how many are “complying” in order to renounce their US citizenship?

    These are extremely important statistics which need to be separated from the “100,000 taxpayers” and the “USD 10 billion”

    I sincerely look forward to hearing from you or the person whom you deem appropriate. Please note that I have copied the “Communications and Liaison” management team at the IRS on this e-mail as well as the heads of the American overseas organisations and those involved in fighting for the rights of the populations adversely affected.

    Respectfully yours,

    Keith REDMOND

    Nina Olson’s response:

    From: Olson Nina E
    Sent: 14 November 2016 08:18
    To: ‘Keith REDMOND’
    Cc: Shiller Rostyslav I
    Subject: LATEST IRS NEWS ENQUIRY ON BEHALF OF 9M AMERICANS OVERSEAS PLUS ASSOCIATED AFFECTED POPULATIONS

    Mr. Redmond,

    I apologize for not responding earlier; I have been traveling a great deal on business and it is difficult to keep up with my emails during that time.

    We are keenly aware of the issues you raise. My staff will be writing about both FATCA and the offshore work the IRS is doing in the upcoming Annual Report to Congress. While I cannot answer your specific questions, we will take a look at the issues you raise. I too have concerns about the high level tax collection claims the IRS is making; but getting into the details of this data is not easy and will take time, so it is unlikely we will be able to publish anything soon.

    Thank you for your patience. I am not flagging in my advocacy on behalf of overseas US taxpayers and citizens.

    Sincerely,

    Nina Olson

    Nina E. Olson
    National Taxpayer Advocate
    Internal Revenue Service
    1111 Constitution Ave. NW
    Washington DC 20224

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