OVDP Hotline Nixes Practical Use of New Streamlined Program

The inflexibility of the IRS in the offshore area is starting to get some professionals down. I am one of them, but there are some others voicing similar frustration.

Taxpayers and professionals alike, were very pleased when the IRS announced the new Streamlined procedures in mid-June. You can learn more about the new Procedures here.

It seemed that sensibility and reason were beginning to prevail over at the IRS! Finally, “benign actor” (as opposed to “bad actor”) taxpayers with undisclosed offshore assets, could obtain relief and come into tax compliance without driving themselves into both fiscal and physical bankruptcy.

Terms of the new Streamlined Program require that “for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, a taxpayer must file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938).”

Just last week, I sought clarification from the OVDP Hotline on the meaning of the underscored language concerning the “most recent 3 years.” I posed some questions hoping to bring many more taxpayers into full compliance. Unfortunately, I was recently advised by the Hotline that the New Streamlined Program is not available in the situations set out below; and I was further advised that the IRS had indeed considered these questions at length at an earlier time. The IRS’ refusal to permit such cases into the Streamlined Program makes no sense to me. Perhaps readers of my blog can enlighten me?

Question Posed to OVDP Hotline re New Streamlined Program

My question was whether the new Streamlined Program strictly applies only for the past 3 years of troublesome tax returns. By this I mean – only for years 2011-2013 and that under the Program you cannot amend (or file) say, a tax return from 2010 or earlier. I was thinking of certain of my clients who fall into two general categories.

Category A would involve someone such as Mr. R, a naturalized American living abroad for decades. He timely filed income tax returns but filed them all incorrectly; sadly Mr. R believed in self-medicating and had done all of his tax returns himself. Part of his problem was that he believed only his overseas salary and US source income was taxable; he omitted significant offshore income. While the general Statute of Limitations (SOL) is 3 years, in Mr. R’s case the statute could be extended to at least 6 years because Mr. R had omitted a lot of income from his returns (25% or more).  (Criminal tax matters involve different statute of limitation rules. See my earlier blog post on this topic). Mr. R did not go back and amend his returns fearful of the high penalties that would be involved.

Category B would involve someone such as Mr. S who had not filed tax returns for over 20 years while living and working abroad. He did not want to enter OVDP, and he could not fit within the parameters of the old Streamlined Program. He filed going forward and has been fully tax compliant since 2010. Returns for all older tax years remain unfiled. The SOL remains open indefinitely when tax returns are not filed and Mr. S fears a knock on the door someday about his past tax transgressions.

Sadly, the definitive answer from the OVDP Hotline is that neither of these types of cases can use the new Streamlined procedure.

Original Post By:  Virginia La Torre Jeker, J.D.

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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4 comments on “OVDP Hotline Nixes Practical Use of New Streamlined Program

    • Virginia La Torre Jeker, J.D.

      IRS is adamant that Streamlined is for the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed. The most recent years meeting this wording are 2013, 2012, and 2011. If an overseas T has filed for an extension for 2013, then the most recent 3 yrs for which the US tax return due date has passed are then 2012, 2011 and 2010. No other years are permitted. I have had another colleague get the same response from the Hotline. Also, the agent told me this Q is being asked a lot. I suggested they update the info to make it clear.

    • Virginia La Torre Jeker J.D.

      8 yrs for OVDP; Streamlined is different… only 3 yrs of back income tax returns.

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