IRS Yanks OVDPDeal From Taxpayers With Secret Bank Leumi Accounts – Forbes onforb.es/VMlXCI – Kicks those previously accepted out!
— U.S. Citizen Abroad (@USCitizenAbroad) March 7, 2013
The Internal Revenue Service this week sent faxes to tax attorneys nationwide informing them that clients who were previously accepted into its criminal amnesty program for those who disclose once-secret offshore accounts, have “upon further review” been disqualified. The faxes, signed by John R. Tafur, director of of Global Financial Crimes at the IRS’ Criminal Investigation division, affect dozens of American taxpayers who had undisclosed accounts at Bank Leumi le-Israel Ltd., Israel’s largest bank, says Robert E. McKenzie, apartner at Chicago’s Arnstein & Lehr , who queried fellow top tax attorneys on a private email listserve after he received one such fax this week. He called the IRS’ reversal “scary” and “extraordinary”. Edward M. Robbins Jr., of Hochman, Salkin, Rettig, Toscher & Perez, the big West Coast tax defense firm, confirmed in an email to Forbes that “numerous” Leumi related rescission letters have been received.
Complete article is here.
You make some good comments and ask good questions. It is the imponderable stupidity of tax complexity combined with bureaucratic stupidity and political inertia!
I reside in the US but have a foreign gold holding account that doesn’t earn interest but has been over FBAR limit for the last eight years. According the IRS Faq’s question 17:
“I have properly reported all my taxable income but I only recently learned that I should have been filing FBARs in prior years…”
“I should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late…”
This is what I was considering doing. However, reading through this thread I’m not sure if my worries will end here or begin. I’m assuming QD refers to quiet disclosure? Does it include only filling FBAR forms for all years or just the current year?
Any suggestions on how to handle this is appreciated.
You might ask your question over on this thread that is watched by more folks. It is specifically for answering of Tax and FBAR questions…
US expat tax and FBAR: Discussion thread (Ask your questions)
You might need to provide more facts about your gold account and rough values for someone to weigh in with some answers, although, word to the wise, remember a blog is not a substitute for ‘good’ legal advice from the right practitioner who isn’t going to milk you to death with hourly billings.
To your specific question… QD refers to quiet disclosure of filing amended tax returns and paying up past taxes. It does not apply to FBAR filing as referenced in FAQ 17 of the OVDP.
If you are filing an FBAR but not amending a return, what you are doing is making a noisy disclosure of FBAR failure and writing a “reasonable” cause letter to explain why yours was a non willful failure.
The difference between what the stated penalty is for non willful failure ($10K per account per year) and what they actually apply can vary significantly. I have yet to hear of a full $10K penalty applied for a non willful failure, but maybe they have.
If the IRS decides you are willful, and try to apply the penalty of 50% of the account value, they are going to have to prove it in court of law, so they only go that route for very egregiousness cases.
The nonwilful penalties are usually applied within the context of an examination and depend on IRM (internal revenue manual) discretion guidance. I have not heard of a penalty being applied on the basis of just failure to file a FBAR that was disclosed (via a reasonable cause letter) without any taxes due, but then again, the IRS never makes it public what they do. You only hear about it anecdotally. They rely on fear and hyperbole to scare you into compliance.
I do know of cases of folks being inside the OVDI, and finally getting spit out after a lot wasted time and effort and only receiving a Warning Letter, or reduced penalties not reaching to the full level that is the maximum.
I can’t answer your gold account question with certainty, so ask it over on the other thread, and maybe someone who watches that one will have an answer for you.
If you don’t owe back taxes, and the account value is small, there might be a case to be made to just file FBARs going forward without correcting past failures, but that involves audit lottery risk, and would probably require a good attorney to review all your facts and figures for analysis of the best route to compliance.
@Just Me Says
Thanks for the info and the link.
Just a follow on from Forbes…
Taxpayers Who Lost Offshore Account Amnesty Promised Fair Treatment
The Department of Justice will consider “fairness” before deciding whether to prosecute taxpayers kicked out of the Internal Revenue Service’s criminal amnesty/voluntary disclosure program for holders of secret offshore bank accounts, Kathryn Keneally, the Assistant Attorney General for the Tax Division, said yesterday.
New article at Forbes on this Israeli story…
Bank Leumi Snafu Jeopardizes DOJ-IRS Offshore Enforcement Initiatives
The about-face was evidently caused by miscommunication between the IRS, which administers the OVDP, and the DOJ, which apparently obtained the names of these account holders through a separate investigation. Rather than living with its mistake, the IRS disqualified these individuals from the program. While taxpayers who were disqualified after they had been “pre-cleared,” but before they completed the next stage of the process arguably were not prejudiced by the IRS’s reversal, taxpayers who had relied on the pre-clearance and submitted detailed information will be materially worse off in the event criminal charges are brought.
Dream World: the ACLU would get involved to start questioning the validity of the prosecutor/judge/jury/legislative power of the Gitmo Revenue Service.
@ Mark Twain
Gitmo Revenue Service. Love it! Their motto would be “If we don’t gitmo, you’re off to Gitmo”.
New York State Bar Letter to Treasury to Restore OVDP Integrity by Not Ejecting Precleared Taxpayers (5/21/13)
Another bit of abuse by the IRS to highlight right now…