Have you all seen the new Statement from John Koskinen? Is the IRS finally doing the right thing?? I am still digesting, but wanted to get this up as a post before I settled into analysis mode.
Statement of IRS Commissioner John Koskinen
June 18, 2014
Today we’re announcing a number of important changes to our offshore account compliance program that we believe will lead to a significant increase in the number of U.S. taxpayers coming forward to report on undisclosed foreign accounts.
The steps we’re outlining today include an expanded streamlined filing compliance process and important modifications to our Offshore Voluntary Disclosure Program, or OVDP. The combined effect of these revisions will be to allow more taxpayers to participate. This reflects a carefully balanced approach. We are providing additional flexibility in key parts of our compliance effort while maintaining central components of the offshore program.
Update I: Media Coverage links provided by Calgary.
IRS eases rules for U.S. expats living abroad to “come clean” on back taxes
IRS Eases Offshore Voluntary Disclosure Program for Non-willful Tax Evasion
IRS eases rules on Canadians filing taxes in the U.S.
Update II: Program details now available. Link provided by Neill
Streamlined Filing Compliance Procedures
Update III: Adding @USCitizenAbroad Posting from his blog. (see below the break)
Update IV: Adding link for IRS Transition Rules: Frequently Asked Questions (FAQs)
#IRS provides penalty relief: Isolates Congress and US tax laws as the problems for #Americansabroad
One June 4, 2014, I wrote a post speculating that that upcoming IRS amendments to theStreamlined and OVDP programs would likely provide relief for Green Card Holders resident in the U.S. This was based on a speech given by the IRS Commissioner of June 3, 2014. As was reported in numerous blogs (and given an enthusiastic review to Mr. Mopsick), the speech included:
Now, while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.
We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes. We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. We expect we will have much more to say on these program enhancements in the very near future. So stay tuned.
IRS Newsroom – June 18, 2014
IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance
Information from the IRS site on OVDP 2014 is here:
Information on non-OVDP disclosure options is here:
Information on the new streamlined process is here:
Obviously you must check the above links to see how the information (as it always does) evolves.
The press release included:
“This opens a new pathway for people with offshore assets to come into tax compliance,” said IRS Commissioner John Koskinen. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”
As predicted the IRS has announced changes to both the Streamlined and the OVDP programs. The effects (subject to the details) are generally as follows:
Streamlined Program – Opening the program up
1. Participants are not restricted to those who less than $1500 in tax;
2. There is no longer the “detailed questionnaire” to determine “low compliance risk”;
3. Taxpayers loving outside the United States (AKA “Americans abroad) can come into compliance WITHOUT PENALTIES by certifying that the lack of compliance was “non-willful”.
4. Taxpayers resident in the United States (Green Card Holders are you listening) can come into compliance by paying a 5% penalty on the “offshore account” which was the reason for the non-compliance.
5. The new streamlined program can also be used for “amended returns”. This is huge. It allows people to correct the inevitable mistakes associated with U.S. citizenship abroad. This does include those who have made “quiet disclosures”. Previous penalties assessed will NOT be abated.
Bottom line: Those Americans abroad who are so inclined may enter the U.S. tax system without fear of penalties provided that they certify their lack of compliance was “non-willful”.
Interestingly, Jack Townsend has been writing on “willfulness” here and here.
OVDP (“Offshore Voluntary Disclosure Program”) – making it harder
The changes to the OVDP program are clearly designed to make it attractive ONLY to those whose conduct has clearly been willful. (In my view making it close to obsolete.)
As described here, the changes to the OVDP program reflect that:
… the IRS is reshaping the terms for taxpayers to participate in the OVDP. “This is designed to cover those whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures,” Koskinen explained. “These changes will help focus this program on people seeking certainty and relief from criminal prosecution. From now on, people who want to participate in this program will have to provide more information than in the past, submit all account statements at the time they apply for the program, and in some cases pay more in penalties than they would have done had they entered this program earlier.”
The basic changes to the OVDP program include:
1. The 5% penalty has been abolished. This reflects the changes to the Streamlined program.
2. More information, more detail and the penalty payment are required at the point of entry into the program.
3. The penalty on offshore assets has been raised from 27.5% to 50% IF THE ASSETS WERE HELD IN A BANK:
A. That was subject to DOJ prosecution; and
B. the OVDP disclosure took place after the prosecution had been announced.
This makes it clear that OVDP is appropriate ONLY for those who risk criminal penalties.
Bottom line for the average American abroad:
A preliminary response suggests that non-compliant and non-willful Americans abroad can come into compliance:
A. Without the payment of penalties.
B. But, they will have to pay the back taxes (presumably for the three years covered by the Streamlined program).
So, what does this all mean? The answer is:
For Americans Abroad there is good news and bad news:
First, the good news:
The IRS will be more “compliance friendly” making it easier for Americans abroad to come into compliance and “clean up” past problems.
Now, the bad news:
Americans abroad who come into compliance will still be subject to the incompatibility of U.S. tax laws and their lives abroad. They will still have the problems which include (but are hardly limited to): PFIC, tax on principal residence, phantom capital gains, TFSA, FBAR, 5471, 8938, 3520, 3520A and other assorted IRS paperwork, etc.
This is likely to fuel the surge in renunciations. With penalties “off the table” people will feel better about coming into compliance for the sole purpose of renouncing U.S. citizenship.
When it comes to the IRS …
The IRS has probably done all it can. It can’t change the tax laws. It can make the decision on penalties. The IRS has signaled that there will be no penalties for Americans abroad.
With penalties “off the table”, the IRS has effectively identified that it is the lawmakers (Congress) which is the problem for Americans abroad.
With the combination of:
– the enforcement of citizenship-based taxation via FATCA;
– and a tax regime that no American abroad can life under
more Americans abroad are likely to consider formally renouncing U.S. citizenship.
I have following these developments since 2011. The history of this unprincipled, unprovoked, unjustified and unparalled assault on Americans abroad is as follows:
2009 – The Reign of Terror Begins:
Obama, Geithner and Shulman equate the offshore accounts of Americans abroad with the offshore accounts of Homeland tax cheats. The “reign of terror” begins.
The attack on #Offshore accounts held by #Americansabroad begins http://t.co/7EotsE0tL7 – #FATCA and the #FBAR Fundraiser
— U.S. Citizen Abroad (@USCitizenAbroad) June 18, 2014
2009 – IRS creates the OVDP program of 2009. Half way through the program, they engaged in the “bait and switch”. Tax lawyers had believed that people could enter program and argue “reasonable cause”. IRS “shuts” down “reasonable cause arguments. Also, IRS discovers PFICs giving them a new vehicle to terrorize Americans abroad.
2010 – In March of 2010 Mr. Obama signs FATCA legislation in law. The stage is set for “FATCA Hunt” – the hunt for Americans abroad.
2011 – IRS remakes OVDP as OVDI making it clear there is no “agent discretion” in calculating penalties without an “opt out”.
Tax lawyers, accountants and media encourage innocent Americans abroad to enter OVDP.
OVDI ends in September 2011.
December 2011 – IRS release the infamous December 2011 FS. For the first time since 2009, the IRS notes that “reasonable cause” arguments are available. A Christmas present from the IRS that was ignored by the “cross border professionals”. At this point, it was difficult to know what to do. Americans abroad had a compliance problem and not a tax problem.
January 2012 – IRS brings back the OVDP. Basically the same as the 2011 OVDP with higher penalties (25% to 27.5%). Isaac Brock Society writes press release warning Americans abroad to stay away from this program. “Just Me” write the OVDI Classic: “OVDI Drudgery for Minnows“. In January of 2012, desperate Americans abroad wrote about how “their lives had been stoled from them by the IRS“.
September 2012 – IRS introduces the “Streamlined Compliance” program for ONLY Americans abroad. People were and continue to be wary of the program.
June 2014 – IRS introduces modifications to both Streamlined Compliance and OVDP. The bottom line appears to the that penalties but not tax will be waived.
“We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50 percent – nearly double the regular 27.5 percent.”
But they are completely wrong in requiring non-residents to even file! The solution is abundantly simple: employ a residence-based taxation program like the rest of the world. The entire problem begins with the IRS and Congress, not the hard-working, ordinary expat “tax evaders”! Employ a poor program and you get poor results.
Thanks! First I heard.
Too funny (not) that they’re increasing the OVDP penalties from 27.5% to 50%.
Good news that they are removing two big barriers to the Streamlined Filing Procedure: that suspicious questionnaire and the low limit of “less than about $1500 in taxes owed to qualify”. Of course, one will need to read the details to be sure…
I was afraid that the new rules might make it easier to come into compliance with the intent to file going forward but at the same time somehow make it harder for people who want to renounce to comply. From the announcement that doesn’t seem to be the case.
It sounds like it might be reasonable. Goodness knows there are still a lot of clueless people, not bad people, just clueless people who never could have imagined how complicated the rules were.
I thought of Neill when I read this bit:
“Over time, we discovered that there were people, including many here in the U.S., for whom the existing program penalties were too harsh or restrictive. These people had small enough issues that they didn’t really need the protection from criminal prosecution offered by the OVDP. But they also didn’t fit into the narrow criteria of the streamlined procedures, either.”
Discussion starting here: http://isaacbrocksociety.ca/2014/06/17/expatriate-americans-break-up-with-uncle-sam-to-escape-tax-rules/comment-page-3/#comment-2045218
for Accounting Today http://www.accountingtoday.com/news/irs_watch/irs-eases-offshore-voluntary-disclosure-program-for-non-willful-tax-evasion-71005-1.html
and Globe and Mail: http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/irs-streamlines-back-tax-process-for-ex-americans/article19217522/
RE Financial Post: http://business.financialpost.com/2014/06/18/u-s-tax-officials-remove-risk-assessment-and-unpaid-tax-limits-to-encourage-canadian-compliance-with-new-filing-rules/
Of course the IRS can NOT on its own change from Citizen based to Residency based taxation, that takes Congress to do, so considering this, at least it seems, on the surface, that he has been listening to Nina Olson about benign tax failures over the willful tax evading by Homelanders. This might provide some relief to those that wish to or have to be compliant.
Now, the question for me, is how will they market this? How much effort will they expend in an outreach to Americans abroad? Just a page on IRS.gov buried away where no one sees it? . It did NOT show up on the IRS homepage, at the time I looked, and I had to go digging for it. I have NOT gotten an email from the IRS either. I got alerted to it by a reporter. I assume they will use their usual reliance on the compliance complex to be the vehicle for spreading the word.
Now back to my reading.
I expected a better reception on this than it’s getting from the folks here.
This could also be read as saying that the IRS is realizing that it really messed up with this program.
Come on though. Zero penalties for overseas people? Sure the taxes can still cripple you but I could have done without paying my 27.5%!
Of course when I read the details I know it’s not going to apply to me for some reason.
Details are now up there:
It’s not retro-active. Bastards:
A taxpayer eligible for treatment under the streamlined procedures who submits, or has submitted, a voluntary disclosure letter under the OVDP (or any predecessor offshore voluntary disclosure program) prior to July 1, 2014, but who does not yet have a fully executed OVDP closing agreement, may request treatment under the applicable penalty terms available under the streamlined procedures.
So, in this regard they couldn’t do the “right thing” They want to keep the money! So they have rewarded those that waited. I guess that is what I should have done. So it goes. I am happy for bubblebustin and other similar expats. This is her get out of OVDP purgatory!
Just wrote a large post on this issue – you will find it here:
If the moderators want to repost all or part of it here, feel free.
Just Me, you did the expat community a great service when you shared your story with us here and in other media. Thanks to you, most of us decided to stay out of OVDP. If not for you, the IRS would have victimized even more people. So for that we’d like to thank you from the bottom of our hearts!
I’m happy for bubblebustin as well. I’m happier for the people who never entered the program to begin with and never will thanks to websites like this.
This is a small victory for us but there will be more victories to come. We just need to keep fighting. The IRS is a corrupt organization and should be shut down and replaced with people who actually have some morals.
@ brockers…my UK husband had one comment on the above…. “you were right to get out at any cost even though it has cost us 40% of life savings in tax and lawyers fees-it is a mess and completely unjust”.
when I heard that …. I knew that I had made the right decision to renounce and in marrying him some loooonnnnnng time (cough cough) ago!!
as y’all say-those who waited gained. those who rushed into compliance complex lawyers and accountants well we are free but at horrendous cost to both us and to our goodwill (oops excuse me BADWILL now) to USG CBT regime and the “jihad” ( and I use that word deliberately) on USP s overseas.
do you know, even if they offered me my passport back I would think Looooong and haaarrd about taking it due to woeful record since 1996 of USG (reps and dems both). dont forget it was CLINTON USG that passed the 1996 Reed amendment.-DEMOCRATS!
I am fantastically happy in UK, has always been my spiritual home since first coming in early 80s… I can remember coming through dover and thinking “i am finally home”.
my US heritage is one I remain immensely proud of, but it is HISTORICAL legacy. one of my Indian friends when I was grousing about tomorrow’s game against Uruguay said “oh yes US v Uruguay” and I shot back “excuse me I am BRITISH now” and he was suitably “oh yes you are right you did tell me”……
i am being teased at work to take elocution lessons and my response is “heck no”. I am PROUD Of my accent and culture. I am more American now than I have ever been. renouncing was act of supreme patriotism… “greater love hath no woman”.
brockers rock. you guys have saved my life in last 2.25 years.
Not good enough. Expats should not be taxed, period. Congress has to step in and stop forcing the IRS to work at the margins. All that they are looking to accomplish with this piecemeal approach is to find out what is the least that expats are willing to accept.
When the U.S. forces other countries to negotiate away your constitutional rights under their laws then what you have is discrimination .
R.B.T. or nothing. This does nothing to help anyone sleep at night.
Ok, Thanks for that. I just added your post to this one, as it is very comprehensive and has the offshore Jihad history from “get to go”
I go agree, that it is now all in Congress’s lap to deal with the CBT, and of course, they will do nothing, imho. They have to rescue their misadventures in Iraq first.
MESS O’POTAMIA RETURNS
RBT doesn’t fix all the problem. What if you decide to return to the US? What about all the FBAR crap. What about the accounts not covered by the tax treaty?
Even with RBT it’s still a mess for a lot of people.
“This is likely to fuel the surge in renunciations. With penalties “off the table” people will feel better about coming into compliance for the sole purpose of renouncing U.S. citizenship.”
That is my take on it as well. One of my personal reasons for compliance was because it meant having that option – being able to check out at my convenience. I’m committed to fighting for change but I feel a lot less as though I’m at the mercy of the next idiot fest in Washington. How many others feel as I do, I have no idea.
What I do know is that many people are facing issues with spouses and small family businesses that simply won’t be solved by this initiative. CBT is simply incompatible with global mobility. If an American wants to be part of a global world on the same terms as other nationalities, the only antidote is renunciation and taking on a citizenship that IS compatible. As of 10:39 Paris time that is my take on it.
So, they’ve finally admitted they made a huge mistake and changed the rules going forward but won’t compensate the people they have already screwed. Sounds a lot like the torture program and Obama’s “look forward” policy.
I can’t remember which video it was (I think it was a Procopio seminar from 2010-2011 era) but Richard Harvey said that it was immediately obvious that the offshore program was attracting huge numbers of people who were benign actors (whether US resident or overseas). Perhaps this is government moving at light speed but it’s taken them 5 years and god knows how many reports from Nina Olsen to fix a blindingly obvious and easily correctable mistake.
I wonder whether the recent threats of increased auditing of quiet disclosures (I’m thinking particularly of overseas filers) will dissipate now that there aren’t massive FBAR penalties involved. It would seem rather pointless unless there’s a potentially large tax discrepancy. It would be nice if people like Mona Lisa didn’t have to spend the remainder of their statutes of limitations suffering from sleepless nights.
If you return to the US, then you would simply start filing to the US instead of where you live now. Surely that’s what happens in Canada and elsewhere when people relocate.
FBARs would only apply to US residents, which is fine and expected for RBT, IMO. It has always applied to US residents (since 1970 or so).
I probably don’t understand your last question. What mess is left?
The Streamlined procedure improvements only help a little. Repealing FATCA would only help a little. Renouncing US citizenship helps quite a bit once your 8854 is done. The problem is CBT and RBT is the only answer.
This doesn’t change anything for me. The problem is CBT– the US needs to “comply” with the rest of the globe and switch to RBT. And no FBARS for non-residents. I’m happy staying out in the cold.
So your going to empty all those tax advantaged accounts when you come back to the US to avoid the really bad tax but pay the other really bad tax?
You going to empty your 529 plan when you leave the states and pay the 10% penalty?
FBARs aren’t part of the tax code. Chapter 31 rather than 26 if I remember. There purpose isn’t tax compliance they claim.
Sure RBT is part of the answer and likely a required part but it still leaves a mess if you get it.
First a couple of details that have not been mentioned. For people who go into “regular” OVDI the penalties are now 50%. This might not be so bad as it is going to be hard for even the most ardent bootlickers in the compliance industry to argue in favor of entering OVDI/OVDP for anyone without the possibility of criminal prosecution. Having said that given that the OVDI program is now essentially closed why even bother with this streamlined program and instead do a noisy or even a quiet disclosure.
………..they have rewarded those that waited………
I was patient and yes that is what I have been saying for 3 years now !!
Now it pays me a big dividend !!
The problem here is simple…. We have a born in the US accidental American. No education in the US, nothing at all in the US, born as a Canadian from a Canadian mother. Why would this person admit they are an American to come into some kind of foreign compliance. I have one statement for the US, come onto MY soil and PROVE this person is a “US person” for tax purposes and we might have something to deal with here. There are NO Americans in our family. If the USA wants to make an American out of my wife, they will have to come here and do it. We have a Canadian Citizen here the USA wants to swindle for money!Looks like our sick, weak useless Conservative Government wants to call a Canadian, an American and even help the USA take a Canadian. This Canada day, Canada will be SHAMED by this. None of you are a Canadian if you were not born here. Canadian Citizenship means you are a taxpayer without ANYTHING else from Canada PERIOD! .
….. For people who go into “regular” OVDI the penalties are now 50%…..
This is not correct btw.
For those who are stuck in OVDI, they can now supposedly apply for consideration under the new procedures. That is as clear as mud. How many years will be considered? Three? Or all eight years of OVDI? From my opt out experience into the 2012 Streamlined Program, I was told that as I had made a “voluntary declaration” of more than 3 years, all years would be considered for tax purposes. They would not just ignore the additional years I filed. I hope it will be different under these new procedures, but I do not see any indication of this.
The IRS has finally set up an easier way to comply, but the problems for US Persons who are long term residents outside of the US and have integrated into their local societies are not solved. Why would anyone want to comply with US taxes when faced with confiscatory PFIC taxes, lack of recognition of local pension plans, foreign trust filings, phantom gains and onerous filing procedures for setting up your own business abroad?
The IRS seems to have recognized that Americans resident long term abroad are not tax cheats. The next battle will be to get Congress to recognize that there are Americans long term resident abroad who may never come back to the US to live. I just had a discussion with my Congressman, who was trying to be helpful, but who ultimately failed to understand. The aides I spoke with all talked in terms of when I would “come home”. When I explained the various reasons why I would likely continue to reside abroad, the response was, “Oh you have a very complicated situation.” What this meant was that they had failed to grasp that a US citizen would actually choose to reside elsewhere and being out of the country was not just temporary. Until this is understood and the situations of Americans abroad are addressed in the tax code, it seems that the best reason for becoming compliant is to make it easier to renounce. Compliance with the onerous and punitive foreign reporting rules has few upsides for a person leading a normal middle class life outside of the US.