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
http://www.irs.gov/uac/Newsroom/Statement-of-IRS-Commissioner-John-Koskinen
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:
http://www.irs.gov/uac/2012-Offshore-Voluntary-Disclosure-Program
Information on non-OVDP disclosure options is here:
Information on the new streamlined process is here:
http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States
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.
My prediction:
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.
Epilogue:
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.
Could be the last thing he did prior to taking a fall.
The Director of the IRS, John Koskinen, is now implicated in perjury, as he testified before the House that the emails were being redacted at a time after he learned of their supposed disappearance.
http://www.redflagnews.com/headlines/watch-irs-scandal-spreading-in-every-direction-cover-up-destruction-of-evidence-others-involved
http://www.nationalreview.com/corner/379897/report-irs-sent-database-containing-confidential-taxpayer-information-fbi-eliana
http://www.redflagnews.com/headlines/irs-gave-fbi-11-million-pages-of-taxpayer-data-to-encourage-prosecution-of-conservatives
Well, interesting to see that they will be getting rid of that damn questionnaire as part of the Streamline program. That questionnaire was littered with traps, such as:
– Did you sell a house recently? (As the US has no Capital Gains Exemption)
– Did you receive an inheritance recently? (As the US has Inheritance Tax)
– Did you know that you were required to file an FBAR? (Establishes willful neglect)
I was born in the US to two Canadian parents living there on a work visa. That is the extent of my connection to the USA. If I were to come into compliance using Streamline now, I am basically saying to the IRS that I accept the fact that you have tax jurisdiction over me simply because I was born within your borders.
First, all we had was OVDP. Then the Streamline program Version 1.0. Then the Streamline Program Version 2.0. As Neill situation demonstrates, all those who panicked and went into OVDP (in many cases due to bad advice from so called “professionals”), got screwed out of money big time and now cannot recover their money.
Absolutely disgusting.
I’m inclined to hold out more and cross my fingers to see if FATCA and CBT is repealed, or more likely, it collapses itself under the weight of its own absurdity.
@Neill,
I see, I’m with you now. The tax treaty is very inadequate. PFIC handling of mutual funds, RDSP, etc. I can’t get my head around what should happen to a TFSA etc if I moved from Canada to some other country. However it works for everywhere else, the US should at least do the same. The punitive mutual fund handling apparently came from the US investment industry lobbying the government to deter Americans from investing outside of the US. I nearly choked when I learned that. So, it’s not only the government in the US who can take a flying leap.
all one needs to do is to revise a bunch of years of tax forms and acquire all bank statements 6 yrs back. That should only take about 8 months to perform.
“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.”
I imagine the IRS will still charge interest on late payments:
http://www.irs.gov/uac/Newsroom/Interest-Rates-Remain-the-Same-for-the-Fourth-Quarter-of-2013
@Mark Twain,
Tell me about it! I spent months reconstructing the basis of my wife’s ISA’s. One fund had been reinvesting dividends 4 times a year for ten years.
Even when you exit OVDP the bastards find a way to make you feel like crap.
At one point my lawyer made a statement about ‘being able to feel OK about the whole thing’. I told him I would never feel OK about it. Earlier today he told me how they always make this stuff retro-active to stop a revolt. Ha!
Those who can take advantage of the new program and want to. Good luck. Dip your bread as we say in the black country!
@Brockers, at first read I think we must give thankful appreciation. This is a MAJOR step.
But it all points to coming into compliance and at the same time renouncing/relinquishing and getting a CLN.
The idea of coming into compliance and staying a US Person……..ROTFLMAO…..
Basically, file and get out of DODGE……yesterday……
I’m happy for those it helps, very sad for those that have been screwed on compliance costs and penalties.
As for myself, until the US gov’t and the IRS offer a formal apology for re-imposed citizenship (or lying in the first place) and this tax witch hunt, they can shove their offer of compliance. Or I can do it for them.
I have no interest in spending thousands of dollars to comply when I left their rotten country as an infant.
Way too little, way too late.
What do I say to all this? I think I’ll let Mary Howitt’s fable “The Spider and the Fly” say it for me.
OVDP 2009
“Will you step into my parlor?” said the spider to the fly;
“’Tis the prettiest little parlor that ever you did spy.
The way into my parlor is up a winding stair,
And I have many pretty things to show when you are there.”
“O no, no,” said the little fly, “to ask me is in vain,
For who goes up your winding stair can ne’er come down again.”
OVDI 2011
“I’m sure you must be weary, dear, with soaring up so high;
Will you rest upon my little bed?” said the spider to the fly.
“There are pretty curtains drawn around, the sheets are fine and thin,
And if you like to rest awhile, I’ll snugly tuck you in.”
“O no, no,” said the little fly, “for I’ve often heard it said,
They never, never wake again, who sleep upon your bed.”
OVDP 2012 (STREAMLINED)
Said the cunning spider to the fly, “Dear friend, what shall I do,
To prove the warm affection I’ve always felt for you?
I have within my pantry good store of all that’s nice;
I’m sure you’re very welcome; will you please to take a slice?”
“O no, no,” said the little fly, “kind sir, that cannot be;
I’ve heard what’s in your pantry, and I do not wish to see.”
KOSKINEN’S OVDP 2014
“Sweet creature!” said the spider, “You’re witty and you’re wise!
How handsome are your gauzy wings, how brilliant are your eyes!
I have a little looking-glass upon my parlor shelf,
If you’ll step in one moment, dear, you shall behold yourself.”
“I thank you, gentle sir,” she said, “for what you’re pleased to say,
And bidding you good-morning now, I’ll call another day.”
Will this be the fate of the little fly?
The spider turned him round about, and went into his den,
For well he knew the silly fly would soon be back again:
So he wove a subtle web, in a little corner sly,
And set his table ready to dine upon the fly.
Then he came out to his door again, and merrily did sing
“Come hither, hither, pretty fly, with the pearl and silver wing:
Your robes are green and purple; there’s a crest upon your head;
Your eyes are like the diamond bright, but mine are dull as lead.”
Alas, alas! how very soon this silly little fly,
Hearing his wily flattering words, came slowly flitting by.
With buzzing wings she hung aloft, then near and nearer drew
Thinking only of her brilliant eyes, and green and purple hue;
Thinking only of her crested head — poor foolish thing! At last,
Up jumped the cunning spider, and fiercely held her fast.
He dragged her up his winding stair, into his dismal den,
Within his little parlor; but she ne’er came out again!
WARNING
And now, dear little children, who may this story read,
To idle, silly, flattering words, I pray you ne’er give heed;
Unto an evil counselor close heart, and ear, and eye,
And take a lesson from this tale of the Spider and the Fly.
This may be a major step; but again, I have no interest in spending the significant amount of money and time involved in order to file the five years of returns, plus FBAR’s, in order to go to the consulate and formally renounce my citizenship, as is the current practice.
For accidental Americans like myself, who have no interest in ever asserting their claim to citizenship to live and work in the USA, there is only one thing I would be satisfied with.
A complete amnesty where people like myself can go to their nearest consulate, sign some simple paperwork, turn in the US Passport, and receive a CLN.
No $450 Fee; No Prior Tax Filing Requirements; No FBAR’s; No Form 8854. Just hand in your Passport, and that’s it.
Until that happens, the USA can pound sand.
Don’t be like that foolish and trusting fly.
Donate to the ADCS-ADSC fund instead.
I don’t trust them. I am sure alot of people are in the same boat. To me… its bait & switch…. we scrimped & saved for our future… I am not going to easily hand over my hard earned funds for something that can be changed once u id yourself to the system. Also, why should they have a road map of all my funds? This is like a bs carrot being thrown out… come on in…. we will help u… yep… u will help me divest myself of all my hard earned funds. I have alot of elderly family that I am joint on… not one cent is my money yet I have to give them the info… not happening. Its getting to the point that I am sick & tired of feeling helpless… angry… whatever u want to put it… I will not be controlled by this so call gov’t… either mine… traitors… or the US…
It’s hard to be happy given all that the IRS has done before, but I’ll put myself in the “forgive and forget” mode and celebrate this news. I’ve always said that the main problem in the whole subject was the draconian penalties, so that part is kind of solved now. This is great. A reinforcement of my belief that justice always prevails.
I totally agree with Just Me’s conclusions, the IRS has made it clear that the problem is Congress. By the way, Republicans Overseas just wrote that they are planning a resolution supporting RBT this summer. I’m still optimistic, I believe that it’s just a matter of time until CBT is finally abolished.
The idea of crossing on a red signal seems foolish right? We would be breaking the law to do so. I am working with the idea of not filing with the CRA as it will break the law if they send my personal data to a foreign country. this could be a bigger “challenge” in court as it would be a Canadian upholding his/her charter rights over the “law” that we should follow? I’ll be speaking with an Aboriginal lawyer about this next week as I think we can prove “intent” to break the charter against the CRA.
It is very clear that the USA will NEVER give full amnesty to all accidental Americans. This “law” that is being brought to light, has been brought up deliberately when the USA is in incredible financial trouble on the brink of total ruin. This “law” of theirs that causes accidental Americans to be turned into “taxpayers” can be argued to be a technicality that is being used to create income to the washed out US government. Does this make it right? well, no. This is a “taxpayer generator” type law that can add more taxpayers to their system by force. Asking the USA to go to RBT is foolish. They know they are wrong, they know that this will ruin people, but they are desperate! That is the one reason this whole “law” was hidden for years. This was their ace in their pocket. It will turn out to be the Ace of spades once the world is done with them. Unfortunately, asking the USA to allow accidentals to be left out of it is like asking the Canadian government to lower fuel/energy prices. They scam too much tax off our fuel and energy costs to lower it. We are in a uphill fight here….
So you send a ton of information to the IRS (electronically) which they have no frickin’ right to have (IMHO), thereby walking right into their web, and then they decide if you are NOT WILLFUL (small penalty) or WILLFUL (bankrupting penalty). Is that right? But hey, that queasy questionnaire is waived at least.
It still boils down to one thing – we want RBT not CBT full stop.
They did what they always do. When someone backs up on them they wait to see what the objsctions are and pretend to change, but all they actually do id tell a bigger lie. They use Saul Alinsky’s book ”Rules for Radicals” and just keep lying until they can find a way to attack the objector and totally discredit them, but they never change. This administration is on the way to a dictatorship with the fences built to keep others out now used to keep us in. We have lost more freedom in the last 5 years than we lost in the previous 233 years. God Have Mercy On Us.
@Don:
“It still boils down to one thing – we want RBT not CBT full stop.”
Yes, this new IRS policy is good, but it only treats one of the symptoms, not the disease itself.
There are still many other problems with CBT, both practical and moral.
True justice can only come with RBT.
@Cerium398
From Calgary, here is one reference to the tax complexity those that comply will continue to face:
http://www.nestmann.com/irs-admits-offshore-enforcement-efforts-leading-to-soaring-expatriation-rat#.U6IvNUBQNzI
The report goes on to summarize the overwhelming complexity of the tax and disclosure requirements that U.S. taxpayers–especially those living abroad–now face. According to Olson, “The IRS has 16 publications that address international issues for individuals, totaling 407 pages, with 110 references to other publications totaling 4,491 pages and 137 references to forms totaling 450 pages which have an additional 2,190 pages of instructions… Publication 4732, Federal Tax Information for U.S. Taxpayers Living Abroad … refers to at least eight other relevant IRS publications, totaling 563 pages. Further, the additional documents referred to by these eight publications include 4,727 pages of instructions, 667 pages of forms, and another 1,928 pages of form instructions for a total of 7,322 pages.”
http://www.taxpayeradvocate.irs.gov/userfiles/file/2011_ARC_MSP%207-12.pdf (page 4)
entitled:
The complexity and administrative detail of the international reporting requirements are overwhelming.
The IRS change to a better route to compliance without the huge penalties, does nothing to mitigate this. That’s the reality. However, if you are a @Demsabroad, and want to be compliant, and continue to have the “privilege” to live abroad, (as they say) then this is what you have been waiting for.
I guess this program, depending on your forward plans, this compliance glass is either half full or half empty now.
Reporting on this by Forbes… The focus is on the increase of penalties, not the streamlined risk removal.
IRS Offers New Incentives To Disclose Foreign Bank Accounts
IRS Increases Offshore ‘Amnesty’ Penalty From 27.5% To 50%, Makes Other Changes
Although obvious, I remind everybody that once in compliance you will be subject to a lifetime of threats of penalties.
@Just Me
I saw the Forbes articles too. I don’t understand the lack of focus on the “streamlined risk removal”.
As some have already pointed out, those who haven’t been able to renounce can now “safely” comply and then bail. This is good.
But those who comply and retain USC can never be sure if/when the USG will change their tax rules to make them even more incompatible with living outside the US than they are now.
And the current incompatibility and refusal to recognize retirement vehicles, educational savings programs, our spouses as non-citizens over whom they have no jurisdiction, our homes as our primary residences, our bank accounts as local as opposed to “off-shore – just to name a few things, this isn’t changing. They still make us second class citizens in the countries we live in.
And taking this deal, whether you remain citizen or not, means essentially agreeing that the USG had a right to do what they have done in the past few years when they have never bothered to in the past (because they didn’t have the technology to do it).
Some people can now escape. Others can sleep more easily. But what they have done shouldn’t be forgiven or forgotten.
Yes, I may soon see an end to my ongoing saga in OVDI, but all I’m left with is a bitter kind of gratitude that things could have been worse but knowing that if I’d waited until now (and therefore becoming ‘willful’) I would have fared a lot better than I will when this thing meets its conclusion.
This initiative is NOT a solution, but an escalation of the attack against us. There will be those who will never comply, every day people who are guilty of nothing more than saving for their retirement, who will now be thrown in the willful category and subjected to 50% penalties. The IRS has upped the ante under the disingenuous guise of easing up on us.
No matter how the IRS dresses CBT up it’s still an abomination, only capable of destroying the lives of every day people.
I wonder what this means for people who have chosen to become compliant forward 2 or 3 years ago…
If the tax SOL is over, should they still join to fix their FBAR 6 year SOL issue or just forget it.
Now that the FBAR filing is electronic only, filing the first 3 years seems like a lot of risk for a minimal risk or being audited for FBAR on the first 3 years…
Are they just going to ignore their previous comment that they’ll go after quiet disclosures?
And now, there’s the question of trust.
I guess we can always say that we filed the first 3 years and they might have crashed their computer… and us too. There’s no way to get the info back.