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.
Trust is going to be hard to regain…
wow ……only 31 comments so far…… amazing how priorities have changed !
2 years ago this would have been very different.
Comments are playing peek-a-boo with my computer now. For instance, it took several browser resets, page reloads and bewitching nose twitches to find where bubblebustin’s and noone’s last comments were hiding. Very strange … anyone else experiencing this?
This is only a hunch but I think Koskinen is laying another OVDP trap. From me to Mr. Koskinen: Saying this is amnesty, does not make it amnesty. I’m actually past wanting amnesty. I want RBT and an apology and while you’re at it you need to refund IRS ill-gotten gains from previous OVDP traps.
@Em, I’m seeing similar things. I received several email notifications of new posts, but when I go to the website I can’t see them. Just now though, your comment shows up OK.
@ WhatAmI
I see your comment too. This is an intermittent problem. Sometimes things work pretty well and other times not. Don’t know what to make of it. Gremlins?
Somehow I feel sad.
I mean, this is really good news for some if not myself, and I am happy for them.
Its just that so much left is so unjust, that I can’t feel truly happy about it. It feels like the fight for what is right is just being watered down. (That would be RBT, btw because it is just not right that any citizen of any country should be taxed twice. That is what it is, no matter how much they say it is “fair”.)
I`m sorry. I guess the power of America just frightens me, and the global trend of “big brother is watching you” is something I just cannot grasp the future meaning of, and it doesn’t feel brotherly.
I find it interesting that my accountant kept trying to reassure me way back in 2011 that I should be able to get back into compliance without being hit with FBAR penalties. In other words, the IRS would be treating my amended returns just like this ‘updated’ streamlined programme.
I must admit that I interpret it to mean that they are, in fact, going to happy enough to get the minnow Expat masses into the system and, instead, hit the willful tax evades harder. However, it’s true that many expats will learn to their horror that they will owe double tax on their locally owned mutual funds due to the PFIC rules.
It seems to me that even if they determined that I still owed them another $50,000 based on differences in how they might calculate the PFICs, that it wouldn’t be worth it for them. On the other hand, had I been a multimillionaire, the New harsher OVDP suggests that they will be more likely to pursue wealthier expats who don’t comply.
Of course, the real winners here will be the compliance professionals. Cross-border accountants will have loads of new clients.
It’s good news for many entrapped folks who know about it. Only a few hundred hours to come into compliance by reporting ones self to the Financial Crimes Enforcement Network.
Still to realize that FATCA’s intent is to capture unknowing people. First it included people who had not known, but this now is “relief” for them. Now it is only the unknowing people that will be entrapped.
with the WSJ article, the Fascists are in danger of losing the propaganda war. So they put out this “amnesty” which is anything but
One good thing about the new streamlined procedures is that it pretty much kills the cash cow of many compliance lawyers as the procedure only involves filing a return. How the return should be marked and where to send it are clearly spelled out in the instructions. Accountants will likely still play role, but the need for advice from a lawyer is nil. I imagine many tax lawyers will still try to peddle their services by claiming you need their advice to determine if you are non-willful or not and to develop your certified statement. Nonsense. Those who are non-willful know it from Day 1. At this point, it also appears that a statement saying that one lived abroad and was unaware of US filing requirements, but was tax compliant locally seems like it would be sufficient. Eliminating complexity eliminates the need for a compliance industry professionals and that is a good thing for the pocketbooks of most of the people who would apply for this program.
I am not sure why everybody is so upbeat about yesterdays news ?
Sure for a small minority it is an improvement but if you read FAQ 7) and 8) of http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
than there is still a huge grey zone with regards what constitutes non willful in the eyes of the examiner or the central review committee.
So what has really changed in the trenches of an examination or audit ?
Since the transitional treatment is not automatic it could be another bait and switch for some who come out of their QD or GFs to suddenly realize that they are denied the Streamlined Waiver Request.
This looked promising at first sight but the more you consider the reality of the whole process I DON`T LIKE IT !
The FAQs for the new program are out and it is still difficult for anyone who entered OVDI. 8 years are still in play and there are lots of procedures to follow. It just goes to prove that entering OVDI was a big mistake for a minnow. It is almost impossible to extract yourself from it even if there is a new program.
The FAQs for the new program are out and it is still difficult for anyone who entered OVDI. 8 years are still in play and there are lots of procedures to follow. It just goes to prove that entering OVDI was a big mistake for a minnow. It is almost impossible to extract yourself from it even if there is a new program.
http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
—The false argument will now be made by defenders of U.S. citizenship-based taxation and FATCA (e.g., the Government of Canada) that CBT and FATCA are both benign.
@Just Me, and Neill, et al. – regarding the lack of retroactive application to those who already signed a closing agreement under the previous programs;
How much do you want to bet that there are agents working the OVD program who are still pushing minnow and small fish expats to sign, either KNOWING that this was coming from their overlords, or IGNORANT of developments?
We know, and the IRS just clearly acknowledged that the OVD programs were not appropriate for people just trying to clean up footfaults, or who learned about CBT and came forward in the only way that the compliance condors and the IRS urged them to do.
And, the analysis of the only stats from the program showed that many of the minnows and small fish were unrepresented, and were assessed with a penalty to tax ratio much higher than the whales.
So, there will be people who signed their closing agreements and don’t follow hints and clues in speeches given by the IRS Commissioner to tax industry insiders at professional conferences. Or people who even now have in their hands a closing agreement with the usual letter about “cooperation” – or who just signed one.
If I remember correctly, wasn’t there a tiny buried note that advised the 2009 OVD people who had closed that they could resubmit and have their cases reviewed retroactively?
So why not the 2011 people?
And Congress should take away the non-willful penalty powers from the FBAR, which they gave to the IRS when they gave it administration of the FBAR. That was like giving an arsonist a can of gasoline and a lighter.
@Mark Twain
The longer you don’t know, the more difficult it will be to convince the IRS that you didn’t know, yet the onus should be in the IRS to prove that you knew. I suspect that those who now know and become compliant will do so in order to get out from under the US, because let’s face it, there’s no real benefit to continuing to file and pay US taxes if you don’t plan to live in the US. I repeat: the only thing CBT had going for it was the fact that no one knew about it. This or any campaign the US embarks upon to increase tax compliance will have the opposite affect of stemming renunciations. Eventually no one will leave the US without knowing about CBT and the obligations it entails. We are the last generation of US emigrants to believe we were free to roam the earth, as wrong as we were to believe it.
@Badger
You raise a very good point.
I have no way of knowing when the last minnow signed a closing agreement under the 2011 OVDI, but our case has is still open. It’s possible that the only thing that kept the IRS from closing our file is that we were clearly minnows (can prove reasonable cause) but we owed significant tax. Or, they could have known that they have a huge problem on their hands and put all participants filing from abroad on hold.
@bubblebustin,
I hope you will get relief now, and all others still stuck in the existing programs.
As Not That Lisa points out, a quick look at the Transition FAQs shows lots of complexity, and needlessly continues to make those stuck in the OVD programs leap over the same high barriers, and be subject to more onerous conditions and more years that those with the same facts and circumstances coming forward now under these new terms appear to be relieved of. Which seems even more unethical given Koskinen’s remarks.
So much for treating similarly situated taxpayers similarly.
@Badger
And makes the IRS’s new taxpayer’s bill of rights downright farcical.
@ All
This may have little to do with this new “Simplified simplified OVID” but I received this just this morning and thought “OK, here’s an important opportunity to share our thoughts on FATCA”
Democrats Abroad is circulating a FATCA Survey 2014 as a way of “continuing the global research we started in 2012 into the consequences for Americans living abroad…” It is an “anonymous survey of Americans living all around the world that will collect demographic information and experiences related to FATCA and banking, employment and tax reporting….We STRONGLY urge you to both TAKE THE SURVEY and to DISTRIBUTE IT AS WIDELY AS POSSIBLE among your networks of overseas Americans. Please send the survey link out to your personal and social networks to help us ensure that this survey reaches as many…outside the US as possible.
https://www.surveymonkey.com/s/DA_FATCA
Also in this DA email “contact the DA FBAR/FATCA Task Force at any time with questions or comments at: FATCA@democratsabroad.org
https://www.democratsabroad.org/group/fbarfatca/july-2014-reforming-fatca-same-country-exception.
Lets give it to them loud and clear……….
Am updating the post to include the Transitional rules…. Thanks @NotthatLisa
New article I am sure some of you have seen on WSJ…. I hate the headline. It is in the Globles BARRIE MCKENNA category of “coming clean”
IRS Eases Up on Accidental Tax Cheats
Of course, the authors do NOT write the headlines, just some idiot editor that knows nothing.
BTW, notice that John Richardson got the last quote… 🙂
Thanks, LM. Done!
@LM,
Thanks for the survey. I vote in a swing state, live in the UK, had accounts closed, failed to open accounts, didn’t get a job as an executive because of my FATCA taint, had capitals gains due to account closes, etc etc.
Was fun.
I sent them mail explaining how it’s all their problem and having a phony campaign about fixing it isn’t going to work.
@All – quick warning – I finally took a beginning look at the DA survey. There are some personal questions there that I wasn’t comfortable answering. I realize they say it is an anonymous survey but with NSA out there who knows how they can link answers to the person who filed this survey response. And non-US citizens are cut off after the 2nd page. Buyer beware……..
Well, it seems obvious that those who waited gained an advantage…..guess I’ll just keep on waiting! Who knows, they might even come to their senses and kill CBT in my lifetime.