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.
Very interesting — thanks, LM. I completed the survey as a US Citizen (though I have renounced) and went to the end where I told DA that I was ashamed to be from the USA and why. And, I am.
Here is Jack Townsend’s posting on the new program…
http://federaltaxcrimes.blogspot.com/2014/06/irs-issues-more-liberal-streamlined.html
I see that many of you are already commenting there, but wanted the reference back here.
@LM – Blchh. Democrats Abroad are pushing for same country exception which is useless for global mobility of Americans, especially in Europe. While it would help, it does not address the fact that the EU is about mobility. It does not address what to do if you retire from a cold Nordic country to a warm Mediterranean one. You may still keep accounts in the first country for various reasons, all of which are legitimate. There are many other reasons why one could have accounts in two or more countries outside of the US. Additionally, same country exception only addresses Form 8938 and the FBAR. It does not address the issues of how income from the country where you reside is reported. If you have a PFIC, you still have to declare that income under PFIC rules. Focusing on same country exception partially solves one irritating issue, but ignores many others. There should be a broader position and I do not read anything about that from DA.
@ Not that Lisa! says
My posting of the DA survey was in no way to endorse DA or their aims – – just an opportunity for anyone at IBS to tell it like it is for them as USCs abroad.
If you want to take the time to fill in the survey, or to write to DA with your (very justified) concerns, I (and I think all of us here) would encourage you to do so.
Yes, yes, I realize that if the information IS given it doesn’t mean they WILL listen. But if the information isn’t given, there definitely is no way for others to know the kinks in the plan.
@LM – The survey was disappointing because it only asked questions about where you currently reside. It did ask if you plan to retire where you live, but that can be construed by homelanders to think you will return to the US if you answer no. The survey should have also asked if you have accounts in other countries and why. That would be a true study of what is really necessary to push for when one pushes for FATCA reform. I wrote the additional information in a comment.
there is a problem receiving updates from comments
Still bunch of BS. there is no fairness in anything from the US. Bunch of criminal liers! extortioning and bulliyng others, their own citizens! if they do that with their own citizens abroad imagine what they do with other countries. Think about all the unfairness done with their own citizens in the past too and until now, and now going overseas. Diying beast. That’s why eveybody likes US (sarcasm here noone likes US and it will never ever get help!) Rather help Russians.
Thanks, RAF. It is being looked into. The exact problem has not been pin-pointed.
EVERYONE! That test comment from bubblelebustin IS NOT ME!
What does SOL stand for?
I had the exact some thought as noone mentions. I became form 1040 and form 8891 compliant 3 years ago, and FBAR 6 years compliant at the same time. I still have to wait the additional 2 years before exiting the system completely, and I was hoping for more that what the IRS has now announced. It may be a god send for some, but too little for those that want RBT. Even with RBT I have no interest remaining a citizen, more years away from the US, than in the US, proves my lack of interest in the USA. Will read all the info again and perhaps will find an answer that fits my case, –only filed 8891 for 3 years, not 5 years, as required to apply for renouncement.
SOL = Statute of Limitations: http://www.law.cornell.edu/wex/statute_of_limitations
I think “SOL” probably means “Sh.t out of luck” lol…but what I said on another thread still holds. This does not change my mind in any way. I will NOT comply and I will NOT renounce something that I do not agree that I am – I don’t trust those bastards as far as I can throw them…to hell with them! I am CANADIAN and that is that! “Comply, comply, comply”…BS!
LOL — of course!
@GwEvil @calgary411
Man… I really thought it meant… S* out of luck…. never even occurred to me that it meant statue of whatever… lol
@US_Person_Foreigner – Right? lol
@GwEvil. Good one G! I’ve been thinking I’m SOL for some time now,and I mean it in your sense! Thank you for a good stress-relieving laugh! My dear departed Dad used SOL all the time. He explained it to me as a lad over my mother’s objection.
http://the-tax-wars.net/2014/06/19/initial-thoughts-on-irs-changes-to-offshore-voluntary-disclosure-program-and-streamlined-process-for-non-willful-taxpayers/
‘INITIAL THOUGHTS ON IRS CHANGES TO OFFSHORE VOLUNTARY DISCLOSURE PROGRAM AND STREAMLINED PROCESS FOR NON-WILLFUL TAXPAYERS’ June 19, 2014
Just putting this blog post here in case it provides useful analysis.
Not an endorsement of the source, author or contents.
I tried again tonight to understand the new version of OVDP (think it’s now SFCP — name changes don’t make comprehension any easier) but it’s hopeless. I’m a “willful” now (wasn’t before my OMG in early 2014 but a little knowledge can be very costly) so it doesn’t seem worth the trouble to go through all the cost and mental torture of filing only to have the same result as not filing. The IRS will demand I give them everything I’ve got and when I don’t write a cheque they will threaten my bank to give it to them … somehow. You see, I don’t believe the infamous “Flaherty promise” will stand up to US gov’t pressure. The Cons caved in to a FATCA IGA and when the IRS asks that it be amended to allow direct collection from the banks they will cave in to that too. I don’t think the CND gov’t or the CND economy will be affected by the flow of a few recalcitrant retirees’ life savings heading to the US treasury. So that looks like my future. I believe after the grand theft of my savings I will qualify for the Guaranteed Income Supplement (actually I do already but I declined it) so my apologies, in advance, to the CND taxpayers who will be funding my minimal existence. (Our monthly food bill will, with continued inflation, soon be one half of a GIS payment.) Harper must be so smug, knowing what he’s done for his best buds across the border.
Oops. My OMG was in early 2012 not 2014.
The timing of this sucks the big whazoo. Many people, like a friend of mine, are now completing their quiet disclosures just in time for June 30.
It’s a really bad idea to FBAR your retirement accounts, as this will put you on the radar for taxation by USA when they can be extracted. And the IGA countries will not report them.
I’m really looking forward to looking backwards at 6 yrs of bank statements. Or not.
One thing I never thought of, Mark Twain. Thanks for pointing out.
@EM
You have spoken my very thoughts. We can’t win whichever way we go. I’m looking for a nice chicken-coop to live under.
@Em
Some would say that you’re painting the worst case scenario – but if past behaviour is any indication of the future, you may have nailed what the IRS and Treasury have in store for the vast number of people.
There are many who cannot venture into the US tax system as long as the IRS will not forgive tax debt. That will never happen unless they switch to RBT, and not as long as they’re squeezing nickels and dimes out of people like me.
Em and bubblebustin,
The worst-case scenario will not be gone until the US changes to Residence-Based Taxation. Until then, that country proves they hold themselves above the rest of the world and will continue to punish all who have had the “audacity” to leave the homeland. Squeezing out the nickles and dimes of so-called “US Persons Abroad” is the punishment.
The US could find a way (like RBT) to solve this for its “US Citizens” who have left to find and build their lives in other countries and won’t owe all that much actual tax. Why won’t they is our question?
@ Charl
I lived the first year of my life in a chicken-coop (yes, really — after my parents moved out it became a chicken-coop) so if I have to live the last years of my life in a chicken-coop then I’ll just have to call it the “circle of life”.
@ bubblebustin
I can’t venture into the “system” now because I will be “willful” and if they are going to steal from me, destroy my future, then they will have to do it without my co-operation. But the most important thing to me is that I am Canadian, never been American, and my heels remain dug into the dirt on this (USXC would say my head is dug into the sand). I don’t owe them anything and I am not a criminal even if that’s the label the thieving US gov’t hangs on me, even if my own traitorous government becomes the thief’s accomplice.
@ calgary411
I’ll never stop hoping for the USA to adopt RBT but, in the meantime, as long as Canada refuses to have “criminals” such as myself extradited it will have to suffice. Of course, I will never voluntarily go across that border. As for what is in my bank accounts, even without the possibility of one or both governments helping themselves to it Cyprus style, I realized years ago that all bank deposits essentially become the bank’s property and your access to what you might think is yours is controlled by them. If the system is in normal mode they will let their money flow to their clients but if the system is threatened they turn off the tap or severely restrict the flow. That’s how it works. I’m expecting banks will go into an abnormal mode sometime but I haven’t a clue when (let the wiser ones try to make those predictions).