Liberty and justice for all United States persons abroad

The Isaac Brock Society

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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:

http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets

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-Outside-the-United-States

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.

 


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.

 

210 thoughts on “Is the IRS “FINALLY” doing the Right Thing? New simplified, SIMPLIFIED OVDP”

  1. hey president obama and prime minister harper

    here is my one finger salute. come find me.

    i have nothing in the united states. no family, no land, no bank accounts. my wife and i at one time before out OMG moment toyed with the idea of wintering in the southern states but now because of fatca it was just a pipe dream. i have zero desire to ever cross in “the land of the free and home of the brave” ever again.

    i am looking forward to the day that i walk into the bank and happen to get ask “are you or have you ever been an american?” and i can tell them it is none of their business.

    with each passing day and each passing edict from the gov’ts my resolve grows stronger not to bend or give in the this b.s.

    thank you all for keeping on keeping on. we are indeed in this for the long haul and “we shall over come”

  2. Some have said that the OVDI penalty goes up from 27.5% to 50% on August 4. That is not correct. If you read the FAQs this applies only in the case in which one or more of the financial institutions with which you had or have an account has been publicly identified as being under investigation. The IRS site also has a link to the names of the institutions (ten so far.) Of course waiting would be a big gamble especially as far as the 100+ Category 2 Swiss banks are concerned.

  3. IRS commish: No apologies for losing Lerner emails

    IRS Commissioner John Koskinen told Congress on Friday that he doesn’t owe any apology for the agency losing Lois G. Lerner’s emails — or for waiting so long to inform investigators about the loss.

    “I don’t think an apology is owed. Not a single email has been lost since the start of this investigation,” the commissioner told the House Ways and Means Committee under stern questioning.

  4. Jack discusses The New Streamlined Processes’ Requirement of Certifying Non-Willfulness

    For those contemplating using this program, and certifying non-willfulness, I think this should be part of your reading material…

    This is where the taxpayer needs to be very careful. If the taxpayer certifies non-willfulness and makes a bad judgment call, there is a downside and it may not be pretty.

    The most obvious problem is that, if the IRS challenges the certification, the taxpayer has not mitigated the problem he sought to solve by certifying non-willfulness. He can be subject to the willful FBAR penalty and civil fraud penalty and open statutes of limitations for income tax purposes and will have foregone the opportunity to mitigate those risks by joining OVDP without opting out.

    Even worse, he has given up the criminal prosecution protection for past conduct that he could have obtained by joining OVDP.

    And, still another bad consequence could be that the act of making the certification could be considered an independent criminal act — perhaps a tax obstruction crime or false statement crime — and, moreover, could be an act that refreshes the statute of limitations with respect to previous criminal conduct.

  5. @ Just Me
    So, as I suspected, it is a Spider and the Fly situation or maybe the IRS just set up a Venus Fly Trap. Innocent immigrants in the USA are in such a difficult position and most will not even be aware of all the nuances to this dreadful and despicable game the IRS is playing.

  6. @Just Me – Jack’s article points in the direction that most practitioners will recommend, i.e, pay them for advice. For US residents, it might make more sense to do so, but for Americans abroad, it is not always necessary. Pointing out substantial similarity to one of the examples in FS-2011-13, the first Streamlined Program, will likely suffice as a certifiable non-willful reason. The TAS said to me that while they could not speak for the Revenue Agent handling my case, my similarities to these examples were favorable.

    One could also pick and choose from the multiple reasons that I successfully used to be found at:
    https://docs.google.com/file/d/0B0SLTNWD-Z3Ya1c5Rll2SFJDY2s/preview?pli=1

    Most Americans abroad have likely never filed and therefore had no acquaintance with the famous Schedule B and thereby, with the FBAR question. What could be more non-willful than that?

    The IRS has made a big improvement in how non-compliant Americans abroad can be handled. I think that cases like mine, in which the attorneys treated me as if I was a criminal and billed me excessively for all kinds of ridiculous checking of my accounts have been taken into consideration by the IRS. Nina Olson even mentioned the excessive costs for benign taxpayers in her reports.

    The benefit of this new program should not be for tax lawyers. It should be an easy and inexpensive way for Americans abroad who want to come into compliance to do so. I think the IRS realizes how much time and money they wasted on cases like mine. For most long term residents abroad, simple explanations in line with what I mentioned above will likely suffice. While I put everything but the kitchen sink into my reasonable cause arguments, I think with the newfound recognition of the situations of Americans abroad by the IRS, simpler explanations as mentioned above could be all that is required.

    While it is good to be cautious, don’t forget that stressing the complexities of these programs by tax professionals creates fear and brings clients to them.

  7. @Not that Lisa!

    I understand your points, but remember, everything the IRS does is designed by lawyers for lawyers and by its nature assures that the advantage goes to the designer, just like the IGA. For instance, they did NOT have to add the language about “certification”, (It could have simply said, submits a reasonable cause letter) but they probably did so, knowing that it would be a trap for the unsophisticated and unwary. They are sooooo worried that some willful offender might squeeze through the seine mesh that they have to complex it up to assure they get their penalties plus more if possible.

    So, it is important that the traps are pointed out, so you can navigate your way around them without an attorney. For those just having the knowledge of their failures to comply with American demands, certification should be pretty easy, but if you are border line, you need to think long and hard about what you are certifying to. This doesn’t mean you have to rush into the arms of a high charging compliance lawyer, just Beware!!

    As I said in a comment…

    It is never simple with these guys is it? They just can’t help themselves. They get trapped in their own tax code regulation complexity and the taxpayer trying to become compliant pays the price!

    Your key line, is “the IRS has essentially substituted a process of uncertainty for the process of uncertainty!”

    Indeed.

    The more you have time to think about what this program might mean, the more you need to THINK about it!

    There is always a trap, a catch 22 somewhere, and compliance is never simple, as these guys love to collect penalties when they can. It constitutes 66% of what they have collected already, and they want more. Sorry to be cynical. I really don’t want to be, but as they say, be very very careful when invited into the parlor by the spider.

  8. I dunno- the Italians were faced with the same thing- and they gave amnesty to anyone who would repatriate their money hidden in swiss accounts. Its like they love their people, and forgive them their moment of weakness or whatever it was – and Italy is pretty deep in debt too. It is a whole different ballgame with some kind of vindictiveness involved with ruinous penalties and threats for Americans.
    The older I get, the less I seem to understand the world.

  9. @Polly

    If they had that kind of amnesty like that in the US for the immigrants & citizens to repatriate what they could into the US & then work out the rest without being fined like crazy… many would still not do it… cause then… that triggers the treasury… with the words money laundering… its damned if I do… damned if I don’t… can’t be trusted. Its getting to the point… where u need to really read the fine print to get all the traps… & there are plenty of them

  12. @Bubblebustin
    Thats right of course for so many who I certainly would not consider to be “US persons” even if America does. And I think that number in Canada is far far greater than 1 million. The one million doesn’t include those who never knew and their offspring!

  13. I left this comment at Jack Townsend’s blog:

    As long as the United States continues its immoral and indefensible practice of citizenship-based taxation then there will NEVER be a safe harbour for long-term expats or accidental Americans. They neither want nor need to become “compliant” – all they want and need is for the United States government to leave them the hell alone. Staying underground therefore remains their only rational choice, unless and until America dismantles its own repugnant Apartheid system and finally subscribes to the worldwide standard of residency-based taxation. Until then, there is nothing the IRS can say or do that will be of any practical benefit or interest to the vast majority of America’s diaspora – notwithstanding the agency’s now complete lack of trustworthiness and credibility.

    The scourge of CBT represents the last anachronistic vestiges of slavery and the Civil War – time for it to be eradicated once and for all. Here’s the pertinent question: is there enough of America left to even care, let alone rise to the challenge?

  15. @Deckard

    Perfect. We need to keep hammering away at Jack Townsend. He’s a stubborn old apologist for the “peculiar institution” of citizenship based taxation. It will take a lot to get him to remove his blinders.

  17. Em Said:
    “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.”

    And Polly sadly reported she thought it was good news for some but not for many others.

    Well, I am with Em. This is classic ‘come into my parlour, said the spider to the fly’. Bait and switch. Instead of stealing 27.5% of what you worked hard for and own and we did not we will now take 50%!
    A clear clue to what that man thinks and why he , nor any of them, are not to be trusted can be seen in his testimony in front of Congress yesterday. Smug.Sanctimonious and completely untruthful.
    I am with GwEvil:
    Who said: (paraphrasing) NO how. NO way. NOT ever.

  20. So Komissar Koskinen is loosening up the leg irons a notch or two. But nothing is changing, expats are still being hunted like fugitive slaves.

  22. Maybe I should have wrote that Komissar Koskinen is “pretending” to be loosening up the leg irons a notch or two.

  23. @Bubblebustin

    Was talking about homelanders caught in this web… well…. if it was up to my kids… they would like for anyone to repatriate the funds to them… as one said… ain’t got me no taint…pass the funds…lol

  24. I suppose I will be considered an apologist for Jack if I say that it is pointless to beat up on him for his POV (to the degree I know what his POV about CBT is). We all have them, and in many ways he is like so many others in America. I am pretty sure he has his doubts about the wisdom of the CBT especially seeing up close and personal how the IRS has pursued the offshore jihad. He is a lot like Nina Olsen that has not said anything negative about CBT or positive about RBT, but we still respect her advocacy for Americans abroad. I respect his knowledge and advice.

    Personally, I have found him to be somewhat agnostic about Citizenship taxation, but maybe others have seen statements where he openly supports the CBT, I haven’t. I certainly understand that he is NOT going to tell you to break the law and ignore its requirements or NOT be compliant. He can’t do that. He is an apologist for the law, unjust though it is, and if there is any apologist for CBT that we should be pounding on, it is the mental midgets in Congress that haven’t a clue about the negative impacts of their FATCA Fatwa.

    I just look at him as a legal scholar who tries to analyse Federal tax crimes in all their nuisances and along the way has provided some pretty valuable advice to minnows that was not required. I have received quite a good education from his efforts. He desires some credit for that, don’t you think?

    cheers

    PS, ….. I not looking to get into an argument about what he believes or doesn’t believe, just want to suggest that we would help shape his opinion better by not attacking him but making strong arguments against CBT that are not personally directed. It is his blog, he can write or say what he wants, and he is pretty accommodating of comments with differing opinions. He doesn’t seem to censor them, so give him a little credit for that. Even when I have been hyperbolic, he has always posted what I have written, even though I know he may disagree with my POV.

  25. Yes, Max, for many it’s too little, too late.
    It’s too late for me to give Amurka the one-finger salute, but for those who can and choose to, you have my admiration and support!

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