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.
@Deckard1138
GREAT comment. I think he gets the message. LOL
This new program effectively changes nothing. If you were already compliant or never intend to become so, then there is no change in your status. If are not compliant but want to become so, then you always had the option of a quiet disclosure. The new program is essentially the same as a quiet disclosure. You prepare all the past years of forms and you experience uncertainty about whether they will be accepted. Although they told you not to, it would appear that the IRS habitually accepted quiet disclosures from minnows. Probably the same thing will happen with this new program.
The IRS has been smart to offer this – it just regularises what they already do and it’s good public relations.
note that OVDP FAQ 52.2 was deleted.
FAQ 52.2: Taxpayers who are foreign residents and who were unaware they were U.S. citizens.
Example 1: The taxpayer was born in the U.S. to parents of foreign citizenship. She grew up in a foreign jurisdiction, unaware that she had been born in the U.S. She has a $60,000 account in the foreign jurisdiction. She has never filed U.S. returns or FBARs. She became aware she was a U.S. citizen when she had to get a birth certificate in order to obtain a passport from the foreign jurisdiction where she resides. Unless she decides to opt out, she is entitled to the reduced 5% offshore penalty. Subsequent to learning of her U.S. citizenship, taxpayer took no action with respect to her foreign accounts that would disqualify a U.S. taxpayer from the 5 percent penalty under paragraph 1, above (this means the penalty returns to the 27.l5% penalty of everything she owns)
Here’s a good article on the new program from Geneva Lunch. It is pointed out that there is only partial rejoicing as the IRS could go even farther and address the issue of retirement plans.
http://genevalunch.com/2014/06/20/irs-lifts-us-tax-fines-many-americans-abroad/
The IRS is moving the goal posts closer but they are still planted in shifting sands. For every newly minted winner there’s a new set of losers. For everyone to win, there would be so many exemptions that they may as well go to RBT!
Phil Hodgen trolling over here:
https://news.ycombinator.com/item?id=7907956
Comments by IRS Personnel on New Streamlined and OVDP Procedures
http://stockman.house.gov/media-center/press-releases/stockman-bill-allows-taxpayers-to-use-same-lame-excuses-as-irs
And legislative relief from Stockmans official internet page.
Stockman bill allows taxpayers to use same lame excuses as IRS
Jun 20, 2014
| Press Release
WASHINGTON — Taxpayers who do not produce documents for the Internal Revenue Service will be able to offer a variety of dubious excuses under legislation introduced by Rep. Steve Stockman (R-TX 36) a week after the IRS offered an incredibly dubious excuse for its failure to turn documents over to House investigators.
“The United States was founded on the belief government is subservient and accountable to the people. Taxpayers shouldn’t be expected to follow laws the Obama administration refuses to follow themselves,” said Stockman. “Taxpayers should be allowed to offer the same flimsy, obviously made-up excuses the Obama administration uses.”
Under Stockman’s bill, “The Dog Ate My Tax Receipts Act,” taxpayers who do not provide documents requested by the IRS can claim one of the following reasons:
1. The dog ate my tax receipts
2. Convenient, unexplained, miscellaneous computer malfunction
3. Traded documents for five terrorists
4. Burned for warmth while lost in the Yukon
5. Left on table in Hillary’s Book Room
6. Received water damage in the trunk of Ted Kennedy’s car
7. Forgot in gun case sold to Mexican drug lords
8. Forced to recycle by municipal Green Czar
9. Was short on toilet paper while camping
10. At this point, what difference does it make?
Stockman’s bill comes a week after the IRS refused to turn over to House investigators emails from former Exempt Organizations Division director Lois Lerner that would implicate agency personnel in illegal targeting of citizens critical of President Barack Obama.
The IRS claimed a “computer glitch” has erased the hard drives of all incriminating evidence. The IRS further claimed the hard drives are not available for forensic investigation as they had just been destroyed for recycling.
The full text of the resolution follows:
The resolution may be cited as the “Dog Ate My Tax Receipts Resolution.”
Expressing the sense of the House of Representatives that the Internal Revenue Service (IRS) must allow taxpayers the same lame excuses for missing documentation that the IRS itself is currently proffering
Whereas, the IRS claims that convenient, unexplained, miscellaneous computer malfunction is sufficient justification not to produce specific, critical documentation; and,
Whereas, fairness and Due Process demand that the American taxpayer be granted no less latitude than we afford the bureaucrats employed presently at the IRS;
Now, therefore, be it resolved that it is the sense of the House of Representatives that unless and until the Internal Revenue Service produces all documentation demanded by subpoena or otherwise by the House of Representatives, or produces an excuse that passes the red face test,
All taxpayers shall be given the benefit of the doubt when not producing critical documentation, so long as the taxpayer’s excuse therefore falls into one of the following categories:
1. The dog ate my tax receipts
2. Convenient, unexplained, miscellaneous computer malfunction
3. Traded documents for five terrorists
4. Burned for warmth while lost in the Yukon
5. Left on table in Hillary’s Book Room
6. Received water damage in the trunk of Ted Kennedy’s car
7. Forgot in gun case sold to Mexican drug lords
8. Forced to recycle by municipal Green Czar
9. Was short on toilet paper while camping
10. At this point, what difference does it make?
In any case, IRS can see the NSA for a good, high quality copy.
@MarkTwain:
LOVE IT!
RE: that now infamous “computer glitch” at the IRS.
It took Michael Rivero at What Really Happened several tries to fax this documented information to Darrel Issa’s office ( House Oversight committee) but he finally got it there.
http://whatreallyhappened.com/WRHARTICLES/sonasoft.php
The IRS is lying when it says Lois Lerner (and six other IRS officials at the heart of the IRS targeting of Obama’s political opponents)’s emails are lost forever and there are no backups. The IRS has an ongoing contract with Sonasoft to back up the IRS Exchange servers that covers the time period of the missing emails.
Thanks, Em. I hope this is proven as true as it can be and thrown in the faces of a hypocritical IRS and Treasury — reported in the mainstream media as well should all of the rest of what is going on and that they are held to account for perjury and any other obstruction of justice. Who, if proven true, allowed this cover-up?
I’m not impressed with the new “leniency” regarding tax compliance. The decision on whether one is non-willful or willful is still rather arbitrary. I think those two categories are just too simplistic. How about some new categories for leniency, like “scared sh!tless,” or the less crude “deer caught in the headlights,” or maybe just “paralyzed with fear” (of losing every nickel we ever saved for decades). It did my heart good to see Rep. Paul Ryan eat Commisioner Koskinen‘s lunch yesterday. They need to clean house at the IRS. Maybe, just maybe then we might find some relief from this FATCA scourge. Congress needs to rein in this beast ASAP.
I’m not impressed either. Give us a new streamlined program, but then raise penalties even higher for non-compliance.
In addition, now I hear the deadline to file this is August 4 this year? Is that right??? Seems unlikely most taxpayers will even know about this new program even if they wanted to join it!
Ok all so how does this work exactly?? It seems that we have until August 4th only to decide to enter this program or not… If we do.. I am confused with how far they are going to want to go back…
Is that 3 years of previous tax years, which would be 2012, 2011, and 2010 right?
And then 6 years of FBARs?
What if I have already been compliant since 2012? Does that mean I still have to go back to 2009? or just correct 2 years of tax returns and 5 years of FBARs?
What I worry about is that this makes me look like I knew what was going on in 2012, which I sort of did, but hesitated to go back to file, and we all know why.. So what is my excuse? I was scared s$$tless? Now have 8 ways to be compliant still all of them with catch 22s.
What are the chances of being kicked out of this program and then be penalized the full 50%??? I think this is the biggest question in everyone’s mind?
And after doing these three years, am I done with it? Or will they then want to audit me because they can see the previous 3 more years of FBARs and think maybe I had more tax owned?
If really these three years are all I need to do, I do not think it would be overly difficult for me to finally get into compliance, the taxes owed would be less than $10,000. I just worry once they look at my old returns and new returns there may be more red flags.. I have income from both the US and the country I live in.
As much as I would like to hold out for something better, provided they don’t kick me out and that I will be done with this and finally be able to sleep would be great, but given the IRS’ history, I don’t want this dragged out for three or fours years… I estimate I could be done with this in probably six months or less…
Yes, Taxconfuzaled, if the IRS was really so willing to forgive us our sins, they would not associate guilt with having bank accounts where we live.
Globe and Mail today has an editorial, The IRS and Its Inadequate Amnesty — with the word amnesty in quotes. (Sorry I can’t copy the link at the moment on iPod.)
@canoe Here it is: http://www.theglobeandmail.com/globe-debate/editorials/the-irs-and-its-inadequate-amnesty/article19274891/
@Taxconfuzaled, thanks for posting the link earlier to the Globe and Mail editorial, which I see is dated the 22nd. It’s good, and gives an accidental American example to illustrate. I like the way it starts:
“The U.S. Internal Revenue Service’s announcement last week that it is extending its tax amnesty program for American citizens living abroad is more a reminder of the unfairness of U.S. tax laws than it is a welcome relief. As many as a million Canadians – not to mention millions more people around the world with dormant U.S. citizenship – are liable for taxes and penalties that are patently unjust.”
This is alarming to hear. ACA is saying they think the new IRS rules for overseas Americans is “fair” http://www.americansabroad.org/files/4714/0354/3641/final-pr-aca-irs-sfop.pdf
According to a very large credit union in the prairies they have already reported to CRA and did some a few months back. They elected to not notify or contact those affected to cure indicia. The CU exemption was waived.
@neal
Which credit union is this?
IGA allows FIs to opt out of thresholds and can choose an alternate valuation date of year end prior year. I presumed that to refer to future years as the 1 JUL is a global standard. CU exemptions are not being used in some cases. One wonders whether any of the Big 5 banks have also elected not to use thresholds due to issues in aggregation (RBC-3 zones/CIBC-Imperial Service not viewable at bank level, etc).
I wonder if a USP residing in C for some years but who still lists a US address on a 1040 and who wanted to enter the new streamlined program for foreign residents and file as such whether red flags would raise.
@Neal
“I wonder if a USP residing in C for some years but who still lists a US address on a 1040 and who wanted to enter the new streamlined program for foreign residents and file as such whether red flags would raise.”
Just curious as to how that might work? I have heard of folks out there that have compartmentalized their tax obligations according to country. Sounds logical to me but then when did logic enter the picture.
@neal, Can you tell us the name of the credit union that reported to the CRA without trying to cure indicia?
I posted in the FATCA thread that I’ve contacted 8 “prairie credit unions”. I found 2 so far that are non-reporting due to having a local client base (Implicity and Maxa).
SCU in MB. Likely also Servus.
To my surprise the Local Client Base (<2% non Canadian residents) exemption is not being utilized but rather the Local Bank (asset base <175m). If one reads the CUCentral report issued a month ago it alludes to further compliance to come (OECD) and hopes CU's can still avail themselves of the small institution exemption. That, in hindsight referred to the small account base institutions and not CUs as a whole.