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.
@Bubblebustin, I still can’t determine how much of this is the compliance industry trying to scare people into relying on lawyers to certify their non-willfulness. But someone such as yourself who hadn’t realized they even had to file, having lived most of your life in Canada, should be a strong case of non-willfulness. If nothing else, the streamlined would remove the huge misc FBAR penalty. if you can successfully open out form OVDI.
But I agree that it would really stink if they still count the year you’d sold your house, especially as you came forward in good faith and would have been much better off waiting.
I remember John Richardson saying how we would all ultimately each have to make a difficult decision to resolve our respective messes but that none of us would find a solution that was satisfactory or fair. We’re all casualties.
@monalisa1776
Thank you. As crazy as it makes me thinking that if I’d waited it might have saved me the tax we’d paid in the sale of our home in Canada, it would be hard for me to say with a straight face that I didn’t know about my tax filing obligations coming forward today, nearly three years later. Although it’s cold comfort, I have to say that this will soon be behind me and maybe our case played a part with many others in causing these current changes to the Streamlined Program.
Quintessence of black humor —
Certifying non-willfulness
Let this conundrum throw what is left of your brain into an infinite entropic loop.
I didn’t know until I knew …
HaHaHaHaHaHaHa
@USX
Now THAT is funny!
Or one could try it as a koan……
Has anyone seen this? http://www.bnn.ca/News/2014/6/27/US-extraterritorial-tax-policy-will-make-snowbirds-pay.aspx
Maybe snowbirds will start to panic and help the cause FINALLY!
@charl-
In general terms what is your friends circumstance and what is she considering and why? Do we simply hope to avoid all this; begin to amputate a limb or await complete dismemberment if all goes badly in the end.
I have a feeling, like many here including myself, her decision changes daily. Nothing is ever clear as one is at the mercy of the auditor. How is one to calculate their odds against complete dismemberment? The arbitratyness of willful/non-willful is a huge scary problem. (Along with the drudgery of filing I would think if one has sufficient funds to pay for becoming compliant or has the savvy to do it themselves that may be a piece of the decision to go forward also). One day you can feel like a risk taker and the next you just want to find a rather clean chicken coop to hide under. There are no good answers, no right decisions, no rules, no nothing. I don’t really see how one having been compliant in the US and compartmentalized their tax returns per country of relevance puts anyone in a different risk pool than everyone else. Just doing what you thought was right….was that willful? But then again, I know NOTHING. Far as I can tell it is all just a crap shoot. Throw the dice and hope for the best! If that doesn’t work out you still have the chicken coop option in you back pocket!
How’s this usxcanada: I didn’t know until you can prove I knew.
HaHaHaHaHaHaHa
Read developing posts on Streamlined ‘transition’ guidelines, and possible conflict in IRS statements vs. published advice.
Start here
http://federaltaxcrimes.blogspot.ca/2014/06/irs-issues-more-liberal-streamlined.html#comment-1459611440
“gottaloveUStax1 Jack Townsend • 4 days ago
Jack, in re your discussion that someone currently in OVDP could withdraw prior to July 1 and go direct to streamline 1, I know at least one person who raised point with OVDP hotline and got response that such a withdrawal would be treated as opt out and mean in eligibility. Any thoughts on best way to get clarity on that point?”
“Jack Townsend Mod gottaloveUStax1 • 4 days ago
I asked that question of the Hotline person who said it could be done. I then asked the question of Jennifer Best who was the IRS representative at an ABA webinar. Ms. Best answered the question that it was permissible to withdraw before 7/1/14 and proceed only under the new streamlined program. She suggested that we write a letter prior to 7/1/14 notifying the IRS of the withdrawal and not to expect the complete package.
If it helps, here is a recording of the Q&A which I just made from the recording on the ABA web site (hope I am not violating the law):
https://drive.google.com/file/…
Here is the link to the description of the program:
http://apps.americanbar.org/cl…
I think that Ms. Best’s answer is the most authoritative on the issue.
By the way, the other person on the panel is Scott Michel.
Best,
Jack Townsend
“Suzanne Reisman Jack Townsend • a day ago
Jack I just got off the phone with someone at the IRS who said that despite the ABA webinar comments, it is unclear whether the IRS will allow people to leave the OVDI and that there is nothing in writing permitting that. Apparently the issue is being considered by the Commissioner’s Office.”
Go to the Townsend site to follow the rest of this exchange for developing news re transitioning.
Pingback: Taxation of #Americansabroad: @Thunfinancial Wall Street Journal Op-Ed follows article from @SaundersWSJ | Citizenship Counselling For U.S. Citizens in Canada and Abroad
A quote from Orlando Figes’ Revolutionary Russia, 1891–1991, which is relevant to the concept of “amnesty programmes”:
(popped up in my RSS feed last night, though now I can’t remember or find where I saw it. Apologies to whoever’s blog I stole this from.)
This is good. Maybe it should serve as the preamble to our court challenge?
Thinking about joining Streamline OVDP? Think again. “All You May Need To Do Is File Your Delinquent FBARs” http://onforb.es/1psmXXB via @forbes
http://federaltaxcrimes.blogspot.ca/2014/08/its-so-easy-to-say-no-irs-often-gets-to.html
“………Tax Notes Today has an article with related information. Andrew Velarde, Practitioners Disagree on Fairness of Lack of OVDP Retroactivity, 2014 TNT 152-2 (8/7/14). The thrust of the article is on the unfairness of not opening the new Streamlined Program to taxpayers who previously closed out their OVDI/Ps with Form 906. …….”…..
Note:
Tax Notes Today article not available in fulltext as far as I can see, unless you go to a university or special library which subscribes – usually to an online electronic database like LexisNexis. Those who do not have access to an academic library may sometimes use the library’s databases via a day guest pass in person.
http://www.deblislaw.com/disparity-in-treatment-of-taxpayers-who-qualify-for-transitional-relief-is-casting-a-shadow-on-the-new-streamlined-procedures.html
Interesting thread to follow on Jack Townsend’s site re the ‘new’ ‘simplified’ ‘streamlined’ http://federaltaxcrimes.blogspot.ca/2014/08/tidbits-on-new-streamlined-procedures.html#comment-1557759161
The post above mentions an IRM for Streamlined. The link they cite is http://www.irs.gov/pub//foia/ig/spder/WI-21-0814-1244_Redacted%5B1%5D.pdf The document has been redacted in places. I not that the link includes ‘foia’ and ‘Redacted’ in it.
The document is entitled:
‘IRM PROCEDURAL UPDATE
DATE: 08/13/2014
NUMBER: WI-21-0814-1244
SUBJECT: Streamline Filing Compliance Procedures for Accounts Management International IMF
AFFECTED IRM(s)/SUBSECTION(s): 21.8.1.27
CHANGE(s):
IRM 21.8.1.27 Added new IRM section and sub sections for the Streamline Filing Compliance Initiative.’
Arguing non-wilfulness can be especially complicated when two standards for determining it apply:
While the standard for willfulness in a civil penalty case is identical to the standard for willfulness in a criminal tax case – i.e., an intentional violation of a known legal duty – the level of proof isn’t. The level of proof required for willfulness in the criminal context is “beyond a reasonable doubt.” But the level of proof required to establish willfulness in the civil context is “preponderance of the evidence.”
http://taxconnections.com/taxblog/the-risks-of-certifying-nonwillfulness/#.U_yqRGK9KSM
Crikey, Badger, when something like Streamlined is advertised as a simple entrance into the US tax system becomes to fraught with pitfalls and complexities, you can’t blame people for steering clear of any involvement whatsoever.
It seems that for every amnesty program the IRS creates, they eventually have to create two more to address the problems it creates. And so on.
BREAKING NEWS:
US taxpayers save courier costs when having their tax professionals submit their Streamlined forms. Go from the paper queue to the electronic.
http://blogs.angloinfo.com/us-tax/2014/08/21/fillable-forms-for-streamlined-2014/
@bubblebustin,
and novices to these discussions about CBT and FATCA think it is simple. And are being fleeced by the compliancers in Canada. I talked with yet another one having the OMG moment because of family complications and issues outside of their control. Retaining a high priced accountant, and no doubt a lawyer too.
How many Canadians are uselessly losing thousands and tens of thousands to legions of accountants and lawyers because of this? On accounts and assets that were entirely legal, local and originated inside Canada? Eaten up in order to satisfy a foreign country? And Harper Cons collaborated to put them into danger inside their own home of Canada because hey, they ‘respect’ the ‘right’ of the US to force Canadian taxpayers and voters into danger and possible financial ruin.
For those who think it’s simple, remember these words: No matter how “simple” an amnesty is purported to be, it is still an amnesty program and the agent, no matter how trained he/she is in processing participants who demonstrate reasonable cause, he/she will still consider you as a delinquent taxpayer, because according to US law, you are one. No one anywhere in the US government or the public will give you brownie points for it, as it’s your duty as far as they’re concerned. Unfortunately, the Canadian government not only agrees, but is willing to back the US up by assisting in the rounding up process.
The IRS tries to rationalize why it is denying retroactive relief to those who it threatened into joining OVDI/P:
“…..At New York University’s Tax Controversy Forum in June, Jennifer Best, senior attorney-adviser (services and enforcement), IRS Large Business and International Division, said the IRS would not pay refunds on the difference between the OVDP penalty and the 5 percent streamlined penalty for closed cases to those taxpayers who may now wish to argue they were non-willful. (Prior coverage: Tax Notes, June 30, 2014, p. 1480.)
Addressing the retroactivity of reduced penalties in 2011, Best was quick to dismiss application of that precedent to the newest changes. ‘‘We made the decision [for retroactivity in 2011] for a narrowly tailored group of OVDP participants when we changed the terms of OVDP,’’ Best said at the forum. ‘‘The OVDP penalty is different from the streamlined penalty. The penalty base is lower in streamlined.’’
The two programs ‘‘are designed for different taxpayers,’’ Best said, adding, ‘‘OVDP is designed for willful evaders — it always has been. The streamlined procedures are designed for the non- willful.’’
Nevertheless, it seems counterintuitive that taxpayers who came forward earlier under the program should be met with harsher consequences than similarly situated taxpayers who may come forward later.
The IRS’s decision not to revisit previously closed cases could be a practical one involving resource allocation.
The two programs ‘are designed for different taxpayers,’ Best said, adding, ‘OVDP is designed for willful evaders— it always has been. The streamlined procedures are designed for the non-willful.’
..”……..
from reprint of article;
” ‘Practitioners Debate Fairness Of Lack of OVDP Retroactivity’
By Andrew Velarde
“The lack of access to new streamlined procedures for previously closed cases in the IRS offshore voluntary disclosure program may seem inequitable at first glance, but practitioners disagree over whether the lack of retroactive relief is actually unfair.”
reprinted at
http://mopsicktaxlaw.blogspot.ca/2014/08/practitioners-debate-fairness-of-lack.html
http://federaltaxcrimes.blogspot.ca/2014/08/new-irs-internal-guidance-on-processing.html
Friday, August 29, 2014
‘New IRS Internal Guidance on Processing Streamlined Submissions (8/29/14)’
“A commenter called attention to an IRS internal procedure guidance with IRM changes dated 8/13/14. That guidance is numbered WI-21-0814-1244 and titled Streamline Filing Compliance Procedures for Accounts Management International IMF. The guidance is here……………”
@Badger…
So the Practitioners debate, eh?. What crap. Who cares what Practitioners that side with IRS think. The victims are not debating the fairness. They know!! Interesting that the IRS is now openly admitting that the OVDP was for willful evaders, but were quite happy to take the money of those their agents KNEW were NOT willful and should NOT have been in the program. And, the bastards have NO intention of giving any of the money back.
@Bubblebustin. Seems 5 forms maybe the magic number to tip you from nonwillful to willful in these miserable little bureaucratic minds.
BTW, did you read the comment from Neill about the PFICs. Boy, am I glad I missed that trap…
@Just Me, re;
“Interesting that the IRS is now openly admitting that the OVDP was for willful evaders, but were quite happy to take the money of those their agents KNEW were NOT willful and should NOT have been in the program. And, the bastards have NO intention of giving any of the money back……”
Note that the IRS Best quote says:
“The two programs ‘are designed for different taxpayers,’ Best said, adding, ‘OVDP is designed for willful evaders— it always has been. The streamlined procedures are designed for the non-willful.’”
And what of those who had no Streamlined to apply to? Or who didn’t fit into the narrow confines of the first Streamlined? What was available or ‘designed’ for the non-willful before September 2012 and the recent offerings this summer, in 2014? Nothing but the quiet disclosure they were told not to use, or complying going forward and hoping it would be okay, etc. The IRS clearly said that once we knew of our ‘obligation’ that not complying was willful.
Yeah, that is the plainest and most blatant acknowledgement about what the IRS deeply believes and will act accordingly on. They threatened all into the OVDI/P programs without nuance or exemption, and acted as if that was the ONLY path to compliance, which assumed that everyone was a willful tax evader and treated them so; thereby generating more in penalties than they ever could assess in actual US tax. And now, they acknowledge that many were non-willful – yet keep the money – which they are not entitled to.
And the practitioner arguing that people could just have opted out if they were non-willful is ignoring that the IRS refused to release detailed info on the people in the programs – so how can he state anything about them? And he knows very well that opt-out was referred to as a ‘blackbox’, deliberately kept mysterious by the IRS, and not clear to practitioners, much less to the individuals trying to decide what to do in the absence of information, faced with massively complex rules – some of which they made up and capriciously changed, in the lengthy FAQs (and are continuing to tweak as per http://federaltaxcrimes.blogspot.ca/2014/07/rumors-on-workings-of-streamlined.html ) – and refused to put in the IRM as the Taxpayer Advocate asked them to do so people could know what they could rely on.
They have destroyed any credibility or respect they might have had with those abroad, and no-one trusts them to be fair. They have behaved very dishonourably – costing many minnows needless compliance costs, stress, anxiety, depression, and destroyed peace of mind of people who were not the ‘whales’ they are purportedly seeking. If they are not even straight with practitioners who are apologists for the US CBT system, then what?
@badger
What these guys talking about Opt Out conveniently forget, is that for the first couple years of the program, there was NO opt out. It was only later when they discovered they were catching the wrong fish, and clearly knew they were collecting exorbitant penalties from the NON willful that they created the system, and then tried to frighten folks NOT to use it. Short memories, but I don’t forget.