Posts

October 15 2018 Deadline for FBARs and Tax Returns | US Tax Law Firm

With just a week left before October 15 2018 deadline, it is important for US taxpayers to remember what they need to file with respect to their income tax obligations and information returns. I will concentrate today on four main requirements for US tax residents.

1. October 15 2018 Deadline for Federal Tax Returns and Most State Tax Returns

US taxpayers need to file their extended 2017 federal tax returns and most state tax returns by October 15, 2018. Some states (like Virginia) have a later filing deadline. In other words, US taxpayers need to disclose their worldwide income to the IRS by October 15 2018 deadline. The worldwide income includes all US-source income, foreign interest income, foreign dividend income, foreign trust distributions, PFIC income, et cetera.

2. October 15 2018 Deadline for Forms 5471, 8858, 8865, 8938 and Other International Information Returns Filed with US Tax Returns

In addition to their worldwide income, US taxpayers also may need to file numerous international information returns with their US tax returns. The primary three categories of these returns are: (a) returns concerning foreign business ownership (Forms 5471, 8858 and 8865); (b) PFIC Forms 8621 – this is really a hybrid form (i.e. it requires a mix of income tax and information reporting); and (c) Form 8938 concerning Specified Foreign Financial Assets. Other information returns may need to be filed by this deadline; I am only listing the most common ones.

3. October 15 2018 Deadline for FBARs

As a result of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the due date of FinCEN Form 114, The Report of Foreign Bank and Financial Accounts (also known as “FBAR”) was adjusted (starting tax year 2016) to the tax return deadline. Similarly to tax returns, the deadline for FBAR filing can also be extended to October 15; in fact, under the current law, the FBAR extension is automatic. Hence, October 15 2018 deadline applies to all 2017 FBARs which have not been filed by April 15, 2018.

The importance of filing this form cannot be overstated. The FBAR penalties are truly draconian even if they are mitigated by the IRS rules. Moreover, an intentional failure to file the form by October 15 2018 may have severe repercussions to your offshore voluntary disclosure options.

4. October 15 2018 Deadline for Foreign Trust Beneficiaries and Grantors

October 15 2018 deadline is also very important to US beneficiaries and US grantors (including deemed owners) of a foreign trust – the extended Form 3520 is due on this date. Similarly to FBAR, while Form 3520 is not filed with your US tax return, it follows the same deadlines as your income tax return.

Unlike FBARs, however, Form 3520 does not receive an automatic extension independent of whether you extended your tax return. Rather, its April 15 deadline can only be extended if your US income tax return was also extended.

Sherayzen Law Office warns US taxpayers that a failure to file 2017 Form 3520 by October 15 2018 deadline may result in the imposition of high IRS penalties.

IRS International No Rule List Updated | International Tax Lawyer News

On January 2, 2018, the IRS issued Rev. Proc. 2018-7 (2018-1 IRB 271) to update its existing international No Rule list. I will quickly overview what the No Rule List is and provide a copy of Sections 3 and 4 of the No Rule List.

What is an International No Rule List?

It may be surprising to many taxpayers to learn, but the IRS does not rule on all matters within its jurisdiction. The IRS may provide a Private Letter Ruling, Determination Letters and Opinion Letters with respect to most, but not all areas of the Internal Revenue Code.

The areas for which the IRS will not issue a letter ruling or a determination letter are grouped under a single term “No Rule List”.

Rev. Proc. 2018-7 and the International No Rule List

Rev. Proc. 2018-7 supersedes Rev. Proc. 2017-7 and updates all international tax matters under the IRS jurisdiction for which the IRS will not answer a taxpayer’s inquiry. Rev. Proc. 2018-7 is directly relevant to 26 CFR 601.201 (which deals with rulings and determination letters).

The chief change introduced by Rev. Proc. 2018-7 to the No Rule List is a new section 4.01(26), which deals with IRC Section 1059A. Additionally, Rev. Proc. 2018-7 renumbered the rest of the relevant sections and cross references due to the addition of a new section.

No Rule List: Section 3 List Versus Section 4 List

The No Rule List differentiates between two types of situations which are organized under Section 3 and Section 4 of Rev. Proc. 2018-7. Section 3 lists the areas of the IRC in which letter rulings and determination letters will not be issued under any circumstances.

Section 4, however, lists the areas of the IRC in which a ruling will not ordinarily be issued unless there are unique and compelling reasons that justify issuing a letter ruling or a determination letter.

Despite the existence of the No Rule List, the IRS may still provide a general information letter in response to inquiries in areas on either list. On the other hand, just because an IRC section or an item is not listed on the No Rule List does not automatically mean that the IRS will answer a taxpayer’s inquiry. Rev. Proc. 2018-7 specifically states that the IRS may “decline to rule on an individual case for reasons peculiar to that case, and such decision will not be announced in the Internal Revenue Bulletin”.

International No Rule List and Section 4 International Tax Interpretation Requests

As it was mentioned above, a taxpayer may still request a letter ruling or a determination letter for any of the Section 4 items of the No Rule List. If he decides to do so, he should contact (by telephone or in writing) the Office of Associate Chief Counsel (International) (“the Office”) prior to making such a request and discuss with the Office the unique and compelling reasons that the taxpayer believes justify issuing such letter ruling or determination letter. While not required, a written submission is encouraged since it will enable the Office personnel to arrive more quickly at an understanding of the unique facts of each case. A taxpayer who contacts the Office by telephone may be requested to provide a written submission.

International No Rule List Section 3

I am copying here Section 3 of the Rev. Proc. 2018-7 which describes the areas in which ruling or determination Letters will no be issued under any circumstances:

“.01 Specific Questions and Problems

(1) Section 861. – Income from Sources Within the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(2) Section 862. – Income from Sources Without the United States. – A method for determining the source of a pension payment to a nonresident alien individual from a trust under a defined benefit plan that is qualified under § 401(a) if the proposed method is inconsistent with §§ 4.01, 4.02, and 4.03 of Rev. Proc. 2004–37, 2004–1 C.B. 1099.

(3) Section 871(g). – Special Rules for Original Issue Discount. – Whether a debt instrument having original issue discount within the meaning of § 1273 is not an original issue discount obligation within the meaning of § 871(g)(1)(B)(i) when the instrument is payable 183 days or less from the date of original issue (without regard to the period held by the taxpayer).

(4) Section 894. – Income Affected by Treaty. – Whether a person that is a resident of a foreign country and derives income from the United States is entitled to benefits under the United States income tax treaty with that foreign country pursuant to the limitation on benefits article. However, the Service may rule regarding the legal interpretation of a particular provision within the relevant limitation on benefits article.

(5) Section 954. – Foreign Base Company Income. – The effective rate of tax that a foreign country will impose on income.

(6) Section 954. – Foreign Base Company Income. – Whether the facts and circumstances evince that a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, production, or construction of the personal property sold within the meaning of § 1.954–3(a)(4)(iv).

(7) Section 7701(b). – Definition of Resident Alien and Nonresident Alien. – Whether an alien individual is a nonresident of the United States, including whether the individual has met the requirements of the substantial presence test or exceptions to the substantial presence test. However, the Service may rule regarding the legal interpretation of a particular provision of § 7701(b) or the regulations thereunder.

.02 General Areas.

(1) The prospective application of the estate tax to the property or the estate of a living person, except that rulings may be issued on any international issues in a ruling request accepted pursuant to § 5.06 of Rev. Proc. 2018–1, in this Bulletin.

(2) Whether reasonable cause exists under Subtitle F (Procedure and Administration) of the Code.

(3) Whether a proposed transaction would subject a taxpayer to criminal penalties.

(4) Any area where the ruling request does not comply with the requirements of Rev. Proc. 2018–1.

(5) Any area where the same issue is the subject of the taxpayer’s pending request for competent authority assistance under a United States tax treaty.

(6) A ‘comfort’ ruling will not be issued with respect to an issue that is clearly and adequately addressed by statute, regulations, decisions of a court, tax treaties, revenue rulings, or revenue procedures absent extraordinary circumstances (e.g., a request for a ruling required by a governmental regulatory authority in order to effectuate the transaction).

(7) Any frivolous issue, as that term is defined in § 6.10 of Rev. Proc. 2018–1.”

International No Rule List Section 4

I am copying here Section 4 of the International No Rule List which describes the areas in which ruling or determination Letters will not ordinarily be issued:

“.01 Specific Questions and Problems

(1) Section 367(a). – Transfers of Property from the United States. – Whether an oil or gas working interest is transferred from the United States for use in the active conduct of a trade or business for purposes of § 367(a)(3); and whether any other property is so transferred, where the determination requires extensive factual inquiry.

(2) Section 367(a). – Transfers of Property from the United States. – Whether a transferred corporation subject to a gain recognition agreement under § 1.367(a)–8 has disposed of substantially all of its assets.

(3) Section 367(b). – Other Transfers. – Whether and the extent to which regulations under § 367(b) apply to an exchange involving foreign corporations, unless the ruling request presents a significant legal issue or subchapter C rulings are requested in the context of the exchange.

(4) Section 864. – Definitions and Special Rules. – Whether a taxpayer is engaged in a trade or business within the United States, and whether income is effectively connected with the conduct of a trade or business within the United States; whether an instrument is a security as defined in § 1.864–2(c)(2); whether a taxpayer effects transactions in the United States in stocks or securities under § 1.864 –2(c)(2); whether an instrument or item is a commodity as defined in § 1.864 –2(d)(3); and for purposes of § 1.864–2(d)(1) and (2), whether a commodity is of a kind customarily dealt in on an organized commodity exchange, and whether a transaction is of a kind customarily consummated at such place.

(5) Section 871. – Tax on Nonresident Alien Individuals. – Whether a payment constitutes portfolio interest under § 871(h); whether an obligation qualifies for any of the components of portfolio interest such as being in registered form; and whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 871(h).

(6) Section 881. – Tax on Income of Foreign Corporations Not Connected with United States Business. – Whether the income earned on contracts that do not qualify as annuities or life insurance contracts because of the limitations imposed by § 72(s) and § 7702(a) is portfolio interest as defined in § 881(c).

(7) Section 892. – Income of Foreign Governments and of International Organizations. – Whether income derived by foreign governments and international organizations from sources within the United States is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(8) Section 893. – Compensation of Employees of Foreign Governments and International Organizations. – Whether wages, fees, or salary of an employee of a foreign government or of an international organization received as compensation for official services to such government or international organization is excluded from gross income and exempt from taxation and any underlying issue related to that determination.

(9) Section 894. – Income Affected by Treaty. – Whether the income received by an individual in respect of services rendered to a foreign government or a political subdivision or a local authority thereof is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such individuals.

(10) Section 894. – Income Affected by Treaty. – Whether a taxpayer has a permanent establishment in the United States for purposes of any United States income tax treaty and whether income is attributable to a permanent establishment in the United States.

(11) Section 894. – Income Affected by Treaty. – Whether certain persons will be considered liable to tax under the laws of a foreign country for purposes of determining if such persons are residents within the meaning of any United States income tax treaty. But see Rev. Rul. 2000–59, 2000–2 C.B. 593.

(12) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien student or trainee for services performed for a university or other educational institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien students or trainees.

(13) Section 894. – Income Affected by Treaty. – Whether the income received by a nonresident alien performing research or teaching as personal services for a university, hospital or other research institution is exempt from federal income tax or withholding under any of the United States income tax treaties which contain provisions applicable to such nonresident alien teachers or researchers.

(14) Section 894. – Income Affected by Treaty. – Whether a foreign recipient of payments made by a United States person is ineligible to receive the benefits of a United States tax treaty under the principles of Rev. Rul. 89–110, 1989–2 C.B. 275.

(15) Section 894. – Income Affected by Treaty. – Whether a recipient of payments is or has been a resident of a country for purposes of any United States tax treaty. Pursuant to § 1.884 –5(f), however, the Service may rule whether a corporation representing that it is a resident of a country is a qualified resident thereof for purposes of § 884.

(16) Section 894. – Income Affected by Treaty. – Whether an entity is treated as fiscally transparent by a foreign jurisdiction for purposes of § 894(c) and the regulations thereunder.

(17) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a foreign levy meets the requirements of a creditable tax under § 901.

(18) Section 901. – Taxes of Foreign Countries and of Possessions of United States. – Whether a person claiming a credit has established, based on all of the relevant facts and circumstances, the amount (if any) paid by a dual capacity taxpayer under a qualifying levy that is not paid in exchange for a specific economic benefit. See § 1.901–2A(c)(2).

(19) Section 903. – Credit for Taxes in Lieu of Income, Etc., Taxes. – Whether a foreign levy meets the requirements of a creditable tax under § 903.

(20) Sections 954(d), 993(c). – Manufactured Product. – Whether a product is manufactured or produced for purposes of § 954(d) and § 993(c).

(21) Section 937. – Definition of Bona Fide Resident. – Whether an individual is a bona fide resident of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands. However, the Service may rule regarding the legal interpretation of a particular provision of § 937(a) or the regulations thereunder.

(22) Section 956. – Investment of Earnings in United States Property. – Whether a pledge of the stock of a controlled foreign corporation is an indirect pledge of the assets of that corporation. See § 1.956–2(c)(2).

(23) Section 985. – Functional Currency. – Whether a currency is the functional currency of a qualified business unit.

(24) Section 989(a). – Qualified Business Unit. – Whether a unit of the taxpayer’s trade or business is a qualified business unit.

(25) Section 1058. – Transfers of Securities Under Certain Agreements. – Whether the amount of any payment described in § 1058(b)(2) or the amount of any other payment made in connection with a transfer of securities described in § 1058 is from sources within or without the United States; the character of such amounts; and whether the amounts constitute a particular kind of income for purposes of any United States income tax treaty.

(26) Section 1059A. – Limitation on taxpayer’s basis or inventory cost in property imported from related persons. – Whether a taxpayer’s cost or inventory basis in property imported from a foreign affiliate will not be limited by § 1059A due to differences between customs valuation and tax valuation.

(27) Sections 1471, 1472, 1473, and 1474. – Taxes to Enforce Reporting on Certain Foreign Accounts. – Whether a taxpayer, withholding agent, or intermediary has properly applied the requirements of chapter 4 of the Internal Revenue Code (sections 1471 through 1474, also known as “FATCA”) or of an applicable intergovernmental agreement to implement FATCA.

(28) Section 1503(d). – Dual Consolidated Loss. – Whether the income tax laws of a foreign country would deny any opportunity for the foreign use of a dual consolidated loss in the year in which the dual consolidated loss is incurred under § 1.1503(d)–3(e)(1); whether no possibility of foreign use exists under § 1.1503(d)–6(c)(1); whether an event presumptively constitutes a triggering event under § 1.1503(d)–6(e)(1)(i)–(ix); whether the presumption of a triggering event is rebutted under § 1.1503(d)–6(e)(2); and whether a domestic use agreement terminates under § 1.1503(d)–6(j)(1). The Service will also not ordinarily rule on the corresponding provisions of prior regulations under § 1503(d).

(29) Section 2501. – Imposition of Tax. – Whether a partnership interest is intangible property for purposes of § 2501(a)(2) (dealing with transfers of intangible property by a nonresident not a citizen of the United States).

(30) Section 7701. – Definitions. – Whether an estate or trust is a foreign estate or trust for federal income tax purposes.

(31) Section 7701. – Definitions. – Whether an intermediate entity is a conduit entity under § 1.881–3(a)(4); whether a transaction is a financing transaction under § 1.881–3(a)(4)(ii); whether the participation of an intermediate entity in a financing arrangement is pursuant to a tax avoidance plan under § 1.881–3(b); whether an intermediate entity performs significant financing activities under § 1.881–3(b)(3)(ii); whether an unrelated intermediate entity would not have participated in a financing arrangement on substantially the same terms under § 1.881–3(c).

(32) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether, after the acquisition, the expanded affiliated group has substantial business activities in the foreign country in which, or under the law of which, the foreign entity is created or organized, when compared to the total business activities of the expanded affiliated group.

(33) Section 7874. – Expatriated Entities and Their Foreign Parents. – Whether a foreign corporation completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership.

.02 General Areas

(1) Whether a taxpayer has a business purpose for a transaction or arrangement.

(2) Whether a taxpayer uses a correct North American Industry Classification System (NAICS) code or Standard Industrial Classification (SIC) code.

(3) Any transaction or series of transactions that is designed to achieve a different tax consequence or classification under U.S. tax law (including tax treaties) and the tax law of a foreign country, where the results of that different tax consequence or classification are inconsistent with the purposes of U.S. tax law (including tax treaties).

(4)(a) Situations where a taxpayer or a related party is domiciled or organized in a foreign jurisdiction with which the United States does not have an effective mechanism for obtaining tax information with respect to civil tax examinations and criminal tax investigations, which would preclude the Service from obtaining information located in such jurisdiction that is relevant to the analysis or examination of the tax issues involved in the ruling request.

(b) The provisions of subsection 4.02(4)(a) above shall not apply if the taxpayer or affected related party (i) consents to the disclosure of all relevant information requested by the Service in processing the ruling request or in the course of an examination to verify the accuracy of the representations made and to otherwise analyze or examine the tax issues involved in the ruling request, and (ii) waives all claims to protection of bank or commercial secrecy laws in the foreign jurisdiction with respect to the information requested by the Service. In the event the taxpayer’s or related party’s consent to disclose relevant information or to waive protection of bank or commercial secrecy is determined by the Service to be ineffective or of no force and effect, then the Service may retroactively rescind any ruling rendered in reliance on such consent.

(5) The federal tax consequences of proposed federal, state, local, municipal, or foreign legislation.

(6)(a) Situations involving the interpretation of foreign law or foreign documents. The interpretation of a foreign law or foreign document means making a judgment about the import or effect of the foreign law or document that goes beyond its plain meaning.

(b) The Service, at its discretion, may consider rulings that involve the interpretation of foreign laws or foreign documents. In these cases, the Service may request information in addition to that listed in § 7.01(2) and (6) of Rev. Proc. 2018–1, including a discussion of the implications of any authority believed to interpret the foreign law or foreign document, such as pending legislation, treaties, court decisions, notices or administrative decisions.”

Tax Cuts & Jobs Act: 2018 Standard Deduction and Exemptions

The Tax Cuts and Jobs Act of 2017 made dramatic changes that affected pretty much every US taxpayer. This is the first article of the series of articles on the Act. I will start this series with the discussion of simple US domestic issues (such as 2018 standard deduction and personal exemptions), then gradually turn to more and more complex US domestic and international tax issues, and finish with the examination of the highly complex issues concerning E&P income recognition for US owners of foreign corporations and the new type of Subpart F income.

Today, I will focus on the 2018 standard deduction and exemptions.

Standard Deduction for the Tax Year 2017

Standard deduction is the amount of dollars by which you can reduce your adjusted gross income (“AGI”) in order to lower your taxable income and, hence, your federal income tax. The standard deduction is prescribed by Congress. If you use standard deduction, you cannot itemize your deductions (i.e. try to reduce your AGI by the amount of actual allowed itemized deductions) – you have to choose between these two options.

Standard deduction varies based on your filing status (there is an additional standard deductions of individuals over the age of 65 or who are blind).

For the tax year 2017, the standard deduction are as follows: $6,350 for single taxpayers and married couples filing separately, $12,700 for married couples filing a joint tax return and $9,350 for heads of household.

2018 Standard Deduction and Exemptions

Under the Tax Cuts and Jobs Act of 2017, the 2018 standard deduction will virtually double in size: $12,000 for single taxpayers and married couples filing separately, $24,000 for married couples filing a joint tax return and $18,000 for heads of household. All of these amounts will be indexed for inflation.

It is important to point out, however, that these increased standard deduction amounts will only last until 2025. Then, the standard deduction should revert to the old pre-2018 law.

Personal Exemptions & Impact of 2018 Standard Deduction

Personal exemption is an additional amount of dollars by which the Congress will allow you to reduce your AGI (already reduced by either standard deduction or itemized deductions). When IRC Section 151 was enacted in 1954, the idea behind a personal exemption was to exempt from taxation a certain minimal amount a person needs to survive at a subsistence level.

Personal exemption can be claimed for you and your qualified dependents; in case of joint tax returns, each spouse is granted a personal exemption. However, a personal exemption for a spouse can be claimed even if the spouses are filing separate tax returns, but certain requirements have to be met.

For the tax year 2017, the personal exemption amount is $4,050. The exemption is subject to a phase-out at a certain level of income.

The Tax Cuts and Jobs Act of 2017 repeals personal exemptions for the tax years 2018-2025. After 2025, the law reverts to the one that existed as of the tax year 2017. In other words, the increase in 2018 standard deduction will be at least partially offset by the elimination of 2018 personal exemption.

In some cases, where taxpayers claim many personal exemptions for their dependants, the elimination of personal exemptions may actually result in the increase in taxation (compared to the 2017 law) despite the increase of 2018 standard deduction. Of course, such an increase in taxation needs to take into account potential increase in child tax credit under the new law. Hence, in order to assess the full tax impact of the tax reform for large families, one needs to consider other factors in addition to just 2018 standard deduction.

IRS Wins Against Wells Fargo’s Tax Shelter Scheme | Int’l Tax Lawyers MN

On May 25, 2017, the IRS sealed another victory against the infamous abusive tax shelter known as STARS (Structured Trust Advantaged Repackaged Securities).

The actual victory occurred on November 17, 2016, when a jury in Minnesota found Wells Fargo guilty of engaging in abusive tax shelter and determined that Wells Fargo was not entitled to a about $350 million of foreign tax credits. On May 25, 2017, however, the IRS expanded that victory when the Minnesota federal district court found Wells Fargo liable for a 20 percent negligence penalty.

Wells Fargo’s Tax Shelter Scheme can be traced to Barclays Bank PLC (“Barclays”). Barclays marketed the STARS transaction to American banks, including Wells Fargo. STARS was designed to exploit differences between the tax laws in the United States and in the United Kingdom.

Wells Fargo’s Tax Shelter Scheme is not the first one to be rejected by courts. In fact, at this point, three other cases have rejected the STARS tax shelters similar to Wells Fargo’s Tax Shelter Scheme. These case are: Bank of New York, BB&T Bank and Santander Bank purchased. Santander Holdings USA, Inc. v. United States, 844 F.3d 15 (1st Cir. 2016), pet. for cert. filed, March 20, 2017 (No. 16 1130); Bank of N.Y. Mellon Corp. v. Comm’r, 801 F.3d 104 (2d Cir. 2015), cert. denied, 136 S. Ct. 1377 (2016); Salem Fin., Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 1366 (2016).

The recent victory by the IRS against Wells Fargo’s Tax Shelter Scheme is an important reminder of the salience of the business purpose doctrine in US international tax law. Sherayzen Law Office has previously written on the doctrine and emphasized how crucial it is to distinguish legitimate tax planning from engaging in abusive tax shelters.

Sherayzen Law Office advocates an approach that emphasizes legitimate tax planning that allows US taxpayers to utilize the advantages offered by US tax laws without engaging in abusive tax schemes, like STARS.

Offshore Voluntary Compliance Draws 100,000 Taxpayers and $10 Billion

On October 21, 2016, the IRS announced that more than 100,000 US taxpayers participated in its Offshore Voluntary Compliance programs paying a total of more than $10 billion. Let’s explore these Offshore Voluntary Compliance numbers in more depth.

OVDP is Still the King of Offshore Voluntary Compliance but Its Impact is More Targeted

The IRS flagship Offshore Voluntary Disclosure Program (OVDP) is still the most profitable program for the IRS in terms of actual amount of dollars paid by the taxpayers. More than 55,800 taxpayers have come into the OVDP to resolve their past US tax noncompliance. They paid a total of more than $9.9 billion in taxes, interest and penalties since 2009.

These numbers are very impressive, but they also point to a more targeted influence of the OVDP compared to its past. In October of 2015, the IRS reported that more than 54,000 taxpayers entered into the OVDP and paid more than $8 billion. In other words, in the past year (November 2015 – October 2016), about 1,400 taxpayers entered into the OVDP and paid an additional $1.8 billion.

What this means is that the IRS was highly successful in properly addressing the basic original injustice of the OVDP program which was equally painful to small taxpayers and large taxpayers as well as non-willful taxpayers and willful taxpayers. The OVDP now draws a more limited number of people with substantial foreign assets who pay a higher penalty for their prior noncompliance.

The only danger that still remains is the issue of incompetent tax advisors who might be entering their wealthier clients into the OVDP irrespective of their willfulness or non-willfulness.

Streamlined Procedures is the Favorite Offshore Voluntary Compliance Option for “Smaller” Taxpayers

The IRS data also reflects the tremendous popularity of the Streamlined Procedures among the middle-class taxpayers with limited international asset exposure. According to the IRS, as of October of 2016, 48,000 taxpayers have made use of various Streamlined Procedures (SDOP and SFOP) to resolve their prior non-willful US international tax noncompliance. These taxpayers paid a total of about $450 million in taxes, interest and penalties.

In the prior report (October of 2015), the IRS stated that only 30,000 taxpayers used the Streamlined Procedures; 20,000 of them after June of 2014. This means that the Streamlined Procedures continues to attract the great majority of the taxpayers with smaller foreign assets.

Offshore Voluntary Compliance is One of he Key Strategies to Resolve Prior US International Tax Noncompliance

Undoubtedly, Offshore Voluntary Compliance options offer the key strategies to resolve prior US international tax noncompliance. The other options, such as Reasonable Cause Disclosure and Quiet Disclosure, are much more limited in scope and application. In fact, in the case of a Quiet Disclosure, this option may put the taxpayers into a position more dangerous than they were in before their quiet disclosure due to the increased danger of detection without any protection offered by the Offshore Voluntary Compliance options.

Doing nothing is also not a good option for noncompliant taxpayers, because of the increased risk that their prior noncompliance will be deemed willful once the IRS discovers their noncompliance.

The risk of the IRS detection of prior tax noncompliance is very high in today’s world. This detection may come not just from the IRS investigations of a specific taxpayer, the massive disclosures by the banks already being investigated by the IRS or even from the banks that provided information as a result of the Department of Justice’s Swiss Bank Program. Today, the primary danger of detection comes from the third-party reporting under the Foreign Account Tax Compliance Act (FATCA) and the network of inter-governmental agreements (IGAs) between the U.S. and partner jurisdictions.

Contact Sherayzen Law Office to Secure Professional Help With Your Offshore Voluntary Compliance Case

If you have undisclosed foreign accounts or any other foreign assets, you should contact Sherayzen Law Office as soon as possible for professional help with your voluntary disclosure.

Sherayzen Law Office is a leader in offshore voluntary disclosures which will help you with your entire case, including: the original determination of the best Offshore Voluntary Compliance option; the implementation of this option, including the preparation of all relevant legal documents and tax forms; the filing of the voluntary disclosure package; and the defense of your voluntary disclosure positions against the IRS.

We have helped hundreds of US taxpayers around the world to bring their US tax affairs into full compliance in the least painful and most beneficial way, and we can help you!

Contact Us Today to Schedule Your Confidential Initial Consultation!