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3 Main Streamlined Domestic Compliance Disadvantages | SDOP Lawyer

In a previous article, I described the three main advantages of doing an offshore voluntary disclosure through Streamlined Domestic Offshore Procedures (“Streamlined Domestic Compliance”). Today, I would like to discuss three main Streamlined Domestic Compliance disadvantages.

Streamlined Domestic Compliance Disadvantages: Audit Risks

The first main disadvantage of Streamlined Domestic Compliance is the potential IRS audit within three years after the voluntary disclosure is completed. The audit is likely to include everything: FBARs, amended tax returns, Miscellaneous Offshore Penalty calculation and, most importantly, the determination of non-willfulness.

The potential IRS audit stands in a shark contrast to the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) which closed in September of 2018. At the end of a voluntary disclosure through OVDP, the taxpayer and the IRS sign the Closing Agreement, which (absent fraud or material mis-statements) effectively closes prior tax noncompliance issues forever.

The audit risks may be particularly important to taxpayers who are in the process of obtaining their US citizenship or US permanent residence.

Streamlined Domestic Compliance Disadvantages: Penalty Base Not Limited to Income Noncompliance

One of the main Streamlined Domestic Compliance disadvantages is the fact that the calculation of the penalty base (i.e. what assets are subject to the 5% penalty) includes assets that never produced any foreign income. Moreover, the penalty base includes a foreign asset even if the foreign income from this asset was timely disclosed on the taxpayer’s original tax return, but the asset itself was not reported on FBAR or any other international information return.

In other words, a taxpayer who participates in the Streamlined Domestic Compliance should be prepared to pay a 5% penalty even on assets that are compliant with the US income tax laws.

Again, this is contrary to the rules of the OVDP. In the OVDP, only assets that are tied to income tax noncompliance are included in the penalty base.

Streamlined Domestic Compliance Disadvantages: Danger of Superficial Analysis

Finally, the danger of superficial analysis concerning non-willfulness constitutes the third main disadvantage of the Streamlined Domestic Compliance. In reality, there are two dangers which should be placed at the opposite ends of the voluntary disclosure continuum.

The first danger is the natural bias in the self-assessment of non-willfulness. Oftentimes, a taxpayer may exaggerate the facts in his favor while selectively ignoring the facts that may establish willful noncompliance. This is very natural. It is difficult to find a person who will state outright that he was willful in his prior tax noncompliance.

Usually, this problem can be (and should be) fixed by retaining an international tax attorney to do an independent assessment of the taxpayer’s non-willfulness.

At the opposite end is the danger of concentrating on non-willfulness and ignoring the possibility of doing a Reasonable Cause disclosure. In most cases, this is not a problem because Streamlined Domestic Compliance would be a superior choice despite the 5% penalty. This, however, is not true in all cases and real opportunities are often lost by failure to explore this route.

I should state that the biggest problem that I found in my practice is the fact that some taxpayers do not consult an international tax attorney on this issue. Instead, they try to do everything themselves even though they have no specialized knowledge in this field. I strongly discourage this practice.

I believe that the involvement of an international tax attorney is essential to doing a proper offshore voluntary disclosure.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

Choosing the correct offshore voluntary disclosure path is the most important decision for a taxpayer who wishes to remedy his past noncompliance with US tax laws. Every voluntary disclosure option has its advantages and disadvantages. All essential factors must be considered.

The failure to do proper legal analysis may have highly negative legal and tax consequences. It may even put a taxpayer in a position worse than what he was prior to his attempt to do a voluntary disclosure.

This is why you need the professional help of Sherayzen Law Office. Our experienced legal team has helped hundreds of US taxpayers to do their offshore voluntary disclosures properly. We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

2018 Post-OVDP Options | Foreign Accounts IRS Lawyer & Attorney

In a previous article, I discussed the recent IRS announcement with respect to the closure of the IRS Offshore Voluntary Disclosure Program (“OVDP”) on September 28, 2018. Today, I would like to predict the range of the 2018 post-OVDP options for offshore voluntary disclosures starting October of 2018.

2018 Post-OVDP Options: Streamlined Compliance Procedures

As of October 1, 2018, the taxpayers will still be able to utilize the Streamlined Compliance Procedures to complete their voluntary disclosures with respect to their foreign income and foreign assets. This option will be available only to taxpayers who will be able to certify that their prior noncompliance with US international tax laws was non-willful.

There are two variations within the Streamlined Compliance Procedures that are available to taxpayers depending on their residency: Streamlined Domestic Offshore Procedures (“SDOP”) and Streamlined Foreign Offshore Procedures (“SFOP”). I expect both options to be available on October 1, 2018 and even into 2019.

I should emphasize, however, that the existence of Streamlined Compliance Procedures is by no means assured in the future. As I have stated in the article that predicted the demise of the OVDP, there may be a point in the future (and it can be a near future – 2020 or 2021) when even these procedures will be affected. It is more likely that SFOP will survive for a longer period of time than SDOP.

The other issue with Streamlined Compliance Procedures is that some of the terms of this type of voluntary disclosures may change over time even if SDOP and SFOP will remain in place.

Nevertheless, the Streamlined Compliance Procedures is a very popular option.  In fact, according to the IRS, about 65,000 taxpayers have used it since its creation in 2014). This is a very high dis-incentive for the IRS to end this option.

2018 Post-OVDP Options: Delinquent FBAR Submission Procedures

I fully expect the Delinquent FBAR Submission Procedures to be available as of October 1, 2018. In one form or another, this option has always existed within the IRS. First, it was an informal understanding of the IRS that, in the absence of income tax noncompliance and other aggravating factors, there would be no FBAR penalties. Then, this option was “codified” as FAQ #17 within the OVDP programs.

In 2014, the Delinquent FBAR Submission Procedures became an independent option. Of course, now, this is a somewhat harsher option.

2018 Post-OVDP Options: Delinquent International Information Return Submission Procedures

I expect that this option will continue to exist as of October 1, 2018. Similarly to FBAR, it used to be a part of various OVDPs as FAQ #18. Now, Delinquent International Information Return Submission Procedures is a separate option which requires a reasonable cause explanation.

2018 Post-OVDP Options: IRS-Criminal Investigation Voluntary Disclosure Program (CI-VDP)

This option has existed for a very long time; it just faded into obscurity during the existence of OVDP. Now, it will surge back to life as it becomes almost the default option for a voluntary disclosure for US taxpayers who willfully violated their US tax obligations. In fact, I now expect CI-VDP to become a very valuable voluntary disclosure option (similar to what it used to be prior to 2009 OVDP).

2018 Post-OVDP Options: Reasonable Cause “Noisy” Disclosures

Since Reasonable Cause Disclosures (a/k/a “Noisy Disclosures”) are based on statutory law and not on any IRS programs, I fully expect this voluntary disclosure option to be available on October 1, 2018.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Foreign Assets and Foreign Income

If you have been unable to comply with US international tax laws concerning the reporting of foreign assets (including foreign accounts) and foreign income, you should contact Sherayzen Law Office for professional help.

Sherayzen Law Office is a leading international tax law firm in the area of offshore voluntary disclosures. Our highly specialized legal team, led by an international tax attorney Mr. Eugene Sherayzen, has helped hundreds of US taxpayers with assets in close to 70 countries to bring their tax affairs into full compliance with US tax laws.

We can Help You! Contact Us Today to Schedule Your Confidential Consultation!