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Indian Mutual Funds & US Person’s Tax Obligations | International Tax Attorney

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After having handled so many offshore voluntary disclosures for my Indian and Indian-American clients, I can clearly see that US tax reporting obligations concerning Indian mutual funds is one of the most troublesome areas for my clients. In this article, I will focus on the three most important US tax reporting requirements that may be applicable to US taxpayers with Indian mutual funds – FBAR, FATCA Form 8938 and Form 8621.

Indian Mutual Funds: FBAR Reporting

The first and most important requirement that applies to US taxpayers with Indian mutual funds is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as “FBAR”. As long they meet the filing threshold, US taxpayers are required to disclose all of their Indian mutual funds on FBAR.

FBAR is a very dangerous form. On the one hand, it is very easy to fall into noncompliance with this form due to its very low filing threshold – just $10,000. Moreover, this threshold is determined by taking the calendar-year highest balances of all of the taxpayer’s foreign accounts (even if these accounts are located in another country in addition to India) and adding them all up. Sometimes, this results in significant over-reporting of a person’s actual balances, which easily satisfies the FBAR reporting threshold.

On the other hand, FBAR has the most severe noncompliance penalties among all information returns concerning foreign asset disclosure. Its penalties range from non-willful penalties (i.e. potentially a situation where a person simply did not know about FBAR’s existence) to extremely high civil willful penalties and even criminal penalties. In other words, in certain circumstances, FBAR noncompliance may result in actual jail time.

Indian Mutual Funds: FATCA Form 8938

When it comes to the FATCA Form 8938 compliance, a taxpayer with Indian mutual funds will find it fairly easy as long as he correctly files his Forms 8621 (see below) and indicates on Form 8938 how many of these forms were filed with the tax return. This ease of reporting is meant to alleviate double-reporting of foreign mutual funds on a US tax return.

It is important to emphasize three points with respect to Form 8938 compliance for taxpayers with Indian mutual funds. First, even if you file Forms 8621, Form 8938 must still be attached to your tax return as long as you meet the relevant filing threshold (and the assets listed on Forms 8621 must be counted toward the threshold). Failure to file a Form 8938 may still draw a penalty in these circumstances and keep the statute of limitations open on your entire US tax return.

Second, Form 8938 and Form 8621 compliance does not in any way affect your obligation to file FBARs. This is the case even if this means that the same assets are reported three times.

Third, unlike FBAR, Form 8938 comes with a third-party FATCA verification mechanism. Under FATCA, the IRS should receive foreign-account information not only from taxpayers who file Forms 8938, but also from their foreign financial institutions. This means that it is much easier for the IRS to identify Form 8938 (and thereby Form 8621) noncompliance than that of FBAR. It also means that a Form 8938 noncompliance may have a higher chance to be investigated and penalized by the IRS.

Indian Mutual Funds: Form 8621 PFIC Reporting

We now come to the most critical difference in US tax compliance between foreign mutual funds and most other foreign assets. All foreign mutual funds, including the funds incorporated in India, are classified as PFICs or Passive Foreign Investment Companies under US international tax law.

While I will not explain here the complex PFIC calculations and the various PFIC elections that may be available to a US taxpayer with foreign mutual funds, I wish to discuss four most important points concerning PFIC compliance.

First, pursuant to the worldwide income reporting requirement, all US tax residents must calculate and disclose their PFIC income on their US tax returns. This is a significant compliance burden as PFIC calculations can be very complex and expensive. The professional fees for PFIC calculations may easily outstrip all other professional fees related to other aspects of your US tax compliance.

Second, since PFIC tax and PFIC interest are calculated independent of a taxpayer’s actual tax bracket, a taxpayer with Indian mutual funds may see a significant rise in his US tax liability. It may occur even in a situation where a taxpayer may not otherwise owe any tax to the IRS. This fact may be especially significant in a voluntary disclosure context.

Third, the actual disclosure of PFIC income occurs on Form 8621 before it is entered into your personal or business tax return. This information return must be filed with your US tax return. Unfortunately, since the vast majority of tax software programs (consumer and professional) do not support Form 8621 compliance, it is very likely that you will not be able to e-file your US tax return; rather, you may have to mail it.

Finally, Form 8621 is a very obscure requirement known mostly to a handful of US tax professionals who specialize in US international tax compliance (such as Sherayzen Law Office). This means that the majority of US taxpayers are not even aware of the fact that they need to comply with their Form 8621 reporting obligations. In other words, they believe themselves to be in compliance with US tax laws even though, in reality, they are not. Thus, the obscurity and complexity of Form 8621 pushes many US taxpayers into tax noncompliance.

Contact Sherayzen Law Office for Professional Help With US Tax Reporting of Your Indian Mutual Funds

If you are a US taxpayer with Indian mutual funds, contact Sherayzen Law Office for professional We have helped hundreds of US taxpayers with foreign mutual funds, including Indian mutual funds, to resolve their past FBAR, FATCA and PFIC noncompliance, and we can help you!

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2020 Offshore Voluntary Disclosure Options | US International Tax Lawyers

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As the new year 2020 begins, it is important for US taxpayers with undisclosed foreign assets to consider their 2020 offshore voluntary disclosure options. Unlike last year, there have not been any drastic changes to the voluntary disclosure options since 2019. In this article, I would like to generally explore the 2020 offshore voluntary disclosure options available to US taxpayers who wish to reduce their IRS penalties by voluntarily resolving their prior US tax noncompliance concerning foreign assets and foreign income.

2020 Offshore Voluntary Disclosure Options: Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures (“SDOP”) is currently the flagship voluntary disclosure option for US taxpayers who reside in the United States. SDOP is a highly beneficial voluntary disclosure option to non-willful taxpayers: it is simple, limited (in terms of the voluntary disclosure period for which tax returns and FBARs must be filed) and mild (in terms of its penalty structure). There are some drawbacks to SDOP, such as the imposition of the Miscellaneous Offshore Penalty on income-tax compliant foreign accounts, but the benefits offered by this option outweigh its deficiencies for most taxpayers.

The main challenge of SDOP is its requirement that a taxpayer certifies under the penalty of perjury that he was non-willful with respect to his prior income tax noncompliance, FBAR noncompliance and noncompliance with any other US international information tax return (such as Form 8938, 3520, 5471, et cetera). This is a huge problem for willful taxpayers and taxpayers who are in the “gray” area between willfulness and non-willfulness. It will be up to your international tax lawyer to make the determination on whether you are able to make this certification.

2020 Offshore Voluntary Disclosure Options: Streamlined Foreign Offshore Procedures

Streamlined Foreign Offshore Procedures (“SFOP”) is very similar to SDOP (in fact, both options were created in 2014), but it is even more beneficial to taxpayers who are able to satisfy SFOP’s eligibility requirements – this is a true amnesty program, because its participants do not pay IRS penalties of any kind, even on income tax due (taxpayers only need to pay the interest on additional tax due). Moreover, SFOP preserves SDOP’s non-invasive and limited scope of voluntary disclosure.

SFOP, however, is available to a much more limited number of US taxpayers who are able to satisfy its eligibility requirements, particularly those related to non-willfulness certification and physical presence outside of the United States. Again, you should contact Sherayzen Law Office to help you determine whether you meet the eligibility requirements of SFOP.

2020 Offshore Voluntary Disclosure Options: Delinquent FBAR Submission Procedures

Delinquent FBAR Submission Procedures (“DFSP”) is another voluntary disclosure option that fully eliminates IRS penalties. This is not a new option; in fact, in one form or another, it has always existed within the IRS procedures. Prior to 2014, it was even written into the OVDP (IRS Offshore Voluntary Disclosure Program) as FAQ#17.

While DFSP is highly beneficial to noncompliant US taxpayers, it is available to even fewer number of taxpayers than those who are eligible for SDOP and SFOP. This is the case due to two factors. First, DFSP has a very narrow scope – it applies only to FBARs. Second, DFSP has extremely strict eligibility requirements; even de minimis income tax noncompliance will deprive a taxpayer of the ability to use this option.

2020 Offshore Voluntary Disclosure Options: Delinquent International Information Return Submission Procedures

Delinquent International Information Return Submission Procedures (“DIIRSP”) has a very similar history to DFSP. In fact, it was “codified” into OVDP rules as FAQ#18. Similarly to DFSP, DIIRSP also offers the possibility of escaping IRS Penalties. DIIRSP has a broader scope than DFSP and applies to international information returns other than FBAR, such as Form 8938, 3520, 5471, 8865, 926, et cetera.

Since it turned into an independent voluntary disclosure option in 2014, DIIRSP’s eligibility requirements became much harsher. US taxpayers are now required to provide a reasonable cause explanation in order to escape IRS penalties under this option. On the other hand, the fact that there may be unreported income associated with international information returns is not an impediment by itself to participation in DIIRSP.

2020 Offshore Voluntary Disclosure Options: Modified IRS Traditional Voluntary Disclosure Program

The traditional IRS Offshore Voluntary Disclosure Program (“TVDP”) has existed for a very long time. However, it faded into a complete obscurity once the IRS opened its first major OVDP option in 2009. The closure of 2014 OVDP in September of 2018 has brought TVDP back to life, but in a modified format.

On November 20, 2018, the IRS has completely revamped the TVDP’s procedural structure and clarified the penalty imposition rules. I am almost tempted to call this new version of TVDP as “2018 TVDP”!

The main benefit of TVDP is that it is now the main voluntary disclosure option for taxpayers who willfully violated their US tax obligations. If you are willful taxpayer, contact Sherayzen Law Office to explore your voluntary disclosure option under the TVDP.

2020 Offshore Voluntary Disclosure Options: Reasonable Cause Disclosure

Since 2014, the popularity of Reasonable Cause disclosure (also known as “Noisy Disclosure”) has declined substantially due to the introduction of SDOP and SFOP. Nevertheless, Reasonable Cause disclosure continues to be a highly important voluntary disclosure alternative to official IRS voluntary disclosure options. In fact, the closure of the 2014 OVDP in September of 2018 has led to some resurgence of Reasonable Cause disclosures.

Reasonable Cause disclosure is based on the actual statutory language; it is not part of any official IRS program. Special care must be taken in using this option, because this is a high-risk, high-reward option. If a taxpayer is able to satisfy his high burden of proof, then, he will be able to avoid IRS penalties. If the IRS audits the Reasonable Cause disclosure and disagrees, this taxpayer may face significant IRS penalties and, potentially, years of IRS litigation.

Contact Sherayzen Law Office for Professional Analysis of Your 2020 Offshore Voluntary Disclosure Options

If you have undisclosed foreign assets, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers from over 70 countries with their voluntary disclosures of foreign assets to the IRS, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Financial Interest Definition | FBAR International Tax Lawyer & Attorney | FinCEN Form 114

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In this article, I discuss one of the most important aspects of FBAR compliance – the FBAR financial interest definition.

FBAR Financial Interest: Legal Relevance and Context

FBAR is the acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. A US person who has a financial interest in foreign bank and financial accounts must file FBARs to report these accounts as long as their aggregate value exceeds the FBAR filing threshold. The key issue here is the definition of “financial interest” for FBAR purposes.

FBAR Financial Interest: Classification of Financial Interest

As I just stated, the FBAR financial interest definition describes a situation when a US person has a “financial interest” in a foreign account. It turns out that there are six possible situations when a US person may have a financial interest in a foreign account.

These situations can be divided into three categories: direct ownership, indirect ownership and constructive ownership. Let’s explore them in more detail.

FBAR Financial Interest: Direct Ownership

A US person has a financial interest in a foreign account if he is the owner of record or holder of legal title for this account. It does not matter whether he maintains the account for his own benefit or for the benefit of another person (US or foreign). As long as he is the owner of the account, he has a financial interest in the account and must file an FBAR to report it if the account’s highest value (together with all other foreign accounts of this person) exceeds $10,000.

FBAR Financial Interest: Indirect Ownership

There are four different scenarios which may result in having a reportable indirect FBAR financial interest in a foreign account:

1. Indirect Ownership Through a Corporation

A US person has a financial interest in a foreign account if the owner of record of holder of legal title is a corporation in which a US person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock; or (ii) more than 50 percent of the voting power of all shares of stock.

This means that, if a US corporation owns a foreign company which has a foreign account, then this US corporation has a financial interest in this account through its direct ownership of the foreign company. In other words, the US corporation will need to file an FBAR for the foreign company’s foreign bank and financial accounts.

One of the most frequent sources of FBAR noncompliance, however, is with respect to indirect ownership of the foreign account by the owners of a US corporation. For example, if a Nevada corporation owns 100% of a French corporation and a US owner owns 51% of the US corporation, then, the US owner must disclose on his FBAR his financial interest in the French corporation’s foreign accounts. This financial interest is acquired through indirect 51% ownership of the French corporation.

2. Indirect Ownership Through a Partnership

This scenario is very similar to that of corporations. A US person has a financial interest in a foreign account if the owner of record or holder of legal title is a partnership in which the US person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (distributive share of partnership income taking into account any special allocation agreement); or (ii) an interest in more than 50 percent of the partnership capital.

3. Indirect Ownership Through a Trust

This is a more complex category which includes two scenarios. First, a US person has a financial interest in a foreign account if the owner of record or holder of legal title is a trust and this US person is the trust grantor who has an ownership interest in the trust under the 26 U.S.C. §§ 671-679.

Second, a US person has a financial interest in a foreign account if the owner of record or holder of legal title is a trust in which the US person has a greater than fifty percent (50%) beneficial interest in the assets or income of the trust for the calendar year. This second scenario is a true FBAR trap for US taxpayers, because while grantors may anticipate their FBAR requirements, beneficiaries are usually completely oblivious to this requirement.

This category of FBAR financial interest definition is even more complicated by the fact that it requires a very nuanced understanding of US property law and FBAR regulations. For example, how many taxpayers can answer this question: if a US person has a remainder interest in a trust that has a foreign financial account, should he disclose this account on his FBAR?

4. Indirect Ownership Through Any Other Entity

This a “catch-all” category of indirect FBAR financial interest definition. If a situation does not fall within any of the aforementioned categories, a US person still has a financial interest in a foreign account if the owner of record or holder of legal title is any other entity in which the US person owns directly or indirectly more than 50% of the voting power, more than 50% of the total value of equity interest or assets, or more than 50% of interest in profits.

FBAR Financial Interest: Constructive Ownership

This is a very dangerous category of FBAR financial interest definition, because, in the event of an unfavorable determination by the IRS, it may have highly unfavorable consequences, including the imposition of FBAR willful penalties and even FBAR criminal penalties. A US person has a financial interest in a foreign account if the owner of record or holder of legal title is a person who acts on behalf of the US person with respect to the account. Various classes of persons fall under this description: agents, nominees and even attorneys.

This category of FBAR financial interest definition targets situations where a US person is trying to hold his money under the name of a third party. It is not easy, however, to determine whether the foreign person is holding this money on behalf of the US person.

The key consideration here is the degree of control that the US person exercises over the account. If the agent can only access the account in accordance with the instructions from the US person, if there is an understanding that the agent holds the account on behalf of the US person and if the agent does not independently distribute funds for his own needs, then the IRS is likely to find that the US person has a financial interest in the account for FBAR purposes.

On the other hand, if the account owner uses the funds for his own purposes and makes gifts to third parties, the situation becomes increasingly unclear. In this case, one has to retain an international tax attorney to analyze all facts and circumstances, including the origin of funds.

Contact Sherayzen Law Office for FBAR Help, Including the Determination of FBAR Financial Interest in a Foreign Account

FBAR is a very dangerous form. FBAR noncompliance penalties are truly draconian. They range from FBAR criminal penalties (of up to ten years in prison) to civil FBAR willful penalties (with 50% of the account or $100,000 (adjusted for inflation) whichever is higher) and even civil FBAR non-willful penalties of up to $10,000 (adjusted for inflation) per account per year. FBAR’s unusual Statute of Limitation of six years also means that the IRS has an unusually long period of time to assess these penalties.

This is why, if you have foreign bank and financial accounts, contact Sherayzen Law Office for professional help. We are a highly-experienced international tax law firm that specialized in US international tax compliance and offshore voluntary disclosures (including for prior FBAR noncompliance). We have helped hundreds of US taxpayers around the world, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2019 Offshore Voluntary Disclosure Options | International Tax Lawyers

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The closure of the IRS flagship 2014 Offshore Voluntary Disclosure Program (“OVDP”) in September of 2018 posed a critical issue of the 2019 offshore voluntary disclosure options available to US taxpayers. This is precisely the issue that I would like to explore today – the 2019 offshore voluntary disclosure options available to US taxpayers who wish to voluntarily resolve their prior US tax noncompliance concerning foreign assets and foreign income.

2019 Offshore Voluntary Disclosure Options: Streamlined Domestic Offshore Procedures

With the closure of the OVDP, the Streamlined Domestic Offshore Procedures (“SDOP”) became the main voluntary disclosure option for US taxpayers who reside in the United States. SDOP offers huge benefits to its participants in terms of simplicity of the process, limitations on the years subject to voluntary disclosure and the mildness of its penalty structure. There are some “unfair” provisions, such as subjecting income-compliant accounts to SDOP’s Miscellaneous Offshore Penalty, but, overall, the benefits offered by this option outweigh its deficiencies for most taxpayers.

The main obstacle to using SDOP in 2019 remains its requirement that a taxpayer certifies under the penalty of perjury that he was non-willful with respect to his prior income tax noncompliance, FBAR noncompliance and noncompliance with any other US international information tax return (such as Form 8938, 3520, 5471, et cetera). This is an insurmountable problem for willful taxpayers. It will be up to your international tax lawyer to make the determination on whether you are able to make this certification.

2019 Offshore Voluntary Disclosure Options: Streamlined Foreign Offshore Procedures

Streamlined Foreign Offshore Procedures (“SFOP”) is SDOP’s brother; both options were announced at the same time in 2014 as two distinct parts of the Streamlined Filing Compliance Procedures. SFOP is available to US taxpayers who satisfy its eligibility requirements, particularly those related to non-willfulness certification and physical presence outside of the United States. Again, you should contact Sherayzen Law Office to help you determine whether you meet the eligibility requirements of SFOP.

The taxpayers who are able to satisfy SFOP’s eligibility requirements will find themselves in a tax paradise, because SFOP is the closest option to a true amnesty program that the IRS ever provided to US taxpayers. Not only does SFOP preserve the non-invasive and limited scope of voluntary disclosure that characterizes SDOP, but SFOP also does not require US taxpayers to pay any penalties. A taxpayer only needs to pay the extra tax due with interest for the past three years. The announcement by the IRS of this option in 2014 was a true gift to US taxpayers.

2019 Offshore Voluntary Disclosure Options: Delinquent FBAR Submission Procedures

Another highly beneficial voluntary disclosure option for 2019 is Delinquent FBAR Submission Procedures (“DFSP”). This is not a new option; in fact, in one form or another, it has always existed within the IRS procedures. Prior to 2014, it was even written into the OVDP as FAQ#17.

Since its “independence” in 2014, DFSP is a somewhat more difficult option than what it used to be as FAQ#17. Nevertheless, it is still a zero-penalty option for those taxpayers who are able to satisfy its eligibility requirements. Unfortunately, the eligibility requirements are very strict and even de minimis income tax noncompliance will deprive a taxpayer of the ability to use this option.

2019 Offshore Voluntary Disclosure Options: Delinquent International Information Return Submission Procedures

Delinquent International Information Return Submission Procedures (“DIIRSP”) has a very similar history to DFSP. In fact, it was “codified” into OVDP rules as FAQ#18. Since it became an independent option in 2014, however, its eligibility requirements became much harsher. Now, US taxpayers are required to provide a reasonable cause explanation in order to escape IRS penalties under this option.

2019 Offshore Voluntary Disclosure Options: Modified IRS Traditional Voluntary Disclosure Program

The traditional IRS Offshore Voluntary Disclosure Program (“TVDP”) has existed for a very long time. However, it faded into complete obscurity once the IRS opened its first major OVDP option. The recent closure of the OVDP has brought TVDP back to life.

In fact, the IRS is now presenting TVDP as the main, almost default, voluntary disclosure option for US taxpayers who willfully violated their US tax obligations. On November 20, 2018, the IRS has completely revamped the TVDP’s procedural structure and clarified the penalty imposition rules. I am almost tempted to call this new version of TVDP as “2018 TVDP”!

2019 Offshore Voluntary Disclosure Options: Reasonable Cause Disclosure

This was the most popular voluntary disclosure option prior OVDP; then, after 2009 (and between various OVDP options), Reasonable Cause disclosure continued to play the role of the most important alternative to the OVDP. Since 2014, however, the appearance of SDOP and SFOP has substantially deflated the appeal of Reasonable Cause disclosures. The fact that the IRS closed the physical address for such disclosures and tried to make this option as unpopular as possible further contributed to the decline of Reasonable Cause disclosures. Starting the end of 2018, however, Reasonable Cause disclosure experienced some resurgence due to the closure of the OVDP, sometimes for all the wrong reasons.

Reasonable Cause disclosure (a/k/a “Noisy Disclosure”) is based on the actual statutory language; it is not part of any IRS program. Special care must be taken in using this option, because this is a high-risk, high-reward option. If a taxpayer is able to satisfy his high burden of proof, then, he will be able to avoid IRS penalties. If the IRS audits the Reasonable Cause disclosure and disagrees, this taxpayer may face significant IRS penalties and, potentially, years of IRS litigation.

Contact Sherayzen Law Office for Professional Analysis of Your 2019 Offshore Voluntary Disclosure Options

If you have not been able to comply with your US international tax obligations concerning foreign assets and foreign income, 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 a known international tax attorney Mr. Eugene Sherayzen, has successfully helped hundreds of US taxpayers with assets in more than 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!

OVDP Closure Sets the Stage for a Dramatic Increase in IRS FBAR Audits

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There has been virtually no discussion of the impact of the OVDP closure beyond how it affects the ability of willful taxpayers to settle their past noncompliance. This is very unfortunate, because there is a direct correlation between OVDP and IRS tax enforcement activities. In this article, I will discuss how the OVPD closure sets the stage for a dramatic increase in the IRS FBAR Audits as well as IRS audits of other US taxpayers with international tax exposure.

The Utility of the OVDP Program Prior to the OVDP Closure

The IRS flagship 2014 Offshore Voluntary Disclosure Program served various purposes prior to its closure on September 28, 2018. Let’s concentrate on its two most important roles.

First and foremost, it was an important information-gathering tool for the IRS. The taxpayers who participated in the OVDP disclosed not only their noncompliance with US tax laws, but also the identity of the persons and institutions who facilitated this noncompliance. In other words, the OVDP supplied to the IRS valuable, up-to-date information about foreign financial institutions and foreign financial advisors who participated and even set-up the various tax evasion schemes. This ever-growing mountain of evidence was later used by the IRS to target these schemes effectively and efficiently.

Second, the OVDP greatly enhanced the IRS tax enforcement activities in two different ways. On the one hand, the OVDP promoted the general awareness of FBAR requirements as well as voluntary disclosures of FBAR noncompliance by US taxpayers, thereby saving the IRS the time and resources that otherwise would have been unnecessarily spent on finding and auditing these taxpayers. On the other hand, by “weeding-out” these repentant taxpayers, the OVDP allowed the IRS to concentrate its enforcement efforts on the taxpayers who the IRS believed to be true and inveterate tax evaders.

Diminished Utility of the OVDP and the OVDP Closure in 2018

Over time, however, the IRS came to conclusion that, in precisely these two most important aspects, the OVDP had lost a substantial part of its prior utility. The full implementation of FATCA and the ever-spreading web of bilateral and multilateral information exchange treaties made the OVDP a relatively unimportant information collection tool by the end of 2017.

At the same time, due to the introduction of the Streamlined Filing Compliance Procedures and the fact that most willful taxpayers who wanted to take advantage of the OVDP had already done so, fewer and fewer taxpayers were entering the OVDP. In other words, by early 2018, the IRS was in the position to make the decision that the “weeding-out” process was substantially complete.

For these two reasons as well a number of other smaller reasons, the IRS decided to finally close the 2014 OVDP (which itself was a modification of the 2012 OVDP) on September 28, 2018. The OVDP closure did not happen suddenly; rather, the IRS gave a more than nine-month notice to the public that the OVDP was going to be closed. This was done very much according to the “weeding-out” concept – the IRS gave one last opportunity to certain groups of taxpayers to settle their prior US international tax noncompliance under the established terms of the OVDP program.

The Link Between the OVDP Closure and IRS FBAR Audits

At this point, after giving noncompliant US taxpayers their last chance to “peacefully” resolve their FBAR and other US tax problems, the IRS believes that it has completed its weeding-out process. The time has come for harsh IRS tax enforcement.

Based on my conversations with various IRS agents, I have identified the trend where the IRS currently encourages IRS agents to quickly close their voluntary disclosure cases and shift to doing field audits involving international tax compliance, including FBAR audits.

In other words, the OVDP closure frees up the critical resources that the IRS needs to conduct audits based on the mountains of information it has accumulated over the past decade. Some of this information came from the OVDP, the Swiss Bank Program, from FATCA and other  information exchange mechanisms.

What is worse (from the perspective of noncompliant taxpayers) is that the IRS now can justify the imposition of higher FBAR penalties since it can claim that the taxpayers had prior chances to resolve their prior FBAR noncompliance and intentionally failed to do so.

Sherayzen Law Office Predicted the Shift Toward Tax Enforcement a Long Time Ago

All of these developments – the OVDP closure and the shift toward stricter tax enforcement – were predicted years by Sherayzen Law Office ago. As early as 2013, Mr. Sherayzen made a prediction that the Swiss Bank Program and FATCA were likely to lead to higher levels of FBAR audits and FBAR litigation as well as the general shift of the IRS policy from voluntary disclosures to tax enforcement.

Contact Sherayzen Law Office for Professional Help With FBAR Audits and Other International Tax Audits

If you are being audited by the IRS and your tax return involves any international tax issues (including FBARs), contact Sherayzen Law Office for professional help. Our experienced international tax law firm has successfully helped hundreds of US taxpayers to settle their US tax affairs.

We possess profound knowledge and understanding of US international tax law as well as the IRS procedures. We have experience in every stage of IRS enforcement: from offshore voluntary disclosures and IRS administrative appeals to IRS audits (including FBAR audits and audits of Streamlined disclosures) and federal court litigation.

We are a leader in US international tax compliance and We Can Help You!

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