Lead Article

2019 Offshore Voluntary Disclosure Options | International Tax Lawyers

/in , /by

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

/in , /by

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!

Contact Us Today to Schedule Your Confidential Consultation!

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

/in , /by

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, 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 these 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, 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!

Receiving FATCA Letter from Your Foreign Bank

/0 Comments/in , /by

Since July 1, 2014, the most feared US legislation regarding international tax enforcement – Foreign Account Tax Compliance Act (“FATCA”) – is being implemented by most banks around the world. As part of this compliance, foreign banks are sending out so-called FATCA letters to their customers seeking to verify certain types of information. In this article, I would like to introduce this FATCA letter and what the FATCA letter may mean to a US taxpayer with undisclosed foreign bank and financial accounts.

What is FATCA?

FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by US persons with undisclosed offshore accounts. There are two parts to FATCA – US taxpayer reporting of foreign assets and income on Form 8938 and reporting by a foreign financial institution (FFI) of foreign bank and financial account to the IRS.  Here, I will concentrate on the latter, because it is an FFI that sends out the FATCA letter.

FATCA generally requires a foreign payee (i.e. FFI) to identify certain US accountholders and report their accounts to the IRS. Such reporting is done either through an FFI Agreement directly to the IRS or through a set of local laws that implement FATCA.

If an FFI refuses to do so or otherwise does not satisfy these requirements (and is not otherwise exempt), US-source payments made to the FFI may be subject to withholding under FATCA at a rate of 30%. Note that FATCA information reporting and withholding requirements generally do not apply to FFIs that are treated as “deemed-compliant” because they present a relatively low risk of being used for tax evasion or are otherwise exempt from FATCA withholding.

FATCA Implementation and FATCA Letter

As of July 1, 2014, the FATCA went into full effect, which means that FFIs now have to report the required FATCA information to the IRS. However, it appears that the IRS is not likely to fully enforce the penalties until the end of 2014 just to give FFIs enough time to comply.

Nevertheless, many FFIs are making a full effort to comply with FATCA. As part of this effort, FFIs around the world have been sending out “FATCA letters”. A FATCA letter is basically a letter from your bank or other financial institution which introduces FATCA to their customers and asks them to provide answers to a various set of questions aiming to find out information specific to FATCA compliance. Often, instead of asking all of these questions directly a FATCA letter would simply list out a series of forms that contain these questions (for example, W9, W8BEN, et cetera).

If the customer refuses to answer the questions or provide the necessary forms, the financial institution would often close the account and report it as a “recalcitrant account” to the IRS.

Impact of FATCA Letter on US Taxpayers with Undisclosed Accounts

A FATCA letter may have a very profound impact on a US taxpayer with foreign accounts which were not properly disclosed to the IRS (usually on the FBAR and/or Form 8938). Let’s concentrate on two most important aspects of receiving a FATCA letter. First, a FATCA letter puts the taxpayer on notice that he is required to report his foreign financial accounts and foreign income to the IRS. This may have a big impact on whether the taxpayer can later certify his non-willfulness for the purposes of the Streamlined Filing Compliance Procedures.

Second, a FATCA letter starts the clock for the taxpayer to beat the bank’s disclosure of his account to the IRS.

In essence, receiving a FATCA letter forces the taxpayer to quickly choose the path of his voluntary disclosure under significant time pressure.

Contact Sherayzen Law Office if You Received a FATCA Letter

If you received a FATCA letter from your bank or any other financial institution, contact Sherayzen Law Office immediately to assess your situation and determine the path of your voluntary disclosure. Our highly experienced team of international tax professionals will thoroughly analyze your case, prepare all of the required documentation (legal documents and tax forms), conduct the voluntary disclosure and defend your interests before the IRS.

Remember, time is of the essence in these matters. So, Call Us Now to Schedule Your Confidential Consultation!

New 2014 OVDP Update: Introduction

/in , /by

On June 18, 2014, the IRS made a major upgrade to its existing Offshore Voluntary Disclosure Program (“OVDP”).  The new OVDP will now be called 2014 OVDP.  While the changes to the OVDP rules are significant, the new rules regarding the Streamlined Procedure are maybe even more important.

Here is a summary of the 2014 changes to the 2012 OVDP:

2014 OVDP Update: New Miscellaneous 50% Penalty

The IRS added a new FAQ 7.2 which imposes a 50% offshore penalty on taxpayers who participate in the OVDP if: either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.

I believe that this new penalty is a direct consequence of the successful IRS and DOJ efforts to enforce FATCA overseas, particularly the Swiss Program for Banks.  Read this article for more information.

2014 OVDP Update: Elimination of the Reduced Penalty Structure Under FAQ 52 and 53

The reduced 12.5% and 5% penalty structure under former FAQs 52 and 53 has been eliminated due to the expansion of the Streamlined Filing Compliance Procedures. Rather, the new Streamline Offshore Procedure will take over. Special procedures apply to the taxpayer who already entered the OVDP program. I will provide more details in a later article.

2014 OVDP Update: Elimination of FAQ 17 and 18; Procedure is Still Available

This change is just the clarification of the already existing rules. While technically both rules are eliminated, the taxpayer can still use both rules.  Read this article with respect to the Delinquent FBAR Submission Procedures (replacing FAQ 17). I will provide the FAQ 18 details in a later article.

2014 OVDP Update: New Streamline Procedure Rules – US Residents are Included

It finally happened – taxpayers residing in the United States now have the option to enter the streamline procedures which were first announced on September 1, 2012. Other major changes include the elimination of the $1,500 tax threshold and elimination of the risk assessment process. I will provide more details in a later article.

2014 OVDP Update: Updated Streamlined Foreign Offshore Procedures

The IRS greatly expanded the eligibility requirements for the U.S. taxpayers who reside overseas.  Read this article on the Streamlined Foreign Offshore Procedures.

2014 OVDP Update: Major Changes to FAQ 31-41

These are the important changes that the 2014 OVDP Update made to the calculation of the asset base to which the offshore penalty will apply.

2014 OVDP Update: New Pre-Clearance Procedural Change under FAQ 23

Now, the IRS wants to know more information about you before granting the pre-clearance to apply for the OVDP. The 2014 OVDP Update greatly expands the information required to be submitted under FAQ 23. I will provide more details in a later article.

2014 OVDP Update: Offshore Penalty Must Be Paid With Submission of the OVDP Package

This is a major 2014 OVDP Update to FAQ 7. Now the Offshore Penalty must be paid with the submission of the OVDP Package. Again, I will provide more details in a later article.

Other 2014 OVDP Updates: Procedural Changes

The rest of the 2014 OVDP Update changes are more procedural in nature, but may have real substantive impact. Among them, the changes in the FAQ 25 (requiring the submission of account statements irrespective of the size of the disclosure), new OVDP Letter, new OVDP Letter Attachment, and other technical changes. Once again, I will provide more details in a later article.

Contact Sherayzen Law Office for a Professional Advice Regarding Your Offshore Voluntary Options

The new 2014 OVDP Update presents new opportunities mixed with new traps. It is important to make sure that you get expert advice regarding your Offshore Voluntary Disclosure. Contact the experienced tax law firm of Sherayzen Law Office. We have helped clients throughout the world and we can help you.

Contact Us to Schedule Your Confidential Consultation!