IRS OVDPs Comparison For the Years 2009-2016

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Between the years 2009-2016, the IRS created three different Offshore Voluntary Disclosure Programs (IRS OVDPs) for U.S. taxpayers to voluntarily disclose their undeclared foreign accounts: 2009 Offshore Voluntary Disclosure Program (2009 OVDP), 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI), and 2012 Offshore Voluntary Disclosure Program (2012 OVDP). 2012 OVDP was subsequently profoundly modified in the year 2014 in what, in essence, became the new 2014 Offshore Voluntary Disclosure Program (2014 OVDP). In this article, I will do a comparative analysis of the different IRS OVDPs based on five factors: application period, disclosure period, principal miscellaneous offshore penalty, reduced offshore penalty options and other penalties.

Application Period of the IRS OVDPs

Application period means the period of time during which the IRS must receive the application from the taxpayer in order for the taxpayer to be considered for acceptance into a voluntary disclosure program.

All of the IRS OVDPs until 2012 had a clearly defined application period. The 2009 OVDP application period ran from March 23, 2009 through October 15, 2009. The 2011 OVDI application period was from February 8, 2011 to September 9, 2011 (actually, the original period was supposed to end on August 30, 2011, but the IRS extended the deadline by 9 days during to an East Coast hurricane).

Since January 9, 2012, however, the 2012 OVDP and its 2014 version have operated without a set closing date. Instead, the IRS has reserved the right to end the 2014 OVDP at any time. While this is always a possibility, it is not likely that the IRS will make such a drastic decision for various administrative reasons as well as due to the fact that OVDP is very profitable.

Disclosure Period of the IRS OVDPs

The disclosure period means the number of tax years or specific tax years which are covered by (i.e. included in) the voluntary disclosure. The disclosure period determines the years for which FBARs and amended tax returns need to be submitted as well as the years involved in the calculation of the Offshore Penalty.

The disclosure period varied greatly among the IRS OVDPs. The 2009 OVDP disclosure period included the six-year period between 2003 and 2008 (which is equivalent to the extended statute of limitations). The 2011 OVDI expanded the disclosure period to eight years to cover the years 2003-2010.

The 2012 OVDP differed from the prior programs, because the program did not have a fixed closing date and, hence, no fixed voluntary disclosure years. Instead, the disclosure period for the 2012 OVDP and its 2014 version apply to the most recent eight years for which the due date has already passed – i.e. the last closed tax year plus the previous seven tax years.

This flexibility on the part of the 2012 and 2014 IRS OVDPs may allow for a certain degree of strategy planning where a decision has to be made with respect to which is the eighth year that is more beneficial to be included. The OVDP application is then submitted in accordance with this strategy.

Principal Miscellaneous Offshore Penalty (the Default Penalty of IRS OVDPs)

All of the IRS OVDPs contain the default or “principle” Miscellaneous Offshore Penalty (the “OVDP Penalty”). The OVDP Penalty is calculated based on the assets subject to penalty (so-called “OVDP penalty base”) as a percentage of these assets.

This percentage of the OVDP Penalty has been steadily going up with each program. The 2009 OVDP Penalty rate was 20%; it grew to 25% for 2011 OVDI and 27.5% to 2012 OVDP.

The 2014 version of the 2012 OVDP introduced a dual Principal OVDP Penalty. It kept the 27.5% penalty rate as a default rate, but it introduced a 50% penalty rate for taxpayers with an account in a foreign financial institution (“FFI”) that had or has been publicly identified by the DOJ as being under investigation or as an entity cooperating with a DOJ investigation. The same 50% penalty rate also applied to facilitators who helped the taxpayer establish or maintain an offshore arrangement.

All such FFIs and facilitators are listed separately by the IRS on the OVDP website.

Reduced Offshore Penalty Options under IRS OVDPs

In addition to the Principal OVDP Penalty, almost all IRS OVDPs (except the 2014 OVDP) contained various Reduced OVDP Penalty options.

Already the 2009 OVDP introduced a reduction to a 5% penalty for so-called “passive account holders”. However, the 2009 OVDP’s definition of the 5% penalty category was fairly primitive and this was the only option for a reduced penalty.

The 2011 OVDI was really the program that perfected the concept of the Reduced OVDP Penalty. It contained and expanded the 5% penalty option defining the “passive account holders” as the taxpayers who: (a) did not open the account or cause the account to be opened, (b) exercised minimal, infrequent contact with respect to the account, (c) did not withdraw more than $1,000 from the account in any year covered by the voluntary disclosure, except in the case of a withdrawal closing the account and transferring the funds to an account in the U.S., and (d) could establish that all applicable U.S. taxes had been paid on the funds deposited to the account (i.e., where only account earnings escaped U.S. taxation).

The 5% penalty option also applied to US citizens who resided overseas and did not know that they were US citizens until the 2011 OVDI.

Furthermore, the 2011 OVDI introduced a new Reduced OVDP Penalty of 12.5% available to taxpayers with the highest aggregate account balance (which was really expanded to more than just bank accounts and included various assets) in each of the eight years covered by the OVDI less than $75,000.

The 2012 OVDP was the last program so far to adopt the Reduced OVDP Penalty structure. It borrowed it completely unchanged from the 2011 OVDI with both 5% and 12.5% options available.

In 2014, the OVDP was modified to remove all Reduced OVDP Penalty options. The reason for such a drastic change was the introduction of the Streamlined Compliance Options (both SDOP and SFOP) which operated under the reduced (in the case of SFOP, reduced to zero) penalty structure for non-willful taxpayers.

Indeed, the non-willful taxpayers won more than anyone else from the changes introduced by 2014 OVDP. However, the willful taxpayers with small bank accounts were the biggest losers from these changes. The 2014 OVDP also marked the rise of the “willfulness vs. non-willfulness” concept to the dominant position in the world of offshore voluntary disclosures.

Other Penalties under the IRS OVDPs

With respect to other penalties (such as failure to file, failure to pay and accuracy related penalties), all of the IRS OVDPs were similar in their structure.

Contact Sherayzen Law Office for Help with Your Voluntary Disclosure of Offshore Accounts and Other Foreign Assets

If you have undisclosed accounts or other assets overseas, you are in grave danger of an IRS discovery and the imposition of draconian noncompliance penalties. This is why you need professional help to evaluate your voluntary disclosure options, including the 2014 OVDP and the Streamlined Compliance Procedures.

The highly experienced team of Sherayzen Law Office Ltd. can help you with your entire voluntary disclosure, including the initial evaluation of your case and your penalty exposure, identification of your voluntary disclosure options, preparation of the chosen voluntary disclosure option including the preparation of all legal and tax documents, and the final negotiations with the IRS.

We have helped hundreds of US taxpayers worldwide and we can help you. Contact Us Today to Schedule Your Confidential Consultation!

Form 872 Refund Claims | Foreign Accounts International Tax Lawyer

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The subject of this article is the discussion of the Form 872 Refund Claims, particularly whether filing Form 872 can extend the time for the taxpayer to claim a refund for the relevant years. Stated broadly, the key question that this article seeks to explore is whether an extension of time for assessment of tax can effect the taxpayer’s ability to file a refund claim for the extended years.

Form 872 Refund Claims – Form 872 and Offshore Voluntary Disclosures

Form 872 is a form used by the IRS to obtain the consent from the taxpayer to extend the time to assess tax. This consent can be obtained for income tax, self-employment tax of FICA tax on tips.

The form is used in a great variety of cases, but, in the US international tax context, it is mostly known for its use in the IRS Offshore Voluntary Disclosure Program (OVDP) now closed. Form 872 is in fact obligatory in the OVDP due to the fact that the OVDP voluntary disclosure period is eight years whereas the standard statute of limitations is only three years (even with 25% gross income, there are still at least two years that cannot be opened by the IRS without claiming fraud). Moreover, Form 872 is also used to prevent the statute of limitations from expiring for the rest of the years while the OVDP case is pending.

Form 872 Refund Claims: Form 872 Extends the Statute of Limitations for Refund Claims

According to IRC §6511(c), if the taxpayer and the IRS agree to extend the time within which the IRS can assess a tax, the taxpayer receives a corresponding extension of the time within which he may file a credit or refund claim. Form 872 itself states in paragraph 4 that:

Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any tax (including penalties, additions to tax and interest) attributable to any partnership items (see section 6231 (a)(3)), affected items (see section 6231(a)(5)), computational adjustments (see section 6231(a)(6)), and partnership items converted to nonpartnership items (see section 6231(b)). Additionally, this agreement extends the period of limitations for assessing any tax (including penalties, additions to tax, and interest) relating to any amounts carried over from the taxable year specified in paragraph (1) to any other taxable year(s). This agreement extends the period for filing a petition for adjustment under section 6228(b) but only if a timely request for administrative adjustment is filed under section 6227. For partnership items which have converted to nonpartnership items, this agreement extends the period for filing a suit for refund or credit under section 6532, but only if a timely claim for refund is filed for such items.

Limitations on Form 872 Refund Claims

There is an important limitation on Form 872 Refund Claims. Form 872 Refund Claims will only be accepted if the extension agreement is entered into before the expiration of the claim period. See IRC §6511(c)(1). This means that, if Form 872 is entered into by the parties by the time that the statute of limitations had already expired, the taxpayer is unlikely to succeed in his Form 872 Refund Claims.

The Form 872 agreement becomes effective when signed by the taxpayer and the District Director or an Assistant Regional Commissioner (See Treas. Reg. § 301.6511(c)-1).

Let’s look at a basic example to understand this limitation on Form 872 Refund Claims better.  Let’s suppose that a taxpayer X filed his 2003 US tax return on April 15, 2004. In March of 2007, the IRS decided to audit X’s 2003 US tax return and Form 872 was entered into by both parties at that time. In this case, without an agreement (and absent other special circumstances such as foreign tax credit issues, 25% under-reporting of income, et cetera), the presumed expiration of the assessment period would be on April 15, 2007; similarly, X’s refund claim period would have expired on April 15, 2007. Since Form 872 was entered into by both parties in March of 2007 (i.e. prior to the expiration of the normal refund claim period), however, X can file his Form 872 refund claims during the period that covers the duration of the extension plus six months thereafter.

Time to File Form 872 Refund Claims

As it was hinted in the example above, the period within which a taxpayer may file a credit or refund claim arising from the tax liability covered by Form 872 is extended for the period of the extension plus an additional six months. See IRC §6511(c)(1).

What Can Be Claimed on Form 872 Refund Claims

With respect to timely Form 872 Refund Claims, the taxpayer can claim an amount limited to the amount that would have been allowable under the normal limitation rules if the claim had been filed on the date the agreement was executed AND any tax paid after the execution of the agreement but before the filing of the claim. IRC §6511(c)(2).

What is the amount allowable under the normal limitation rules? It varies widely based on for what the refund is claimed (i.e. the type of the claim) and what is the filing period. For example, if Form 872 Refund Claims are filed within the three-year filing period, the amount of the refund or credit is limited to the tax paid on the liability at issue within the three years immediately preceding the filing of the claim plus the period of any extension of time for filing the return. IRC §6511(b)(2)(A). On the other hand, Form 872 Refund Claims based on a foreign tax credit adjustment can be granted many years back because the statute of limitations is ten years.

Form 872 Cannot Reduce the Claim Period for Form 872 Refund Claims

One final point that should be mentioned is that Form 872 and any other agreement to extend the assessment period cannot reduce the refund and credit claim period. The law clearly states that, when an extension agreement is executed, the taxpayer’s claim period shall not expire before the expiration of the additional assessment period plus six months.

Contact Sherayzen Law Office for Help With Your Form 872 Refund Claims

If you entered into a Form 872 agreement to extend the time to assess tax (whether as a result of OVDP, opt-out OVDP audit, FBAR Audit or regular audit) or any other type of agreement to extend the assessment period, contact Sherayzen Law Office for help with filing your Form 872 refund claims.

Totalization Agreement with Romania Progresses | Minnesota Tax Lawyer

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On October 26, 2016, the Totalization Agreement with Romania entered a new stage – the government of Romania approved for signature a draft social security (also known as “Totalization”) agreement with the United States.

The Totalization Agreements are authorized by Section 233 of the Social Security Act. The United States currently has Totalization Agreements with 26 countries – Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary (the most recent addition), Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom

The purpose of a Totalization Agreement is to eliminate the burden of dual social security taxes. Such situation arise usually in the context of workers from one country working in another country while they are covered by the social security systems in both countries. In such cases, the Totalization Agreement protects the workers from paying social security taxes in both countries on the same earnings.

The Totalization Agreement with Romania is intended to benefit the Romanian workers who work in the United States and US workers who work in Romania. This is why any advance in the progress of the Totalization Agreement with Romania is of high interest to workers and businesses who work in both countries, United States and Romania.

Obviously, there is still a very long road to go for the Totalization Agreement with Romania. First, the Totalization Agreement with Romania has to be finalized (and it seems that this stage has been reached), then signed by both countries and, finally, ratified by both countries. This process, especially ratification, can take years especially if the US Congress and the new President do not see “eye to eye” on this issue. However, the obvious benefits of the Totalization Agreement with Romania should eventually pave the way to its ratification in both countries.

PATH Act and New January 31 Filing Deadline | Tax Attorney News

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On October 28, 2016, the IRS reminded employers and small business owners of the new January 31, 2017 deadline as a result of the PATH Act.

PATH Act’s Impact on the Filing Deadlines for Forms W-2 and 1099-MISC

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Starting 2017, the new strict W-2 filing deadline of January 31, 2017, will be enforced.

The reason for this change in the deadline is The Protecting Americans from Tax Hikes (PATH) Act of 2015. According to PATH, the employers will now have one filing deadline on January 31 for both employee copies of Forms W-2 and the filing of Forms W-2 with the Social Security Administration.

Moreover the PATH Act also affects the filing deadline for certain Forms 1099-MISC, particularly those reporting amounts in Box 7, Nonemployee Compensation. These Forms 1099-MISC will now also have to be filed on January 31, 2017.

PATH Act’s Impact on Requesting Form W-2 Filing Extension

The PATH Act also has an impact on the availability of Form W-2 filing extensions. Starting 2017, only one 30-day extension to file Form W-2 will be available and this extension is no longer automatic. If an extension is necessary, a Form 8809 “Application for Extension of Time to File Information Returns” must be completed as soon as you know an extension is necessary, but no later than January 31.

PATH Act May Delay Some Refunds Until February 15

The other major impact of the PATH Act that will be felt by many Americans is the potential hold on their refunds until February 15. The PATH Act requirest the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC); the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

PATH Act is Meant to Help IRS Fight Fraud and Spot Tax Return Errors

The PATH Act was enacted by Congress and signed into law in December of 2015 in order to make it easier for the IRS to detect and prevent fraud associated with tax refunds. The idea is to give the IRS more time to identify fraudulent refunds through accelerated W-2 filing deadline for employers and holding refunds (which are frequently subject to fraud) until February 15.

Of course, the additional time will allow the IRS to also spot any errors on the tax returns.

Omaha FBAR Attorney | OVDP IRS International Tax Lawyer

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As the headquarters of Berkshire Hathaway, Omaha (Nebraska) draws a large number of foreign-born professionals. A high percentage of these professionals still have foreign accounts overseas and they are in great needs of assistance from an Omaha FBAR attorney. Oftentimes, they cannot find an attorney they like in Omaha (especially, since this is not a very large city with a lot of international tax attorneys) and they not sure they can use the help of out-of-state FBAR attorneys who offer their services in Omaha. This essay is meant to help these persons by defining the term Omaha FBAR Attorney.

Omaha FBAR Attorney: What is FBAR

The Report of Foreign Bank and Financial Accounts (“FBAR”) is probably the most important information return with respect to disclosure of foreign accounts by US tax residents. Its importance stems from the low filing threshold and very high civil and criminal penalties.

As of the calendar year 2016, under the Bank Secrecy Act (“BSA”) §5314 and in accordance with the FinCEN regulations, the FBAR must be filed by a US person who has a financial interest in or signatory authority over one or more foreign financial accounts with an aggregate value greater than $10,000 at any time during the calendar year. See 31 U.S.C. §5314; 31 C.F.R. §1010.350; 31 C.F.R. §1010.306(c).

Thus, there are five requirements that must be satisfied in order for the FBAR filing requirement to arise. First, the filer must be a US person. Second, this US person had a bank or financial account (or accounts) during the calendar year in question. Third, this foreign bank or financial account must be foreign – i.e. in the foreign country. Fourth, during the calendar year, the US person had a financial interest in the account or signature or other authority over the financial account. Finally, the fifth requirement is that the aggregate value of the account or accounts (converted to US dollars) exceeded $10,000 at any point during the calendar year.

All five of these requirements contain important terms (such as “US person”, “financial account” and “financial interest”) which have very specific definitions; so, one must be very careful before making any assumptions about the applicability of FBARs to his situation (in fact, this is really the job for FBAR attorney). The definition of “financial account” is especially fraught with danger and may include anything from a normal investment account to a gold bar stored under the custody of a foreign bank. Please, see other relevant articles on sherayzenlaw.com for more details.

Omaha FBAR Attorney: Definition

Armed with this understanding of FBARs, we can now turn to the main subject of this article – who is considered to be an Omaha FBAR Attorney. There are two aspects to this concept: geographical and substantive.

From the outset, it should be stated that the geographical location of an attorney does not matter. An attorney can reside in Omaha, Nebraska or Minneapolis, Minnesota and still be considered an Omaha FBAR Attorney if this attorney offers his services in this city.

The reason for this geographical indifference lies in the fact that FBAR is a purely federal compliance requirement; it has no particular ties to Omaha or any other specific city or state (or a foreign country, for that matter). As long as a person is a US tax resident and he has foreign accounts, he is potentially subject to FBAR requirement even if he physically resides outside of the United States. Since FBAR is a uniform requirement that does not respect borders and jurisdictions, the same is almost true of the FBAR attorneys, except that an attorney must be licensed to practice in any of the fifty states or Washington D.C. and FBAR must be within the realm of his main area of practice.

The substantive requirement that forms part of the definition of an Omaha FBAR attorney is related to what I just mentioned – FBAR must be within the realm of the main area of an attorney’s legal practice in order for this attorney to be considered an Omaha FBAR attorney.

What is this main area of practice? US international tax law – an Omaha FBAR attorney must be an international tax attorney, because FBAR compliance is part of the much broader US international tax law.

Retain Sherayzen Law Office as Your Omaha FBAR Attorney

If have undisclosed foreign accounts or if you need assistance with your annual FBAR compliance, you should contact Sherayzen Law Office for professional help. Sherayzen Law Office is a leading international tax law firm in the area of FBAR compliance. Our highly-experienced international tax team, headed by its founder Attorney Eugene Sherayzen, has helped hundreds of US taxpayers around the globe with their FBAR compliance and other international tax issues (including offshore voluntary disclosures under the OVDP, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause Disclosures (also known as “noisy disclosures”)).

This is why, if you are looking for a Omaha FBAR Attorney, please contact Sherayzen Law Office, Ltd. today to schedule Your Confidential Consultation!