Streamlined Domestic Disclosure: Main Advantages | SDOP Attorney

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At this point, Streamlined Domestic Offshore Procedures (“Streamlined Domestic Disclosure”) is undoubtedly the most popular offshore voluntary disclosure option. Let’s explore three main reasons for this preference of Streamlined Domestic Disclosure among US taxpayers.

Streamlined Domestic Disclosure: Background Information and General Requirements

The IRS created the Streamlined Domestic Disclosure as an offshore voluntary disclosure option on June 18, 2014. The IRS specifically the designed Streamlined Domestic Disclosure to address the critique of many practitioners and taxpayers that the 2012 OVDP did not adequately deal with US taxpayers who non-willfully violated their US tax obligations (for example, in cases where the taxpayers simply did not know about the existence of FBAR or Form 8938).

Any taxpayer can participate in the Streamlined Domestic Disclosure as long as he satisfies all three parts of the eligibility criteria: US tax residency, absence of IRS examination or investigation and non-willfulness.

If a taxpayer satisfies the eligibility criteria, he then must comply with all of the required submissions. The key requirement here is the certification under the penalty of perjury that the taxpayer’s prior tax noncompliance was non-willful. This requirement is the heart of the Streamlined Domestic Disclosure and must be approached with special care.

The other requirements include filing of amended tax returns for the past three years (with all of the necessary information returns), filing FBARs for the past six years, payment of tax due with interest and payment of Miscellaneous Offshore Penalty. Other requirements may also apply depending on the specific situation of a taxpayer.

Streamlined Domestic Disclosure Offers a Number of Advantages to Noncompliant US Taxpayers

While the list of the requirements above may seem like a lot of work, in reality, Streamlined Domestic Disclosure definitely offers a number of advantages compared to other offshore voluntary disclosure options. I will discuss in this article only the main three advantages.

Keep in mind that the Streamlined Domestic Disclosure may not always be advantages to taxpayers. There are plenty of situations where other offshore voluntary disclosure options may be superior to Streamlined Domestic Disclosure.

I also wish to emphasize that the analysis of advantages or disadvantages of a particular voluntary disclosure option is highly fact-specific. I strongly recommend that you contact Sherayzen Law Office for a detailed analysis of your voluntary disclosure options before you even attempt to proceed with your offshore voluntary disclosure.

Advantages of Streamlined Domestic Disclosure: Flexible Risk Management

One of the greatest advantages (though, the one rarely discussed on the Internet) of the Streamlined Domestic Disclosure is the opportunity this option offers to manage the voluntary disclosure risks. We can be even more precise – to manage the risk-reward ratio.

There is no doubt that the now closed OVDP (the 2014 IRS Offshore Voluntary Disclosure Program) may have been the safest option available in the great majority of cases, but its “rewards” in terms of penalty rate, calculation of Penalty Base and other factors are generally (though, not always) inferior to those of the Streamlined Domestic Disclosure. Noisy Disclosures stand at the opposite end of the spectrum compared to the OVDP.

Streamlined Domestic Disclosure, however, occupies the middle ground. You only have to establish non-willfulness, not reasonable cause. This is a much lower standard. Moreover, this standard is applied to all international information returns, not just FBARs. At the same time, the penalty rate (see below) is generally far more advantageous than that of the OVDP.

Advantages of Streamlined Domestic Disclosure: Relatively Low Penalty Rate

One of the most cited advantages of the Streamlined Domestic Disclosure is the low penalty rate of 5%. Compared to the OVDP penalty rate of 27.5% or FBAR non-willful penalties outside of a voluntary disclosure program, this can be a very advantageous option. This is not always the case, but it is true in most non-willful cases.

Advantages of Streamlined Domestic Disclosure: Shortened Voluntary Disclosure Period

Another great advantage of Streamlined Domestic Disclosure is the smaller number of years covered by the voluntary disclosure period. Unlike the OVDP voluntary disclosure period (which covers eight years of FBARs and tax returns), this voluntary disclosure option only encompasses the years which are covered by a regular statute of limitations.

In other words, it only includes the past six years of FBARs (occasionally seven) and past three years of tax returns. Obviously, this is a lot more convenient than OVDP.

A voluntary disclosure that involves an expatriation will require an increased number of amended tax returns.

Contact Sherayzen Law Office for Professional Help with Streamlined Domestic Disclosure

Despite having a much simpler procedure, Streamlined Domestic Disclosure may still be quite complex and require professional attention. There are a number of pitfalls that may seriously undermine the advantages of a Streamlined Domestic Disclosure. Sometimes, unrepresented taxpayers may also make mistakes that will result in a disastrous result during a subsequent IRS audit.

This is why you need the professional help from Sherayzen Law Office. Our experienced legal team has helped hundreds of US taxpayers with their Streamlined Domestic Disclosures, and We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

IRS OVDP to End on September 28, 2018 | US OVDP Tax Law Firm

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On March 13, 2018, the IRS announced that it will be closing its flagship 2014 Offshore Voluntary Disclosure (“OVDP”) program on September 28, 2018. The closure of the IRS OVDP was already predicted by Sherayzen Law Office last year. Let’s analyze further this important development.

Historical Overview of the IRS OVDP

I already provided a profound historical overview of the IRS OVDP in a previous article. Here, I would like to state a brief summary of this history.

The 2009 Offshore Voluntary Disclosure Program (“2009 OVDP”) was considered to be the first modern offshore voluntary disclosure program created by the IRS. There were voluntary disclosure initiatives in the earlier years (most notably 2004), but they lacked the sophistication, publicity and enforcement that characterized the post-UBS case IRS OVDPs.

The 2009 OVDP ended in October of that year, but its favorable results laid the foundation for the enormously successful 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”). In fact, the 2011 OVDI turned out be such a hit that, after it ended, the IRS almost immediately instituted the “permanent” 2012 OVDP with many terms fairly similar to 2011 OVDI.

In 2014, the 2012 OVDP underwent a profound change with the creation of the Streamlined Domestic Offshore Procedures (“SDOP”) and the Streamlined Foreign Offshore Procedures (“SFOP”) as well as the split off of the old FAQ 17 and FAQ 18 into new Delinquent FBAR Submission Procedures and Delinquent International Information Returns Submission Procedures respectively. The changes to 2012 OVDP were so dramatic that the IRS and the practitioners treated the remaining part of the IRS OVDP as the 2014 OVDP.

Popularity of the IRS OVDP Changed Over Time

Since the introduction of the 2009 OVDP, more than 56,000 taxpayers participated in some version of the IRS OVDPs. Altogether, the IRS stated that “those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties”.

The popularity of the IRS OVDP, however, changed over time. It really peaked with the 2011 OVDI – about 18,000 taxpayers participated in this program. The numbers have declined ever since; the decline greatly accelerated with the 2014 introduction of SDOP and SFOP. In fact, the IRS stated that only 600 disclosures were made through the IRS OVDP in the entire year 2017.

IRS OVDP: Its Importance Today and Who Will Be Affected Most by Its Closure

Today, the IRS OVDP remains the main voluntary disclosure option for US taxpayers who willfully failed to comply with their US international tax obligations. In fact, this is the best option available to these willful taxpayers. The IRS-Criminal Investigation Voluntary Disclosure Program (CI-VDP) does not offer any of the assurances on the penalty limitations that the IRS OVDP offers today.

It is important to point out, however, that the IRS OVDP can be a desirable voluntary disclosure option not only to willful taxpayers, but also to taxpayers who were non-willful in their inability to comply with the complex US international tax laws.

There are at least two categories of these non-willful taxpayers who will be affected by the impending closure of the IRS OVDP. First, the taxpayers who were non-willful, but lack sufficient proof to establish their non-willfulness in the SDOP or SFOP. In such cases, IRS OVDP offered a prudent, even if more expensive way to deal with prior tax noncompliance.

Second, due to the fact that the IRS OVDP does not impose penalties on unreported foreign assets that were not related to income tax noncompliance, some non-willful taxpayers may find it more economically beneficial to go through the IRS OVDP rather than SDOP.

Finally, it should be remembered that the IRS OVDP is the only offshore voluntary disclosure option (besides CI-VDP) that offers a Closing Agreement – i.e. a nearly guaranteed assurance that there will not be an IRS audit of prior years after the voluntary disclosure is completed, absent fraud and/or material mis-statements of fact.

Why Did the IRS Decide to End IRS OVDP?

The reasons that IRS listed today for the closure of the IRS OVDP are practically the same as what I stated in my article last year, when I predicted the likely closure of the IRS OVDP.

First, the IRS stated that the “end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.” In other words, as I have previously wrote, the existing voluntary disclosure options are rapidly losing value as a source of new information regarding offshore noncompliance with US taxes. Third-party reporting has overtaken the OVDP in this respect due to the huge and continuously expanding network (especially the FATCA network) of automatic information exchange between the IRS and foreign financial institutions.

Second, as I warned in November of 2017, there has been a systemic change to a different model of tax administration. The IRS noted that “it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution.”

This means that the IRS is shifting away from processing broad voluntary disclosure programs while it is embracing the model of focused enforcement. This is precisely why the IRS created the issued-based LB&I Compliance Campaigns. Hence, we now entered into a phase where various enforcement channels will dominate the IRS efforts to implement US international tax laws.

Do US Taxpayers Still Have Time to do a Voluntary Disclosure Through IRS OVDP?

Yes, the taxpayers who wish to utilize the IRS OVDP option will still be able to do it through September 28, 2018.

Contact Sherayzen Law Office if You Wish to Explore Your Voluntary Disclosure Options, Including IRS OVDP

If you a US taxpayer who has undisclosed foreign assets and foreign income, you should contact Sherayzen Law Office for professional help. Our highly experienced international tax law firm has helped hundreds of US taxpayers to successfully bring their US tax affairs into full compliance with US tax laws.

You will be working directly with an international tax lawyer and owner of Sherayzen Law Office, Mr. Eugene Sherayzen. He will thoroughly analyze the facts of your case, determine your US tax compliance requirements with respect to unreported foreign assets and foreign income, estimate your penalty exposure, and determine the available voluntary disclosure options.

Once a voluntary disclosure option is chosen, the highly professional team of Sherayzen Law Office will work with you and prepare all of the necessary tax forms and legal documents. We will guide you throughout the entire process, including IRS representation in case of an IRS challenge of your voluntary disclosure or an IRS audit.

We have helped taxpayers with assets from close to 70 countries around the world and We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

IRS Increases Interest Rates for the Second Quarter of 2018

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On March 7, 2018, the Internal Revenue Service announced that the IRS underpayment and overpayment interest rates have increased for the second quarter of 2018. The second quarter of 2018 begins on April 1, 2018 and ends on June 30, 2018.

The second quarter of 2018 IRS interest rates will increase by one percent and will be as follows:
five percent for overpayments (four percent in the case of a corporation);
two and one-half percent for the portion of a corporate overpayment exceeding $10,000;
five percent percent for underpayments; and
seven percent for large corporate underpayments.

The IRS increased its underpayment and overpayment interest rates for the last time in the second quarter of 2016.

Under the Internal Revenue Code, the rate of interest for the second quarter of 2018 is determined on a quarterly basis. The second quarter of 2018 overpayment and underpayment interest rates are computed based on the federal short-term rate determined during January 2018 to take effect February 1, 2018, including daily compounding.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

This increase in the IRS underpayment and overpayment interest rates for the second quarter of 2018 is highly important and will have an impact on many US taxpayers. In particular, I would like to point out two principal areas impacted by this increase in the second quarter of 2018 IRS interest rates.

First, this increase means that the taxpayers will have to pay a higher interest on any underpayment of tax as calculated on the amended tax returns. This includes the payments that US taxpayers must make pursuant to the IRS Offshore Voluntary Disclosure Program and the Streamlined Domestic Offshore Procedures.

Second, the increase in the interest rates for the second quarter of 2018 directly affects the calculation of PFIC interest due on any “excess distributions”. It is important to remember that PFIC interest cannot be offset by foreign tax credit.

Bitcoin is Property Under Israeli Tax Law | Cryptocurrency Tax Lawyer

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On February 19, 2018, the Israel Tax Authority (“ITA”) stated in a circular to tax professionals that cryptocurrencies, such as Bitcoin, are property under Israeli tax law. This view brings the Israeli tax law very much in line with the IRS position in the United States.

Cryptocurrency is Property under Israeli Tax Law and Subject to Israeli Taxation

After years of vacillation, the ITA took the hard stance and stated that virtual currencies should be treated as intangible assets. This is a position very similar to the IRS in the United States, which declared in March of 2014 that it will consider and tax cryptocurrencies as property.

The ITA position leads to the logical conclusion that any income generated by these assets (including from the sale of cryptocurrencies) will be subject to Israeli taxation. The exact level of taxation will depend on whether a taxpayer is engaged in a business activity.

Cryptocurrency as a Non-Business Property under Israeli Tax Law

If a taxpayer’s activities do not rise to the level where a taxpayer would be considered as carrying on a business, he will not be subject to the Value Added Tax (“VAT”). This individual, however, will still have to pay the Capital Gains Tax (“CGT”) on any gains from the sale of bitcoins and other cryptocurrencies. The current CGT rate in Israel for individuals is 25%.

On the other hand, it appears that capital losses incurred by investors in crytocurrencies (a topic of special relevance today in light of the recent huge drop in the value of Bitcoins) can be used to offset any capital gains. Furthermore, these losses can be carried forward to future tax years.

Cryptocurrency as a Business Property under Israeli Tax Law

It gets a lot worse for businesses. First of all, the “mining” of virtual currencies (this is process of solving algorithms to create a new unit of a virtual currency) will be generally subject to 17% VAT. The VAT is imposed only on the mining itself; it appears that the trades thereafter will not be subject to VAT.

Second, any taxpayer engaged in the business of trading virtual currencies will be classified as a financial institution for the VAT purposes.

Finally, businesses that conduct transactions with virtual currencies should report them on their business tax returns. Any capital gains generated by cryptocurrencies will generally require businesses to pay the CGT up to the maximum rate of 47%.

ITA Circular on Cryptocurrencies as Property Under Israeli Tax Law Can Be Challenged in Court

It should be kept in mind that the circular issued by the ITA represents only the ITA’s position on cryptocurrencies as property under Israeli tax law. This circular is not the final law and it can be challenged in courts.

Contact Sherayzen Law Office for Help with US Tax Planning and Tax Compliance Concerning Ownership of Cryptocurrencies

If you are a US taxpayer who owns or deals with cryptocurrencies, you may have a significant exposure to US taxation.   If you would like to find out more about US taxation of cryptocurrencies, contact Sherayzen Law Office to schedule a confidential consultation.

IRS Requests Comments on OVDP Information Collection | OVDP Lawyer

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On February 28, 2018, the IRS issued a request for comments from the general public with respect to the its OVDP Information Collection practices. Let’s explore this new development in more detail.

OVDP Information Collection: Background Information on the OVDP

The IRS Offshore Voluntary Disclosure Program (“OVDP” now closed) remains today the primary voluntary disclosure route for taxpayers who violated their US international tax requirements willfully. It is also a valid option for taxpayers who wish to avoid the uncertainty associated with the Streamlined Compliance Procedures. This uncertainty often arises with respect to being able to establish non-willfulness and the potential follow-up audit. Finally, given the differences between the OVDP penalty calculation rules and those of the Streamlined Domestic Offshore Procedures (“SDOP”), some taxpayers may find it beneficial to go through the OVDP rather than SDOP.

The idea behind the OVDP is to allow US taxpayers to voluntarily disclose their prior noncompliance with US international tax requirements, including FBAR, in return for a fixed, lower penalty. One of the great benefits of the OVDP is that it generally eliminates the risk of a criminal prosecution.

OVDP Information Collection: Forms For Which Comments are Requested

The IRS requests comments for all Forms 14452, 14453, 14454, 14457, 14467, 14653, 14654, 14708 and 15023. In other words, while this request is formally made under the OVDP, it also covers the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Moreover, by including the brand-new Form 15023 (which was just created a few months ago), this request for comments (which supposed should cover only the OVDP Information Collection) also extends to the new IRS Decline and Withdrawal Campaign.

OVDP Information Collection: Requested Comments

The IRS requests comments on five matters related to the OVDP Information Collection, SDOP, SFOP and Form 15023:

“(a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.”

OVDP Information Collection: Deadline for Comments

The IRS requests that all written comments be received on or before April 30, 2018.

Contact Sherayzen Law Office for Professional Help With OVDP and Other Offshore Voluntary Disclosure Options

If you have undisclosed foreign accounts and foreign income, contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers to resolve their prior US international tax noncompliance, and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!