Posts

2019 Offshore Voluntary Disclosure Options | International Tax Lawyers

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, you should contact Sherayzen Law Office for professional help.

Sherayzen Law Office is a leading international tax law firm in the area of offshore voluntary disclosures. Our highly specialized legal team, led by 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!

IRS Compliance Campaigns | US International Tax Attorney and Lawyer

On January 31, 2017, the IRS announced a complete new approach to tax enforcement – Issue-Focused IRS Compliance Campaigns. A total of thirteen IRS compliance campaigns were announced; all of them will be administered by the LB&I (Large Business and International) division of the IRS. Let’s explore in more detail this highly important IRS announcement.

Background Information: IRS Compliance Campaigns is the Second Phase of the LB&I Restructuring

The announcement of the IRS Compliance Campaigns does not come as a surprise. The IRS has been talking about the LB&I division restructuring for a long while and the first details of the new campaigns already appeared as early as September of 2015.

In fact, the IRS Compliance Campaigns represent the second phase of this restructuring. Already in the fall of 2015, the LB&I completed the first phase – the administrative re-organization of the LB&I into nine units, including four geographic practice areas and five issue-based practice areas.

The first phase of the LB&I reorganization focused on the administrative structure of the Division. The IRS Compliance Campaigns are meant to reorganize the Division’s tax enforcement process in a way that fits best the new administrative structure.

IRS Compliance Campaigns are Focused on Specific Tax Issues

On January 31, 2017, during a conference call announcing the new IRS Compliance Campaigns, the IRS stated that each campaign is meant to provide “a holistic response to an item of either known or potential compliance risks.” In other words, each Campaign is focused on a specific tax issue which carries a heightened noncompliance risk.

This focus on specific issues fits perfectly with the new organizational structure of the LB&I which we already discussed above. Again, this is all part of a large IRS plan to devote its scarce resources towards the areas which have significant noncompliance risk and, hence, require a more intense level of IRS scrutiny.

Issue-Focused IRS Compliance Campaigns: What Areas Will the Campaigns Affect?

As of March 21, 2017, the IRS identified thirteen such high-risk areas. A separate campaign was assigned to each of these areas. The campaigns can be grouped according to the IRS LB&I Practice Areas.

1. Cross Border Activities Practice Area

The following campaigns are included within the Cross Border Activities Practice Area of the LB&I Division: Form 1120-F Non-Filer Campaign and Repatriation Campaign.

2. Enterprise Activity Practice Area

The Enterprise Activity Practice Area of the LB&I Division contains more campaigns than any other area by a large margin. Seven different campaigns are launched within this Practice Area: IRC 48C Energy Credit; Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters; Micro-Captive Insurance Campaign; Related Party Transactions; Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign; Basket Transactions Campaign; and Land Developers – Completed Contract Method (CCM) Campaign.

3. Pass-Through Entities Area

Two huge campaigns are launched in the Pass-Through Entities Area of the LB&I Division: TEFRA Linkage Plan Strategy Campaign and S Corporation Losses Claimed in Excess of Basis Campaign.

4. Treaty and Transfer Pricing Operations Practice Area

One campaign is launched within the Treaty and Transfer Pricing Operations Practice Area: the Inbound Distributor Campaign.

5. Withholding and International Individual Compliance Practice Area

Only one, but highly important campaign was launched within the Withholding and International Individual Compliance Practice Area – OVDP Declines-Withdrawals Campaign.

The taxpayers should remember that they may be subject to multiple IRS Compliance Campaigns at the same time.

IRS Compliance Campaigns: Treatment Streams

The goal of the campaigns is to promote tax compliance – even more fundamentally, to change the taxpayer behavior in general, replacing noncompliance with compliance.

In order to achieve this goal, the IRS may utilize a variety of “treatment streams” as part of a campaign. The first and most fundamental treatment stream is the traditional audit, which will remain the ultimate weapon in all IRS Compliance Campaigns.

Second, the IRS stated that it will also include “soft letters” to taxpayers. The idea behind the soft letters is to draw a taxpayer’s attention to a particular item or issue on the taxpayer’s return, explain the IRS position and give the taxpayer an opportunity to amend his return himself (i.e. without resorting to an audit). If the taxpayer does not do so after he receives the IRS letter, an audit will most likely follow.

Additionally, the IRS stated that it will pursue four additional strategies: guidance, new forms and instructions, published practice units, and practitioner and stakeholder outreach.

More IRS Compliance Campaigns Will Be Launched in the Future

The IRS has affirmatively stated that the number of the IRS Compliance Campaigns will increase in the future. At this point, it is not yet known what particular areas the new Campaigns will affect.

Contact Sherayzen Law Office for Professional Help If You Are Affected by One or More of the IRS Compliance Campaigns

If you are affected by any of the IRS campaigns or you have received a soft letter from the IRS, contact Sherayzen Law Office for professional help. Our team of tax professionals, headed by Attorney Eugene Sherayzen, will thoroughly analyze your case, create a plan to move forward to resolve the situation, implement the plan and defend your position against the IRS.