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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 Requests Comments on OVDP Information Collection | OVDP Lawyer

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”) 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, you should 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!

Secret Bank Accounts in Israel and Switzerland Result in a Guilty Plea

The earlier IRS and DOJ (U.S. Department of Justice) investigations of secret bank accounts in Israel and Switzerland continue to produce new guilty pleas. On September 28, 2016, Mr. Markus Hager, a New York City resident, pleaded guilty to tax evasion for the tax years 2003-2005 and 2007-2010 with respect to his secret bank accounts in Israel and Switzerland.

Facts of the Case: Secret Bank Accounts in Israel and Switzerland

The facts of the Hager case are somewhat typical, but contain an exhilarating story of Mr. Hager’s attempts to conceal his ownership of the account – the fact that the IRS and the DOJ were able to uncover the entire history of these transfers of his funds under different names is impressive.

According to information presented in court, between 1987 through 2011, Mr. Hager utilized various secret bank accounts in Israel and Switzerland to hide his foreign funds and foreign income from the IRS. In order to do it, he opened a sham BVI (British Virgin Islands) entity which owned three accounts (two of them were numbered accounts) at UBS. It appears that, until 2008, Mr. Hager also owned some fo his UBS accounts personally. By the end of 2004, the value of his undeclared UBS accounts exceeded $7.3 million.

With the IRS victory over UBS in 2008, Mr. Hager closed his UBS accounts and transferred all of his assets to a new opened account at Clariden Leu (which was already controlled at that time mostly by Credit Suisse; in 2012, the bank was integrated into the Credit Suisse corporate structure); the account was held in the name of his BVI entity.

Shortly thereafter, Mr. Hager closed the account at Clariden Leu and transferred the assets to a newly opened account held in the name of the BVI entity at a different Swiss bank. Mr. Hager caused that Swiss bank to falsely record Hager’s Belgian cousin as the owner of the assets on the account. Approximately six months later, he closed this account at the Swiss bank and transferred the assets to an account at a bank in Israel that Mr. Hager caused to be opened in the name of yet another Belgian cousin.

Between 2005 to 2011, Hager also controlled an undeclared bank account at Bank Leumi in Israel, which he falsely held under the name of a relative who was not a U.S. person and who resided outside the United States. In February of 2010, after obtaining an Israeli Identity Card, Hager opened an account in his own name at Bank Leumi in Israel but falsely reported that he lived in the United Kingdom and signed a document, under the penalty of perjury, declaring that he was not a U.S. citizen.

According to the information filed, Mr. Hager repatriated some of the funds from his secret bank accounts in Israel and Switzerland by having his attorney draft a sham loan agreement between himself and the BVI entity. The funds were wired from some of his undeclared bank accounts in Israel and Switzerland into the attorney’s escrow account.

During the relevant years, Mr. Hager filed false federal and New York State income tax returns on which he failed to report the income from his bank accounts in Israel and Switzerland and failed to pay tax on that income. It appears that Mr. Hager evaded approximately $652,580 in federal taxes for tax years 2003 through 2005 and 2007 through 2010. Hager also failed to file his FBAR even though an accounting firm had informed Hager of his obligation to do so and advised him of the civil and criminal penalties he could suffer for the failure to do so.

Sentencing for Failure to Disclose Assets and Income from Secret Bank Accounts in Israel and Switzerland

Sentencing has been set for January 4, 2017. Hager faces a statutory maximum sentence of five years in prison, as well as a term of supervised release and monetary penalties. According to the plea agreement, Hager agreed to pay restitution to the IRS. It is not clear if the FBAR penalty has been resolved by the plea.

Secret Bank Accounts in Israel and Switzerland: Lessons from the Hager Case

The Hager Case contains a full range of facts that lead to a criminal prosecution by the DOJ: the use of a sham foreign corporation in a tax shelter, the conscious and intentional effort to conceal the ownership of the funds by closing and opening bank accounts under different names, the failure to report the ownership of secret bank accounts in Israel and Switzerland even after Mr. Hager was advised by his accounting firms about the existence of the FBAR and its penalties, the failure to report the income from accounts, the filing of false tax returns and the repatriation of funds through a sham loan agreement and using his attorney’s escrow account. All of these items are a checklist of things that one should not do in order to avoid a DOJ criminal prosecution.

One interesting aspect of this case is the number of years for which Mr. Hager was charged with tax evasion. Apparently his especially egregious conduct had earned a total of seven years instead of the usual five years of counts of tax evasion. It is also interesting that the year 2006 was skipped in the plea; it is not clear from the plea why this was the case. My supposition is that the omission of the tax year 2006 was related to the statute of limitations concerns.

Contact Sherayzen Law Office for Professional Help with Disclosure of Your Bank accounts in Israel and Switzerland

If you have undisclosed bank account in Israel, Switzerland or any other country, please contact Sherayzen Law Office, Ltd. for help as soon as possible. Attorney Eugene Sherayzen and his highly-knowledgeable team of tax professionals have helped hundreds of U.S. taxpayers around the world to bring their tax affairs into compliance. You can also benefit from their knowledge, experience, creativity and devotion to their clients’ cases by scheduling a Confidential Consultation today!

2014 IRS OVDP Future is Uncertain Due to Recent TIGTA Report

Recently, there have been signs that the IRS is pondering the future of its flagship Offshore Voluntary Disclosure Program (2014 IRS OVDP): does this means that there is a potential for the 2014 IRS OVDP to end soon?

TIGTA Report and 2014 IRS OVDP

The latest warning signal came on June 2, 2016. On that date, the Treasury Inspector General for Tax Administration (TIGTA) issued a report with six recommendations with respect to the current IRS Offshore Voluntary Disclosure Program (2014 IRS OVDP). The report contained the following enigmatic language: “Although the IRS agreed with the potential value of establishing one mailing address for taxpayer correspondence, this recommendation has been put on hold until a decision is made about the future status of the OVDP.” (Italics added) Furthermore, on page 15 of the report, the IRS again emphasizes the non-permanent nature of the 2014 IRS OVDP and refuses to commit additional resources to one of TIGTA’s recommendations.

2014 IRS OVDP Future is Uncertain

The language contained in TIGTA report should definitely be treated seriously. At the very least, we now have an official, though indirect confirmation that the IRS is thinking about modifying the 2014 IRS OVDP and potentially, the Streamlined Compliance procedures.

Is there a potential for the IRS to cancel the entire 2014 IRS OVDP? It is definitely possible; the IRS has always insisted that 2014 IRS OVDP exists simply as a voluntary IRS initiative that can be terminated at any point. Furthermore, there are signs of significant administrative issues with respect to the 2014 IRS OVDP with significant delays in case resolutions. The IRS budget constrains may simply no longer permit the IRS to sustain 2014 IRS OVDP, despite the funds that this program has brought to the U.S. Treasury.

It is also probable that the success of the Streamlined Compliance procedures, FATCA and the Swiss Bank Program may now allow the IRS to focus on prosecuting willful taxpayers, making the 2014 IRS OVDP superfluous. Of course, this would mean that non-compliant willful U.S. taxpayers would not have any official voluntary disclosure program that would accept them.  Drawing on the experience of prior periods of time between the voluntary disclosure programs, most likely, the absence of an OVDP is likely to force such taxpayers to either try to bury deeper their tax noncompliance or, if they wish to come forward, to negotiate with the IRS directly through the traditional voluntary disclosure program.  If the latter if the case, such a taxpayer will be negotiating with the IRS without any guarantees of a reduced penalty.

Another likely possibility is a significant modification of the terms of the 2014 IRS OVDP (which, itself is just a modification of the official 2012 OVDP). The change in terms could affect anything from penalty rates to procedural changes. For example, it is possible that, under the new program, the default penalty rate would rise to 50% from the current 27.5% and the high penalty rate would go above the current 50%.

U.S. Taxpayers with Undisclosed Foreign Accounts Should Consider 2014 IRS OVDP As Soon As Possible

The TIGTA Report and the great uncertainty surrounding the future of the current 2014 IRS OVDP program directly affect U.S. taxpayers with undisclosed foreign accounts. If 2014 IRS OVDP is significantly altered or even disappears entirely, U.S. taxpayers will lose one of the main voluntary disclosure venues and the only one opened to taxpayers who willfully violated U.S. tax laws.

This is why U.S. taxpayers with undeclared foreign accounts should consider their voluntary disclosure options, including participation in the 2014 IRS OVDP, as soon as possible. In order to properly initiate their voluntary disclosure process, these taxpayers should retain the services of an experienced international tax attorney.

Contact Sherayzen Law Office for Experienced and Professional Legal Help

If you have undeclared foreign accounts, please contact Sherayzen Law Office as soon as possible. Our experienced legal team of tax professionals will thoroughly analyze your case, determine your available offshore voluntary disclosure options, create your voluntary disclosure plan and implement it (including the preparation of all tax forms and legal documents).

Contact Us Today to Schedule Your Confidential Consultation!