Examples of Tax Amnesty Submissions to the IRS (Updated, 2018)
With so many inexperienced attorneys jumping into the deep-end of IRS Voluntary Compliance without any true IRM, OVDP, Litigation or Trial experience, the general public is receiving bad information – and then calling us confused about how their tax attorney (who is a self-proclaimed specialist or “expert”) got it so wrong.
It is usually because the attorney is inexperienced (less than 15 years experience represent his or her own clients as an Attorney), or handles too many areas of tax law to stay abreast of changes in Voluntary Compliance.
Examples of Tax Amnesty
Individuals are contacting us, scared and confused about incorrect information they received regarding whether or not they qualify for voluntary disclosure.
In order to provide some clarity, we are going to provide a few common examples (no, you are not alone) we come across in our practice.
We are the ONLY Board-Certified Tax Law Specialist Firm that focuses exclusively in IRS Voluntary Disclosure, which includes:
- IRM (Internal Revenue Manual) Voluntary Disclosure (OVDP has been discontinued)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures/Reasonable Cause.
The following are some of the common examples:
Common Scenario 1 – Peter from HONG KONG
Peter is from Hong Kong. He is a Legal Permanent Resident in the United States and has resided in the U.S. for many years. He was unaware of reporting, and has four main issues:
- He has unreported foreign accounts in Hong Kong
- He has unreported foreign income in Hong Kong (Tax-Free in Hong Kong)
- He as unreported rental income in Hong Kong
- Unreported 1099 interest he forgot to include.
Result: The mere fact that Peter has unreported U.S. income in addition to Foreign Income does not preclude him from qualifying for Voluntary Disclosure. He can still disclose all of his U.S. and Foreign income, assets, investments, and accounts – and may qualify for Streamlined or Reasonable Cause.
Common Scenario 2 – David From INDIA
David is From India. He is a Legal Permanent Resident in the United States and has resided in the U.S. for many years. He was unaware of reporting, and has four main issues:
- Undisclosed Indian mutual funds (Kotak, ICICI, L&T, HDFC), with some funds linked to an SBI account — Dividends were issued
- Fixed Deposits (FD) that have not matured but are accruing income
- A Tax Refund issued in India, since his earnings were below the tax threshold.
- U.S. consulting income that was received, in which no 1099 was issued (he forgot about. the income)
Since David has mutual funds, and there are distributions going out into a linked ICICI, SBI or other account, an excess distribution analysis must be completed (even if it is thereafter reinvested, since it left the fund).
In addition, David is required to pay tax on the interest income accruing in his FD (even if they only pay out at the end).
Finally, since he received a tax refund in India, presumably he would not be entitled to a foreign tax credit on those taxes paid (or it would have to be repaid and claimed as income in the U.S.)
Result: David still qualifies for the Streamlined Program (and possibly Reasonable Cause) if he was non-willful, but is ineligible for a Mark-to-Market election using the Streamlined Program (although he may be able to make the election using Reasonable Cause).
He can still report the U.S. Income in either program.
Common Scenario 3 – Michelle from the U.K.
Michelle is from the UK. She is a U.S. Citizen and relocated to the United States a bit later in life. She was aware of reporting but chose not to report. She has the following issues:
- Pension earned in the U.K. from a private employer
- U.K. rental income not reported anywhere
- Foreign investment accounts
- Taxable U.S. State Refund
Result: Since Michelle was willful, she can disclose all of the unreported income and account information to the IRS using the (IRM) IRS Voluntary Disclosure Program.
Common Scenario 4 – Dani from AUSTRALIA
Dani is from Australia. She is a mid-career U.S. Citizen who relocated to the United States a few years ago. She received incorrect advice from a foreign expat service, and she has the following issues:
- Australian Superannuation Fund (x 3)
- Bank Interest
- U.S. investment income that she reinvested.
Result: Since Dani received bad advice, she may qualify for either the Streamlined Domestic Offshore Procedures – and possibly Reasonable Cause where she can try to seek a penalty waiver.
The Superannuation(s) are usually reported on the FBAR and 8938. Typically, if there are no distributions (other factors pending) – she may qualify to avoid income tax on the growth and a 3520-A/8621 is also usually not required.
Even though the income was re-invested, the funds were distributed (even though they were reinvested) which means she may be subject to tax on the non-superannuation, non-retirement income.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs (or Reasonable Cause if you qualify).
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.