- 1 Tax Amnesty (2018 & Beyond)
- 2 Why Did OVDP End?
- 3 The IRS Wants Your Money
- 4 What if You Were Willful?
- 5 Non-Willful
- 5.1 What is that traditional IRS Voluntary Disclosure Program?
- 5.2 Can I still be audited under the program?
- 5.3 Can I still be prosecuted under the program?
- 5.4 What will my penalty be under the program?
- 5.5 What if the IRS agents show up at my door?
- 5.6 Will a Kovel Letter protect me?
- 5.7 Is Crypotcurrency Taxable?
- 5.8 Do I have to report my foreign crypto currency?
- 5.9 What if I just Quietly Disclose?
- 5.10 What if I never gave my U.S. information to the foreign bank?
- 5.11 What if I never respond to a FATCA Letter?
- 5.12 Should I just disclose my foreign accounts instead of reporting?
- 6 Making an IRS Voluntary Disclosure – Use an Attorney
- 7 We Specialize in IRS Voluntary Disclosure
- 8 Who Decides to Enter IRS Voluntary Disclosure
- 9 IRS Penalty List
- 9.1 Failure to File
- 9.2 Failure to Pay
- 9.3 A Penalty for failing to file FBARs
- 9.4 FATCA Form 8938
- 9.5 A Penalty for failing to file Form 3520
- 9.6 A Penalty for failing to file Form 3520-A
- 9.7 A Penalty for failing to file Form 5471
- 9.8 A Penalty for failing to file Form 5472
- 9.9 A Penalty for failing to file Form 926
- 9.10 A Penalty for failing to file Form 8865
- 9.11 Fraud penalties imposed under IRC §§ 6651(f) or 6663
- 9.12 A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
- 9.13 A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
- 9.14 An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
- 9.15 Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
- 9.16 A person convicted of tax evasion
- 10 What Should You Do?
How to Get into IRS Domestic & Offshore Compliance Post-OVDP
Unfortunately, OVDP is no longer an available option for you to disclose your unreported money. It impossible to determine whether the IRS will ever reignite the OVDP franchise after they said they wouldn’t (A Good Day to Diehard, anyone?), but at this time, the program is no longer operational.
Tax Amnesty (2018 & Beyond)
Since the introduction of the traditional OVDP, which was originally coined OVDI, the landscape has changed.
- In 2010 the world was introduced to FATCA
- FATCA caused a renewed interest in FBAR and FBAR Penalties
- OVDP Penalties were increased
- The United States developed several International and domestic tax enforcement groups.
- The United States settled with many large foreign financial institutions such as UBS, Suisse Bank, and Bank of Leumi
- The list of Foreign Financial Facilitators Doubles, and then Triples
- OVDP Penalties increased again
- The Panama Papers
- Coinbase subpoena
- The crackdown enforcement of Crypto currency evasion by way of J-5 (which the United States joined)
- Paul Manafort
Why Did OVDP End?
Some unethical attorneys say “Good riddance” to OVDP, since these brilliant attorney “self-appointed experts” can always argue that a person was non-willful.
Try telling that to the multiple clients who have contacted us and are now facing audit or worse after other “experienced” attorneys told them to go Streamlined or Reasonable, since it would be no problem — but now refuse to represent them in the audit.
The reason why OVDP is gone is pretty simple: The IRS does not need you to voluntarily disclose your offshore and foreign accounts the same way the IRS did 10 years ago.
There are hundreds of thousands of foreign financial institutions already reporting your information to the IRS.
More than 110 different foreign countries have already agreed to comply and work with the US to facilitate Global tax and reporting compliance.
The IRS Wants Your Money
For those of you familiar with our blog, you know that we are not scaremongers. For some, the reality is simply that they were willful, and they need an “out.”
These clients would get a much better deal than they would if they did not submit to OVDP, and then got caught.
And, if a person was non-willful and otherwise did not have extenuating circumstances in which OVDP was still the better choice, they would go Streamlined or Reasonable Cause.
But, the hard reality of the situation now is the reason why the IRS did away with OVDP is because they are no longer providing the carrot and stick.
While, a 27.5% penalty sounds bad (because it is, bad) it is nothing compared to:
- 100% Penalty in a multi-year audit
- Civil Willful Penalties
- Criminal Tax Fraud and Evasion charges
- IRS Special Investigation, and
- The very real possibility that you could be prosecuted.
What if You Were Willful?
If you were willful, then you still have options.
There is still a traditional IRS Voluntary Disclosure Program on the books. It has been around for many years, but unlike traditional OVDP, it is a very complex undertaking that can become much more drawn-out.
It requires the experience and finesse of proven counsel, and preferably with:
- ~20 Years Attorney Legal Experience representing their own clients
- A Master’s of Tax Law (LL.M.)
- Either and Enrolled Agent (EA) or CPA designation
- Preferably a Board Certified Tax Law Specialist.
If you are non-willful then you still have the same available options that you have prior to September 29, 2018, including:
- Streamline Domestic Offshore Procedures
- Streamline Foreign Offshore Procedures
- Reasonable Cause/Delinquency procedures
Common Questions and Concerns
What is that traditional IRS Voluntary Disclosure Program?
The traditional IRS voluntary disclosure program is it disclosure program that is been around for many years. It is detailed in internal revenue manual and it’s not limited to Domestic Income only. It does not have to same submission platform as OVDP, but for any individual who was willful and wanting to get into compliance it is the only option available, person cannot enter streamline program or make it reasonable cause submission ever if they are willful?
Can I still be audited under the program?
Yes, you can still be audited if you submit the Program (even if you were excepted), but Typically, if you are excepted in the IRS is going to be more willing to negotiate penalty that does not necessarily hate you with every willful or fraud penalty that you may otherwise be subject to if you did not submit directly to the program.
Can I still be prosecuted under the program?
Yes, you can still potentially be prosecuted but in reality come if you make a timely and accurate submission, you have not otherwise been ratted it out or under investigation by the IRS, come and your money’s not from illegal sources, you should have a high chance for success in the program.
What will my penalty be under the program?
Unfortunately, there’s no way to know specifically what your penalty will be. In other words, what a person would submit to the OVDP, it would know what their penalty will be first there is a specific calculation (usually 27.5%) that is made up on the maximum balances and rental property.
What if the IRS agents show up at my door?
It depends. If the person is your spouse (and you’re on good terms) you should probably let them in. Otherwise, it is not your spouse (where does your spouse and you’re not on good terms) that you like to speak with an attorney, ask the agent (the typically appear in twos) for a copy of his or her business card and sure to contact your attorney.
Will a Kovel Letter protect me?
Not always. There seems to be a misunderstanding, especially amongst new or voluntary disclosure attorneys who have no background as a an IRS Enrolled Agent or CPA.
The Kovel letter is a specific letter (although it is not statutory law) which allows an attorney to retain a non-attorney accounting professional for very limited purposes to facilitate the providing of legal advice.
It is not the same as you’re IRS voluntary disclosure attorney hiring a CPA to prepare your taxes.
Is Crypotcurrency Taxable?
Yes. It is difficult, because the phraseology used is currency, but from the IRS perspective virtual currency is not currency, but rather property. Therefore, since it is property, it is subject to various different tax rules, such as income tax and capital gain.
Do I have to report my foreign crypto currency?
In addition, if you have a overseas cryptocurrency or virtual currency then you may be subject to a number of different IRS reporting requirements
What if I just Quietly Disclose?
Require disclosure is it colossal bad idea. Think about it, the IRS has a 90+ percent conviction rate and your strategies going to be to intentionally make misrepresentations or omissions to the IRS and risk your freedom and multiple penalties
For more about Quiet Disclosure, click here.
What if I never gave my U.S. information to the foreign bank?
Unfortunately, simply now providing any information about your US status it Is not necessarily going to shield you from the bank FATCA Reporting you. For example, you may have:
- Previously provided a US address
- Received the transfer from US Bank
- Allow access for signature authority to a U.S. person
What if I never respond to a FATCA Letter?
We get it… the old bury your head in the sand and hope it goes away. Here’s with that reminds me of: a few weeks ago I those daughter wanted to play hide and seek. She hit, by covering her eyes coming Because she couldn’t see me Thomas and I could see her.
It didn’t work for her come and it probably won’t work for you.
And, with the US government hoping the game and using FATCA to pursue criminal prosecutions and convictions, it is not the best strategy.
Should I just disclose my foreign accounts instead of reporting?
This is another one of those short-term plans with long-term consequences. Let’s are you close the account and then your foreign financial institution such to report Bank accounts for the year was closed. Not only with that support you come up with the iris OC that you have never identified that you have a foreign account on any of your returns or FBARS, and then suddenly closed the account.
It is Not the best idea.
Making an IRS Voluntary Disclosure – Use an Attorney
The voluntary disclosure material provided by the IRS indicates that the attorney should make the submission. There is no attorney-client privilege with a CPA, which means the information you discuss with your CPA may not be confidential or protected by privilege.
That also means the IRS maybe able to question a CPA about the contents of the submission. This is why you will not want to utilize a CPA to make this submission but rather an attorney to ensure you have the attorney-client privilege.
We Specialize in IRS Voluntary Disclosure
We represent all different types of clients. High net-worth investors (over $40 million), smaller cases ($100,000) and everything in-between.
We represent clients in over 60 countries and nationwide, with all different types of assets, including (each link takes you to a Golding & Golding free summary):
- Unfiled Tax Returns
- Unreported Income Penalties
- International Tax Investigations (FATCA and more)
- FBAR Investigations
- International Tax Evasion
- Structuring Investigations
- Eggshell and Reverse Eggshell Audits
- Divorce and Offshore Accounts
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosures
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Who Decides to Enter IRS Voluntary Disclosure
All different types of people submit to IRS Voluntary Disclosure. We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist
Our Managing Partner, Sean M. Golding, JD, LLM, EA is the only Attorney nationwide who has earned the Board Certified Tax Law Specialist credential and specializes in IRS Voluntary Disclosure and closely related matters.
In addition to earning the Certified Tax Law Certification, Sean also holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS.)
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Less than 1% of Tax Attorneys Nationwide
Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.
The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.
Our International Tax Lawyers represent hundreds of taxpayers annually in over 65 countries.
IRS Penalty List
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
A Penalty for failing to file FBARs
United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
FATCA Form 8938
Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 5472
Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
A Penalty for failing to file Form 926
Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What Should You Do?
Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.
Contact Us Today; We Can Help You.
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, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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