How to Hire an OVDP Lawyer (2018) – Avoid OVDP Tax Attorney Scams

How to Hire an Effective OVDP Lawyer (2018) – Avoid OVDP Tax Scams

How to Hire an OVDP Lawyer (2018) - Avoid OVDP Tax Attorney Scams (Golding & Golding)

How to Hire an OVDP Lawyer (2018) – Avoid OVDP Tax Attorney Scams (Golding & Golding)

With the IRS Announcement that OVDP is ending on September 28, 2018, there has been an influx of inexperienced OVDP Attorneys marketing themselves online as IRS Offshore Voluntary Disclosure Lawyers.

They are all too ready to take your hard earned money, and leave you out to dry.

These Attorneys have no OVDP experience, and have probably handled a few Streamlined Cases as part of their general tax practice.

They have never handled a trial, never litigated a case on their own, and never represented a client during an OVDP Opt-Out.

We Recommend Clients Take Action

Since we receive numerous referrals each year from clients who were tricked into retaining one of these firms first, we realize it is the same few firms. At best they are ignorant of the law, and at worst have committed ethical violations and malpractice. They rarely have more than 5-10 years of attorney experience, and little to no experience representing their own clients as an Attorney in private practice.

If you find yourself in this situation, contact us and let us know what happened — so we can try to assist you.

Offshore Disclosure is ALL We Do

Since Offshore Disclosure is all we do, we have spoken to literally thousands of clients over the years on issues involving offshore disclosure. We believe we are the most passionate and dedicated OVDP and Streamlined Lawyers in the marketplace.

We want to help you. Whether you hire our firm, or another experienced offshore disclosure firm, it is important to eliminate the inexperienced and unethical attorneys from your short-list before making a decision.

How do these Unethical Attorneys Operate?

They intentionally misrepresent how Offshore Disclosure works to potential clients in an attempt to undercut qualified OVDP Lawyers and make a quick buck. They intentionally downplay the potential penalties, pitfalls and landmines you may encounter — because they have no experience in representing clients in the trenches.

And, with OVDP set to terminate in less than 6 months (September 28, 2018), it is only gets worse.

In all reality, unless your OVDP Attorney has been practicing law as an Attorney for at least 15 years, has litigation and audit experience as an Attorney, and both an LL.M. (Master’s in Tax Law) and either an EA or CPA – they are not qualified to handle your OVDP or Streamlined Matter, no matter how “routine” they incorrectly believe it is.

Examples of Common Unethical OVDP Practices

Free Telephone Consultations – The “Scare and Sell”

We do not offer free consultations. Rather, we offer reduced-fee initial consultations designed to educate and inform. We never steer a willful person into Streamlined or vice versa (unless the non-willful person prefers to make an OVDP submission instead of Streamlined, for one any number of different reasons)

Nine out of 10 times, a Free Consultation is a sales call. Experienced Attorneys (in any industry) rarely offer initial consultations. The reason why is because it takes time to vet out a client’s facts and circumstances properly, and it can almost never be accomplished in a quick 10-20 minute rushed call.

The call is designed to sell you before you have the opportunity to speak with experienced counsel. And, what is the quickest way to sell you with offshore disclosure? It is by telling you that everyone goes Streamlined. They tell you your matter is “routine” and “low-risk,” and artificially reduce the fee. They misinform you that any attorney who recommends OVDP is trying to pad their pockets.

They tell you everything will be fine, and that the chance of audit is low.

And, while the chance of audit is low, for those who get selected and get caught cheating or lying to the IRS, they can face fines, penalties, and jail.

**We are currently representing clients who were sold into Streamlined when they were willful (and vice versa), and have been approached by many more (so no, you are not alone).

The Attorney Automatically Steers You Away From OVDP

For some people the Streamlined Program is a great program, but not for everyone – not by a long-shot. If an Attorney is not willing to go through the entire OVDP analysis with you, it is because:

  • They do not have any experience in OVDP
  • They are afraid of the IRS
  • They are scared to represent you in an OVDP Opt-Out
  • They have never litigated a case or handled an Eggshell Audit.

If an attorney tells you that you should go streamlined without properly evaluating your entire situation with you (which typically cannot be accomplished during a hurried “free” initial consultation), you should thank them, and move onto the next Attorney.

They say to Go Streamlined Because The IRS Will Never find you

How do they know this? The reality is, the IRS audits and audits/examines many, many taxpayers each year. It is impossible to know if the IRS will find you. But, maybe they will.

Are you willing to risk your freedom, along with a 100% penalty for a multi-year audit by knowingly submitting to the Streamlined Program (which is only for non-willful individuals) and falsely stating under penalty of perjury that you were non-willful, when you know you weren’t?

You Were only Willful for a few Years

So What? That still makes you willful and there is no exception for individuals who were only willful for a year or two. If you were willful, then you can submit to OVDP and then opt-out. That is your only option, presuming you are going to submit to one of the Offshore Voluntary Disclosure Programs.

See a Case Study about the perils of letting inexperience counsel lead you astray against your better judgment.

You Do Not Meet the CPA or EA Beforehand

You are hiring a firm to handle your Offshore Disclosure. If the Attorney(s) are not also Tax preparers (CPA or EA), and they do not have CPAs or EAs on staff, then how do you know who is preparing your tax returns?

You should have an opportunity to interview the CPA or EA to determine:

  • Do they have any experience in preparing returns for your particular country?
  • How many returns have they prepared?
  • Do you get to meet with them along with the Attorney to ask questions during the process?
  • What if you do not like the CPA, can you get a Refund?
  • Have other clients had good experience with the CPA or EA?

These are questions to consider before signing with a firm for OVDP (or Streamlined).

Questions to Ask a Potential OVDP or Streamlined Lawyer

  1. How Many Offshore Disclosures have they personally handled in the Last 3 Years?
  2. What Portion of their practice is dedicated to Offshore Disclosure?
  3. How many cases have they litigated, when they represented their own client?
  4. How Many Audits have they directly represented their own clients in?
  5. How many OVDP Opt-Outs have they handled?
  6. Did They work at the IRS as an attorney, or merely an Auditor or Examiner?

Understanding IRS Offshore Voluntary Disclosure

IRS Voluntary Disclosure of Foreign or Offshore Accounts is a legal method for getting into IRS Tax and Reporting compliance before the IRS finds you first.  At Golding & Golding, we limit our entire tax law practice to IRS Offshore Voluntary Disclosure. 

Why IRS Voluntary Disclosure?

With the introduction and enforcement of FATCA (Foreign Account Tax Compliance Act) and FATCA penalties, coupled by the renewed interest in the IRS issuing FBAR (Report of Foreign Bank and Financial Account Form aka FinCEN 114) penalties — which are both very steep – it is typically a better strategy to be proactive and get into compliance, than to play “defense.”

FBAR penalties alone can reach ~$12,500 per account, per year (adjusted inflation from $10,000). While this is the maximum penalty, the “recommended penalty” is still $12,500 per year (usually 3-6 years). 

4 Types of IRS Offshore Voluntary Disclosure Programs

There are typically four types of IRS Offshore Voluntary Disclosure programs, and they include:

  • Offshore Voluntary Disclosure Program (OVDP)
  • Streamlined Domestic Offshore Procedures (SDOP)
  • Streamlined Foreign Offshore Procedures (SFOP)
  • Reasonable Cause (RC)

IRS Voluntary Disclosure of Offshore Accounts

Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.

When Do I Need to Use Voluntary Disclosure?

Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that for one or more years, you were required to file a U.S. tax return, FBAR or other International Informational Return and you did not do so timely, then you are out of compliance.

Common Un-filed IRS International Tax Forms

Common un-filed international tax forms, include:

If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to IRS Offshore Voluntary Disclosure.

Golding & Golding – Offshore Disclosure

At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.

In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.”

It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.

The Devil is in the Details…

If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.

It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.

Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.

What if You Never Report the Money?

If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported —  then you are in a bit of a predicament, which you will need to resolve before it is too late.

As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.

Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).

Getting into Compliance

There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.

5 IRS Methods for Offshore Compliance

  • OVDP
  • Streamlined Domestic Offshore Procedures
  • Streamlined Foreign Offshore Procedures
  • Reasonable Cause
  • Quiet Disclosure (Illegal)

We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlike the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.

After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.

If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.

Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.

1. OVDP 

OVDP is the Offshore Voluntary Disclosure Program — a program designed to facilitate taxpayer compliance with IRS, DOT, and DOJ International Tax Reporting and Compliance. It is generally reserved for individuals and businesses who were “Willful” (aka intentional) in their failure to comply with U.S. Government Laws and Regulations.

The Offshore Voluntary Disclosure Program is open to any US taxpayer who has offshore and foreign accounts and has not reported the financial information to the Internal Revenue Service (restrictions apply). There are some basic program requirements, with the main one being that the person/business who is applying under this amnesty program is not currently under IRS examination.

The reason is simple: OVDP is a voluntary program and if you are only entering because you are already under IRS examination, then technically, you are not voluntarily entering the program – rather, you are doing so under duress.

Any account that would have to be included on either the FBAR or 8938 form as well as additional income generating assets such as rental properties are accounts that qualify under OVDP. It should be noted that the requirements are different for the modified streamlined program, in which the taxpayer penalties are limited to only assets that are actually listed on either an FBAR or 8938 form; thus the value of a rental property would not be calculated into the penalty amount in a streamlined application, but it would be applicable in an OVDP submission.

An OVDP submission involves the failure of a taxpayer(s) to report foreign and overseas accounts such as: Foreign Bank Accounts, Foreign Financial Accounts, Foreign Retirement Accounts, Foreign Trading Accounts, Foreign Insurance, and Foreign Income, including 8938s, FBAR, Schedule B, 5741, 3520, and more.

What is Included in the Full OVDP Submission?

The full OVDP application includes:

  • Eight (8) years of Amended Tax Return filings;
  • Eight (8) Years of FBAR (Foreign Bank and Account Reporting Statements);
  • Penalty Computation Worksheet; and
  • Various OVDP specific documents in support of the application.

Under this program, the Internal Revenue Service wants to know all of the income that was generated under these accounts that were not properly reported previously. The way the taxpayer accomplishes this is by amending tax returns for eight years.

Generally, if the taxpayer has not previously reported his accounts, then there are common forms which were probably excluded from the prior year’s tax returns and include 8938 Forms, Schedule B forms, 3520 Forms, 5471 Forms, 8621 Forms, as well as proof of filing of FBARs (Foreign Bank and Financial Account Reports).

OVDP Penalties

The taxpayer is required to pay the outstanding tax liability for the eight years within the disclosure period – as well as payment of interest along with another 20% penalty on that amount (for nonpayment of tax). To give you an example, let’s pick one tax year during the compliance period. If the taxpayer owed $20,000 in taxes for year 2014, then they would also have to include in the check the amount of $4,000 to cover the 20% penalty, as well as estimated interest (which is generally averaged at about 3% per year). This must be done for each year during the compliance period.

Then there is the “FBAR/8938” Penalty. The Penalty is 27.5% (or 50% if any of the foreign accounts are held at an IRS “Bad Bank) on the highest year’s “annual aggregate total of unreported accounts (accounts which were previously reported are not calculated into the penalty amount).

For OVDP, the annual aggregate total is determined by adding the “maximum value” of each unreported account for each year, in each of the last 8 years. To determine what the maximum value is, the taxpayer will add up the highest balances of all of their accounts for each year. In other words, for each tax year within the compliance period, the application will locate the highest balance for each account for each year, and total up the values to determine the maximum value for each year.

Thereafter, the OVDP applicant selects the highest year’s value, and multiplies it by either 27.5%, or possibly 50% if any of the money was being held in what the IRS considers to be one of the “bad banks.” When a person is completing the penalty portion of the application, the two most important things are to breathe and remember that by entering the program, the applicant is seeking to avoid criminal prosecution!


2. Streamlined Domestic Offshore Disclosure

The Streamlined Domestic Offshore Disclosure Program is a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance.

What am I supposed to Report?

There are three main reporting aspects: (1) foreign account(s), (2) certain specified assets, and (3) foreign money. While the IRS or DOJ will most likely not be kicking in your door and arresting you on the spot for failing to report, there are significantly high penalties associated with failing to comply.

In fact, the US government has the right to penalize you upwards of $10,000 per unreported account, per year for a six-year period if you are non-willful. If you are determined to be willful, the penalties can reach 100% value of the foreign accounts, including many other fines and penalties… not the least being a criminal investigation.

Reporting Specified Foreign Assets – FATCA Form 8938

Not all foreign assets must be reported. With that said, a majority of assets do have to be reported on a form 8938. For example, if you have ownership of a foreign business interest or investment such as a limited liability share of a foreign corporation, it may not need to be reported on the FBAR but may need to be disclosed on an 8938.

The reason why you may get caught in the middle of whether it must be filed or not is due largely to the reporting thresholds of the 8938. For example, while the threshold requirements for the FBAR is when the foreign accounts exceed $10,000 in annual aggregate total – and is not impacted by marital status and country of residence – the same is not true of the 8938.

The threshold requirements for filing the 8938 will depend on whether you are married filing jointly or married filing separate/single, or whether you are considered a US resident or foreign resident.

Other Forms – Foreign Business

While the FBAR and Form 8938 are the two most common forms, please keep in mind that there are many other forms that may need to be filed based on your specific facts and circumstances. For example:

  • If you are the Beneficiary of a foreign trust or receive a foreign gift, you may have to file Form 3520.
  • If you are the Owner of a foreign trust, you will also have to file Form 3520-A.
  • If you have certain Ownerships of a foreign corporation, you have to file Form 5471.
  • And (regrettably) if you fall into the unfortunate category of owning foreign mutual funds or any other Passive Foreign Investment Companies then you will have to file Form 8621 and possibly be subject to significant tax liabilities in accordance with excess distributions.

Reporting Foreign Income

If you are considered a US tax resident (which normally means you are a US citizen, Legal Permanent Resident/Green-Card Holder or Foreign National subject to US tax under the substantial presence test), then you will be taxed on your worldwide Income.

It does not matter if you earned the money in a foreign country or if it is the type of income that is not taxed in the country of origin such as interest income in Asian countries. The fact of the matter is you are required to report this information on your US tax return and pay any differential in tax that might be due.

In other words, if you earn $100,000 USD in Japan and paid 25% tax ($25,000) in Japan, you would receive a $25,000 tax credit against your foreign earnings. Thus, if your US tax liability is less than $25,000, then you will receive a carryover to use in future years against foreign income (you do not get a refund and it cannot be used against US income). If you have to pay the exact same in the United States as you did in Japan, it would equal itself out. If you would owe more money in the United States than you paid in Japan on the earnings (a.k.a. you are in a higher tax bracket), then you have to pay the difference to the U.S. Government.


3. Streamlined Foreign Offshore Disclosure

What do you do if you reside outside of the United States and recently learned that you’re out of US tax compliance, have no idea what FATCA or FBAR means, and are under the misimpression that you are going to be arrested and hauled off to jail due to irresponsible blogging by inexperienced attorneys and accountants?

If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three tax years or do not meet the Substantial Presence Test), you may be in for a pleasant surprise.

Even though you may be completely out of US tax and reporting compliance, you may qualify for a penalty waiver and ALL of your disclosure penalties would be waived. Thus, all you will have to do besides reporting and disclosing the information is pay any outstanding tax liability and interest, if any is due. (Your foreign tax credit may offset any US taxes and you may end up with zero penalty and zero tax liability.)

*Under the Streamlined Foreign, you also have to amend or file 3 years of tax returns (and 8938s if applicable) as well as 6 years of FBAR statements just as in the Streamlined Domestic program.


4. Reasonable Cause

Reasonable Cause is different than the above referenced programs. Reasonable Cause is not a “program.” Rather, it is an alternative to traditional Offshore Voluntary Disclosure, which should be considered on a case by case basis, taking the specific facts and circumstances into consideration.

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