IRS Tax Amnesty Program | Domestic Voluntary Disclosure – IRS Lawyer

IRS Tax Amnesty Programs – U.S. & International Voluntary Disclosure (Board-Certified Tax Specialist)

IRS Tax Amnesty Program | Domestic Voluntary Disclosure – IRS Lawyer

IRS Tax Amnesty Programs are legal approved methods for getting into IRS compliance for a broad range of tax related matters, including:

• Unreported Income
• Unreported Assets
• Unreported Investments
• Unreported Accounts

IRS Tax Amnesty comes in various different forms and includes:

• IRM (Internal Revenue Manual Disclosure)
• Streamlined Domestic Offshore Procedures
• Streamlined Foreign Offshore Procedures
• Reasonable Cause

IRS Tax Amnesty Programs 

The reality is that not everybody who owes money or otherwise defrauded the IRS is going to get caught. But, for the individuals who do get caught with having intentionally, knowingly or with reckless regard life to the IRS, they may find themselves at the receiving end excessive monetary fines and penalties, along with criminal prosecution. This could lead to:

• Liens
• Levies
• Seizures
• Passport Revocation
• IRS Criminal Investigations

Willful vs. Non-Willful

The idea of making a proactive representation to the IRS to disclose income that was previously unreported is not necessarily criminal, and a key factor will be to determine willful vs. non-willful.

Non-Willful

For example, if David works as a consultant and simply forgot report one of his 1099s when he received income for some additional U.S. consulting he forgot about, David can go back and amended returns-usually without issue. Typically, since David is making a proactive representation to the IRS, he should use an experienced tax lawyer – but as long as David includes a properly prepared reasonable cause statement, David should be fine.

Willful

Unlike non-willful, if the person making the representation to the IRS does so in case he or she knows that they knowingly or otherwise intentionally omitted income or embellished deductions, the nurse seeking to avoid criminal investigation.

As such this is a very serious situation

Willful is a very generic term and it has a very broad spectrum. It typically includes multiple variations of the term intentional, such as:

• Intentional or Willful Omission – knowingly not including income
• Willful Blindness – Avoiding the fact you should have been aware
• Reckless Disregard – Essentially, you should have known you were doing something wrong

In a civil arena, the IRS gets a double-whammy. On the one hand, the IRS can take you to task and go after you for criminal-like penalties, such as FBAR penalties which could result in a 100% penalty against your assets in a multiyear audit. Compounding insult to injury, the IRS does not need to meet the burden it would otherwise need to meet in a criminal case.

Rather, courts have been holding that since the case being brought in a civil jurisdiction, the IRS is not required to meet a criminal standard. Thus, the IRS can go after you for criminal like penalties, while only meeting a civil burden (Read: Little evidence needed for major penalties).

Domestics vs. Foreign Income

The rules are incredibly different for different types of income. When it comes to offshore disclosure, there are very specific programs in place for individuals to get into compliance.

Offshore Disclosure

Ever since the Internal Revenue Service has made offshore disclosure agency enforcement priority, there’s been much publicity about these two main programs: OVDP (Offshore Voluntary Disclosure Program) and Streamlined Filing Compliance Procedures (SDOP & SFOP).

Foreign vs. Offshore

Oftentimes individuals get caught up on the difference between the terms offshore and foreign. For these purposes, there really is no difference. In other words, while most people consider offshore a scenario in which a person hides money in the Cayman Islands or British Virgin Islands – that is not how the IRS defines it. Rather, when it comes to these programs, any money located outside of the United States is considered to be offshore or foreign – the terms are interchangeable.

Therefore, whether you are a permanent resident of the United States but a citizen of Hong Kong who had accounts in Hong Kong before you ever dreamt of moving to the United States, or you are a U.S. citizen money hidden in Jersey – you would still evaluate the same programs to determine which compliance method works best for you.

Offshore or Foreign Penalty

One of the benefits of the offshore disclosure programs are that the penalties are set in stone (absent an opt out). In other words, when a person enters the Streamlined Domestic Offshore Disclosure program, they will have a 5% penalty on certain Foreign Assets and Foreign Accounts. Alternatively, if a person enters traditional OVDP, they will be subject to a 27.5% penalty or 50% penalty depending on the facts and circumstances of where the money is located.

These penalty structures are nonnegotiable. Therefore, if you enter these programs, you have to presume you will be paying these penalty amounts, unless you are in traditional OVDP and want to opt out.

**(330-Day Rule and/or Substantial Presence Test) Streamline Foreign Offshore Procedures waive the 5% penalty, but requires a 330 day foreign residence test which is very strict (more strict than the foreign earned income exclusion physical presence test). Alternatively, if a person is a non-Legal Permanent Resident and fails the Substantial Presence Test, they may still qualify as well.

Domestic Income 

When it comes to domestic income, the IRS is less forgiving. It should be noted that if a person was non-willful and submits to the streamlined program, they can also include their domestic income when getting into compliance. They can also do so with OVDP, but the domestic portion of the submission is treated different than the foreign portion.

Domestic Willful Non-Disclosure

The IRS has a Domestic Voluntary Disclosure Program. It has been around for many years, and it allows an individual to get into compliance by proactively reporting and amending their prior returns (or filing returns for the first time).

But, this comes at a cost and with a risk. Unlike the offshore voluntary disclosure programs, the domestic voluntary disclosure programs are not set in stone. In other words, under ordinary circumstances if a person was hit with domestic fraud charges, they could get hit with amongst other penalties, a 75% fraud penalty.

If you submit to the domestic program, chances are you can get that fraud penalty reduced to a 25% penalty or possibly even less, but there is no guarantee. With OVDP or Streamlined as long as your submission was truthful and prepared properly by an experienced offshore disclosure attorney you are almost guaranteed that the IRS will accept submission and the penalty will be as stated above.

With domestic voluntary disclosure, the IRS could feasibly come back penalize you more than you would otherwise penalize if you are caught and had an experienced attorney negotiate for you.

Golding & Golding – We Specialize in IRS Voluntary Disclosure

We have successfully handled a diverse range of IRS Voluntary Disclosure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Unlike other attorneys who call themselves specialists but handle 10 different areas of tax law, purchase multiple domain names, and even practice outside of tax, we are absolutely dedicated to IRS Voluntary Disclosure.

5 Safe Ways to Get into IRS Offshore Compliance

There are 5 main versions of the program. Here are the 5 Main Options:

(New) Updated Traditional IRS Voluntary Disclosure Program

When OVDP (Offshore Voluntary Disclosure Program) ended back in September 2018, the Internal Revenue Service was unclear as to whether a New “Offshore” Voluntary Disclosure Program would be introduced. Instead of a “new program,” the traditional voluntary disclosure program was expanded.

You can use the disclosure program to submit FBARs for your Foreign Bank Accounts, FATCA, PFIC, along with your Domestic Income

Resource: Summary of the Traditional IRS Voluntary Disclosure Program

Resource: Golding & Golding’s 8-Step Guide to See if you Qualify

SFCP – IRS Streamlined Filing Compliance Procedures

IRS Streamlined Filing Compliance Procedures are a stand-alone “streamlined” version of the traditional OVDP. The “stand-alone” streamlined filing procedures were created in 2014 by the Internal Revenue Service.

The purpose of the procedures are to assist taxpayers who were noncompliant with offshore reporting requirements – but were also non-willful.

If the Taxpayer can certify under penalty of perjury of being non-willful, the IRS reduces the penalty structure, and even waives the penalty for applicants who qualify as foreign residents.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Filing Compliance Procedures

SDOP – IRS Streamlined Domestic Offshore Procedures

SDOP is the Streamlined Domestic Offshore Procedures, and it is the program designed for for U.S. persons residing in the United States (or do not meet the technical “Foreign Resident Test”) 

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Domestic Offshore Procedures

SFOP – IRS Streamlined Foreign Offshore Procedures

SFOP is the Streamlined Foreign Offshore Procedures. These are the Procedures for U.S. persons residing outside the United States is referred to as the Streamlined Foreign Offshore Procedures.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Foreign Offshore Procedures

DIRP – Delinquency Procedures for Offshore & Foreign Accounts and Assets

If you do not have any unreported income resulting in having to amend your tax returns — and all you have is unreported foreign assets, accounts or investments with no unreported income, you may be in luck. In these instances, in which you do not otherwise need to file for traditional offshore disclosure or the Streamlined Filing Compliance Procedures — you may qualify for the Delinquency Procedures and avoid any penalties.

Resource: Golding & Golding’s IRS Summary of Delinquent International Informational Return Submission Procedures

RC – Reasonable Cause for Offshore & Foreign Accounts and Assets

Reasonable Cause may be an option for some taxpayers. Specifically, if you were completely non-willful in your failure to disclosure, and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd.

Resource: Golding & Golding’s Summary of IRS Reasonable Cause for Offshore & Foreign Accounts & Assets

Fixing Lesser Experienced Law Firm mistakes.

IRS Voluntary Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

We know, because those cases usually end up on our door-step. 

Resource: Examples of recent cases we had to takeover from less experienced Attorneys can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

IRS Offshore “Potential” 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

f 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.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

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.

A Penalty for failing to file Form 8938

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

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

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

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

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

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

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

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

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.

How to Find Experienced & Reputable Offshore Voluntary Disclosure Counsel

Nearly all the experienced Attorneys in this field will have 5 Main Attributes:

• Board-Certified Tax Law Specialist
• Master’s of Tax Law (aka LL.M.)
• Around 20-Years of Private Practice experience
• Extensive Litigation, Trial and related high-stakes experience.

Why is This Important? Because People Can be Whomever They Want to be Online

And that is the problem.

In recent years, we have had many clients come to us after being horribly represented by inexperienced tax counsel. While we are sure it is a problem in many fields, it seems to run rampant in IRS offshore voluntary disclosure.

These Attorneys ‘manipulate’ their past legal experiences, such as working for the IRS —  to make themselves sound more experienced than they are. You later find that they never worked as an attorney for the IRS, or even in the offshore disclosure department.  

The IRS has nearly 100,000 employees, and just being one of them does not make an attorney qualified to be an effective and experienced offshore voluntary disclosure tax attorney specialist.

IRS Offshore Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

International Offshore Disclosure Lawyer Fees – How Much are They?

As in life, you get what you pay for.

To get the best representation possible, you need an experienced Board-Certified Tax Law Specialist, with advanced degrees and advanced certifications.

If you want to hire a newer private-practice attorney that just opened shop a few years ago, hoping to save a little money on fees,  where they sold you on some “over-hyped” Kovel Letter – you’re putting yourself at risk.

Those cases usually end up on our doorstep down the line after the attorney made significant mistakes on the submission (sometimes costing the client significant amounts of time and fees that could have been avoided)

Understanding How Tax Prep & Legal Fees Work in Offshore Disclosure

A summary of Offshore Disclosure Lawyer and Tax/Accountant Fees.

Offshore Disclosure — Flat-Fee, Full-Service

All Non-Willful cases should be Flat-Fee, Full-Service for both Tax and Legal.

*If you were willful in not submitting the FBAR, the submission and analysis is much different depending on whether the IRS has contacted you yet, if you are under investigation, etc. and you should speak with experienced counsel.