IRS Amnesty (2018) – What are my IRS Amnesty Program Options? - Golding & Golding

IRS Amnesty (2018) – What are my IRS Amnesty Program Options? – Golding & Golding

IRS Amnesty (2018) – What are my IRS Amnesty Program Options?

IRS Amnesty is a broad term used to describe the process of getting into compliance for IRS related issues. Typically, IRS Amnesty involves entering into either one of the Offshore Voluntary Disclosure Programs or the Domestic Voluntary Disclosure Program – depending on the facts and circumstances of your situation.

Why is it Called IRS Amnesty?

Actually, it is not a pure amnesty program but rather a voluntary disclosure program. There is a difference, with the difference being in a pure amnesty program the person is all but guaranteed that once they disclose any information to the proper authorities — they will not be prosecuted.

A typical example is if a witness who may also have been a party to a crime agrees to turn and become a witness for the prosecution, they will be given “amnesty” against any prosecution for any issues relating to the crime. That is not a situation with Offshore Voluntary Disclosure.

What is IRS Voluntary Disclosure?

IRS Voluntary Disclosure is the process of getting into compliance with the IRS. There are various different programs but none of them absolutely guarantee that you will not be prosecuted.

The traditional program, which is called OVDP (“Offshore Voluntary Disclosure Program”) is the closest thing to Amnesty. Under traditional OVDP, as long as a person provides a full disclosure to the IRS, the IRS in almost all situations will forgo prosecution. Moreover, by entering the program a person can avoid being audited on issues involving the disclosure.

The Domestic Voluntary Disclosure Program is a bit different. It has not received nearly as much press as offshore disclosure, but it is been around for much a longer time-period, and is more encompassing. Unfortunately, it is also a bit more esoteric. In other words, with offshore disclosure there are very specific fines and penalties that are issued against the individual.

For example, with traditional OVDP there is either a straight 27.5% penalty or 50% penalty – depending on whether any of the unreported money is in a bad bank.

Conversely, with domestic voluntary disclosure, typically a person will make the submission and provide their scenario as to why they were improperly reporting or withholding income – but they are not guaranteed that their penalty will be a specific amount. Usually, the 75% fraud penalty is reduced to 25%, but not always.

Moreover, under the domestic disclosure, the IRS can still audit the person, whereas under the offshore disclosure, the person will almost always skate by without audit.

Is the IRS Doing Away with Voluntary Disclosure?

There have been rumblings for many years that the voluntary disclosure programs will be eliminated in 2018. It is because there is a reduced need for the program, ever since the introduction and enforcement of FATCA, in which more than 110 countries and 300,000 foreign financial institutions have begun voluntarily reporting to the IRS about US account holder information.

Moreover, as a result of various non-prosecution agreements with some of the bigger banks and financial institutions worldwide, the IRS does not have the same need for voluntary disclosure.   Coupled with this fact, is the fact that the IRS is understaffed and under budget — and is focusing its enforcement activities in various other international tax arenas.

Therefore, while you should never feel pressured into entering one of the offshore voluntary disclosure programs or the domestic voluntary disclosure program, it is important to note that the programs can be eliminated at any time and without notice (although the IRS has provided that presumably it would provide some notice before eliminating the 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….and worse.

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:

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.

We Specialize in IRS Amnesty Programs

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents 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  earned 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, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

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

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.

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.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

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

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