Non-Willful, But Do Not Qualify for Streamlined Domestic Offshore Procedures?

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Reasonable Cause Statement if I do Not Qualify for Streamlined Domestic?

Reasonable Cause Statement if I do Not Qualify for Streamlined Domestic?

As an International Tax Law Firm that focuses exclusively on offshore voluntary disclosure, we have spoken to thousands of clients with offshore disclosure issues over the years. Many people who do not qualify for the Streamlined Domestic Offshore Procedures may still qualify for a Reasonable Cause Statement.

In speaking with our clients, we have learned that there is entirely misleading and inaccurate information posted on numerous websites.

Why Mislead the Public?

When a firm or CPA intentionally uses misinformation to goad a client into OVDP (read: Collect Higher Fees) it is very upsetting to us. Besides explaining the correct process to the client, we have to “unravel” what the other firm initially told the client.

Most recently we received an inquiry from a senior-citizen individual (81 years-old) who later became a client; when he contacted us, to say he was besides himself in fear is an understatement.

He had a situation in which he was clearly non-willful, but did not qualify for the streamlined program. Instead of offering the option of “reasonable cause,” the attorney/CPA (who shall remain nameless but advertisers everywhere online and enjoys “borrowing” our Ad Copy) told the individual that he would have to go OVDP to avoid jail.

He falsely told the client that were no other options – even though this was a lie, since the applicant was non-willful, and that “5 Years in Prison was a very real outcome.”

It wasn’t; not at all.

Facts – David

David is 81 years old and originally from Japan. David earns minimal money in the United States and therefore mistakenly believed he did not have to file a tax return in the United States.

It turns out, that while David only earns minimal income in the United States, he earns upwards of $250,000 in passive income overseas from a lifetime of hard work and proper investing. He also pays significant taxes, to the degree that once the foreign tax credit is applied, he would owe no tax in the United States.

When David spoke with this Attorney/CPA, the attorney told him that he has to go OVDP. When David asked why, the attorney told him he did not qualify for streamlined and there were no other options. He told David he would need “$100,000 upfront to represent him to avoid David going to jail.”

**We have prepared hundreds of Domestic Streamlined Applications in the short 2.5 years the program has been around, and have consulted with IRS Agents and trial counsel on various issues not directly dealt with in the FAQs. While a late-filed return may still be considered valid (technically, the Streamlined Program wants all prior returns to have been timely filed, but the IRS may waive that requirement on a case by case basis), they will not accept a prior year original return as part of the package. Moreover, if you file an original return and then immediately include it in the Streamlined Application, it goes against the “spirit” of the program and may result in significant fines and penalties.

Scaremongering & Voluntary Disclosure

If you saw an elderly man walking down the street, would you run up and punch him in the face? Of course not — so why would you run up and try ripping $100,000 out of his hands.

David had several facts in his favor:

  • David was from Japan
  • David had all of his accounts in Japan
  • David’s accounts are all under his own name
  • David earned all of the money while living in Japan
  • David had no money in any other foreign country
  • David earned all of his money legally
  • David did not owe much US tax by time all proper credits were applied.
  • 90% – 95% of his money was in retirement funds or foreign pension

Does this sound willful to you?

Reasonable Cause

Inexperienced attorneys and scaremongers feed off of your fear, but they do not know the law. They do not have the experience in representing clients in this area of law and therefore do not know the nuances and alternatives available.

When David retained our firm, we explained the different options to him. He could of course go OVDP and then Opt-Out, but presumably the IRS would still penalize him – and under these facts that seemed entirely unfair. We ended up submitting a reasonable cause application for David (he did owe a few thousand in tax liability even after the credit was applied –due to the increase in tax of his Social Security), which was successful. Reasonable cause does not apply to everybody, but in this type of situation where David did not qualify for the streamlined program, David determined it was his best option and we believed in him.

**For streamlined foreign offshore procedures a person could have un-filed tax returns and still qualify. For streamlined domestic offshore procedures (Applicant does not reside outside of the country for at least 330-days in any one of the last 3 tax years and/or meets the substantial presence for each of the last three tax years) a person must have filed tax returns.

Golding & Golding, A PLC

We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.