- 1 September 28, 2018 is the End Date
- 2 The IRS Is Behind on Issuing Preclearance Approval/Denial
- 3 International Tax is a MAJOR Enforcement Priority
- 4 The IRS No Longer Needs You To “Voluntary Disclose”
- 5 Willful Applicants Can Not “Go Streamlined”
- 6 What If I Was Only Willful for a Little bit
- 7 You Still Have Time to Comply with OVDP
- 8 Offshore Account Penalties
- 9 Experienced OVDP Attorney
- 10 Who Do We Represent?
- 11 Golding & Golding – Experienced OVDP Attorneys
- 12 Get Into Compliance with IRS Offshore Disclosure
OVDP is Ending on September 28, 2018 – Understanding Your Options
In March of 2018, the IRS announced that OVDP is ending. This is a serious situation for any person who willfully (which includes intentional omissions, quiet disclosures, or reckless disregard) failed to report their Foreign and Offshore Accounts, Assets, Income or Investments to the IRS (including FBAR and FATCA Compliance).
The end of OVDP will also limit individuals from making late election Mark-to-Market elections, since the IRS disallows MTM elections in the Streamlined Program.
September 28, 2018 is the End Date
The OVDP ‘Program’ terminates on September 28, 2018. By that date, you must have at least submitted Phase 1 of the Offshore Voluntary Disclosure process. That does not mean just the preclearance letter, but rather the first phase of documentation, which typically includes certain designated forms such as a 14454 and 14457. Simply submitting a preclearance letter by the date above would presumably not be sufficient to enter OVDP.
The IRS Is Behind on Issuing Preclearance Approval/Denial
Since the IRS will be ending OVDP, it would presume that the program has dropped off of the IRS priority list. The reason this is so important, is because previously in years past, the IRS would respond to all preclearance requests within 30 days.
As of lately, the IRS is taking upwards of 60 to 90 days to respond to preclearance letter – sometimes even longer. Therefore, if you are hoping to receive preclearance notification prior to submitting phase 1 of OVDP, it is important to consider submitting a preclearance letter sooner as opposed to later, since time is short.
International Tax is a MAJOR Enforcement Priority
Some inexperienced attorneys are mistaking the fact that because the IRS is ending OVDP, that somehow this means the IRS is not focusing or prioritizing offshore foreign reporting, but this is dangerously incorrect.
Rather, the opposite is happening. In the recent year, the IRS has developed many different tax enforcement groups and a large number of them focus on international tax enforcement.
In addition, if you review the Taxpayer Advocates recent summary of how the IRS has been operating, including how penalties are being issued, the penalties issued for unreported trusts and foreign accounts/business ownership has increased significantly in the past year alone.
In other words, the IRS is still making international tax enforcement a major priority.
The IRS No Longer Needs You To “Voluntary Disclose”
In years past, the IRS needed individuals and businesses to come forward and disclose their previously unreported or undeclared foreign income, assets, investments, or accounts so that the IRS to learn more about offshore tax haven processes.
Within the last five years, and the introduction of FATCA (Foreign Account Tax Compliance Act), more than 300,000 foreign financial institutions and more than 110 foreign countries worldwide have entered into that agreements with the IRS (noting, that this is nearly double the number of countries that have entered into income tax treaties with the US).
Therefore, with more than 300,000 foreign financial institutions around the globe, proactively reporting information to the IRS and US government, the IRS simply does not need to rely upon you and your voluntary disclosure to know you have unreported accounts or other assets/income.
Thus, since the IRS no longer really needs you to come forward out of the shadows and disclose your information to the IRS, they are removing the carrot and stick that was OVDP.
Willful Applicants Can Not “Go Streamlined”
If you were willful, you have no other option for getting into compliance. You absolutely, 100% cannot go Streamlined. There’s some unscrupulous attorneys out there representing to the public that they would never take a person OVDP, because that presumes willful.
What these inexperienced attorneys do not understand (and inexperience comes in all ages) is that if you were even the slightest bit willful and submit to the streamlined program (an alternative to OVDP reserved solely for individuals who were not willful), you can potentially be facing criminal tax charges.
Sure, while the IRS will not pin down the definition of the term Willful, it just takes commonsense — and many of these attorneys are throwing common sense to the wayside in order to collect the quick buck from.
What If I Was Only Willful for a Little bit
The IRS is clear: If you were willful at all, then you cannot qualify for the IRS Streamlined Program. There are no exceptions for people who were only willful for a year or two, and no exceptions for people who only failed to report “small” amounts of income. We find it abhorrent that there are other attorneys putting potential clients in serious financial risk, as well as harm’s way for a potential IRS Criminal Investigation, by pushing them into Streamlined when they know the client was willful.
On multiple occasions, we have had clients come to us after retaining one of these dreadful firms, who were now terrified because they realized that they paid an inexperienced Offshore Disclosure Attorney a “small fee” to go streamlined, when they admitted to the Attorney they were willful. Click Here for a Case Study Example of what can occur when you go Streamlined when you were willful.
Once you submit to the Streamlined Program, you can not thereafter submit to OVDP.
If a person is willful, they do not qualify for Streamlined or Reasonable Cause. It doesn’t matter whether it was 1-year, 5-years or 10-years worth of non-compliance.
**While the extent of the willfulness penalties might be mitigated through an OVDP Opt-Out, you should never submit a reasonable cause letter or streamlined submission if you were willful. This is especially true, since the IRS has begun auditing Streamlined Submissions.
Tip: The reason these firms push you into Streamlined when they know you were willful is to make a quick buck from you. Obviously a person would prefer to go Streamlined and pay a reduced penalty, and these Attorneys prey upon that feeling — at a time when you may be vulnerable. They need your business and need your money, and will throw ethics out the window to get it. Remember, you only get one bite at the Apple.
It is not their money or their freedom on the line – it is yours, so be careful…
You Still Have Time to Comply with OVDP
At Golding & Golding, IRS offshore voluntary disclosure is all we do. About 20% of our business comes from clients reviews other inexperienced attorneys and got them into a rut (sometimes a significant right and facing extensively high fines and penalties).
We can help. Whether or not you received preclearance prior to the termination of OVDP, and/or whether you prefer submit phase 1 without preclearance we are there to represent you from beginning to end.
Offshore Account Penalties
If the IRS finds you before you have a chance to get into compliance, you may be hit with some very stiff penalties, as detailed below:
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.
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.
Underpayment & Fraud Penalties
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.
Even Criminal Charges are Possible…
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 is subject to a prison term of up to five years and a fine of up to $250,000. 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.
Experienced OVDP Attorney
**Tax Law is a specialized area of law, and Offshore Disclosure is especially complex. Your OVDP or Streamlined Attorney should have:
- At least 15-20 years of experience as a practicing lawyer
- An advanced Master’s of Tax Law Degree (LL.M.); and
- Either a CPA or Enrolled Agent (EA) license.
- IRS Audit Experience
- Civil and Criminal Tax Litigation Experience
While a sole Attorney practitioner may offer a reduced rate, if they are not handling the tax preparation as well as the legal portion of the representation (including signing their own name) to the Tax Return and Legal Submission, then you have to wonder who is going to be handling that portion of the submission. Will you even get the chance to interview the CPA beforehand and work with them during the process?
Likewise, if the firm advertises or markets themselves as a Tax Resolution Firm that also handles OVDP or Offshore Voluntary Disclosure, you have to question how much experience they really have in OVDP, Streamlined, FATCA and FBAR compliance.
Who Do We Represent?
While each fact pattern and set of circumstances are different and unique, there are many types of individuals who fall into different categories of individuals who we represent often for OVDP.
Some of the more common examples include:
- Individuals who knowingly did not report their foreign accounts;
- Individuals who did not tell their CPA about their foreign accounts;
- Individuals or businesses that stash income overseas;
- Individuals who knowingly did not file a requisite FBAR or 8938; or
- Individuals or Foreign Businesses that are otherwise out of compliance
Golding & Golding – Experienced OVDP Attorneys
There is a lot of mis-information and fear mongering online regarding offshore disclosure. There are also several “newbie attorneys” who do not have any real experience with offshore disclosure, and simply regurgitate information they find on the IRS website, claim it as their own — and try to sell clients with artificially reduced fees when they have no real experience.
We know this because many OVDP clients have come to us after having a horrible experience with one of these other Attorneys.
Get Into Compliance with IRS Offshore Disclosure
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.)