Lance Wallach
From the IRS website:
New Filing Compliance
Procedures for Non-Resident U.S. Taxpayers
The IRS is
aware that some U.S. taxpayers living abroad have failed to timely file U.S.
federal income tax returns or Reports of Foreign Bank and Financial Accounts
(FBARs), Form TD F 90-22.1. Some of these taxpayers have recently become aware
of their filing obligations and now seek to come into compliance with the law.
The Service is announcing a new procedure for current non-residents including,
but not limited to, dual citizens who have not filed U.S. income tax and
information returns to file their delinquent returns. This procedure will go
into effect on Sept. 1, 2012.
Description of proposed
new procedure:
While more
details will be forthcoming, taxpayers utilizing the new procedure will be
required to file delinquent tax returns, with appropriate related information
returns, for the past three years and to file delinquent FBARs for the past six
years. All submissions will be reviewed, but, as discussed below, the intensity
of review will vary according to the level of compliance risk presented by the
submission. For those taxpayers presenting low compliance risk, the review will
be expedited and the IRS will not assert penalties or pursue follow-up actions.
Submissions that present higher compliance risk are not eligible for the
procedure and will be subject to a more thorough review and possibly a full
examination, which in some cases may include more than three years, in a manner
similar to opting out of the Offshore Voluntary Disclosure Program.
Unfiled Returns
The remedy is to get
the returns filed
There are two
advantages to filing as soon as possible:Generally, if a taxpayer is due a refund for withholding or estimated taxes paid, it must be claimed within 3 years of the return due date or risk losing the right to it. The same rule applies to a right to claim a tax credit such as the Earned Income Credit (EIC).
Self-employed persons who do not file a return will not receive credits toward Social Security retirement or disability benefits. Failure to file results in not reporting any self-employment income to the Social Security Administration.
Taxpayers who haven’t filed returns always want to know what problems could result from failure to file returns. The following is from the IRS website:
A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.
The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.
Attention taxpayers who have
undisclosed foreign accounts
You
need to consider the 2012 Offshore Voluntary Disclosure Program (OVDP)From question 4 of Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:
Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available under the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D).
From question 3 of Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:
When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.
IR-2012-5, Jan. 9, 2012
WASHINGTON — The Internal Revenue
Service today reopened the offshore voluntary disclosure program to help people
hiding offshore accounts get current with their taxes and announced the
collection of more than $4.4 billion so far from the two previous international
programs.
The IRS reopened the Offshore Voluntary
Disclosure Program (OVDP) following continued strong interest from taxpayers
and tax practitioners after the closure of the 2011 and 2009 programs. The
third offshore program comes as the IRS continues working on a wide range of
international tax issues and follows ongoing efforts with the Justice
Department to pursue criminal prosecution of international tax evasion. This
program will be open for an indefinite period until otherwise announced.
“Our focus on offshore tax evasion continues to
produce strong, substantial results for the nation’s taxpayers,” said IRS
Commissioner Doug Shulman. “We have billions of dollars in hand from our
previous efforts, and we have more people wanting to come in and get right with
the government. This new program makes good sense for taxpayers still hiding
assets overseas and for the nation’s tax system.”
The program is similar to the 2011 program in
many ways, but with a few key differences. Unlike last year, there is no set
deadline for people to apply. However, the terms of the program could change at
any time going forward. For example, the IRS may increase penalties in the
program for all or some taxpayers or defined classes of taxpayers – or decide
to end the program entirely at any point.
“As we’ve said all along, people need to come in
and get right with us before we find you,” Shulman said. “We are following more
leads and the risk for people who do not come in continues to increase.”
The third offshore effort comes as Shulman also
announced today the IRS has collected $3.4 billion so far from people who participated
in the 2009 offshore program, reflecting closures of about 95 percent of the
cases from the 2009 program. On top of that, the IRS has collected an
additional $1 billion from up front payments required under the 2011 program.
That number will grow as the IRS processes the 2011 cases.
In all, the IRS has seen 33,000 voluntary
disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program
closed last September, hundreds of taxpayers have come forward to make
voluntary disclosures. Those who have come in since the 2011 program closed
last year will be able to be treated under the provisions of the new OVDP
program.
The overall penalty structure for the new
program is the same for 2011, except for taxpayers in the highest penalty
category.
For the new program, the penalty framework
requires individuals to pay a penalty of 27.5 percent of the highest aggregate
balance in foreign bank accounts/entities or value of foreign assets during the
eight full tax years prior to the disclosure. That is up from 25 percent in the
2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties;
these remain the same in the new program as in 2011.
Participants must file all original and amended
tax returns and include payment for back-taxes and interest for up to eight
years as well as paying accuracy-related and/or delinquency penalties.
Participants face a 27.5 percent penalty, but
taxpayers in limited situations can qualify for a 5 percent penalty. Smaller
offshore accounts will face a 12.5 percent penalty. People whose offshore
accounts or assets did not surpass $75,000 in any calendar year covered by the
new OVDP will qualify for this lower rate. As under the prior programs,
taxpayers who feel that the penalty is disproportionate may opt instead to be
examined.
Lance Wallach, CLU, ChFC, CIMC, speaks and writes
extensively about financial planning, retirement plans, and tax reduction
strategies. He is an American Institute
of CPA’s course developer and instructor and has authored numerous best selling
books about abusive tax shelters, IRS crackdowns and attacks and other tax
matters. He speaks at more than 20 national conventions annually and writes for
more than 50 national publications. For
more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us,
lawyer4audits.com or call 516-938-5007
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
ReplyDelete. Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years. While the regulations do not expand on what constitutes “reflecting the tax consequences of the strategy,” it could be argued that continued benefit from a tax deferral for a previous tax deduction is within the contemplation of a “tax consequence” of the plan strategy. Also, many taxpayers who no longer make contributions or claim tax deductions continue to pay administrative fees. Sometimes, money is taken from the plan to pay premiums to keep life insurance policies in force. In these ways, it could be argued that these taxpayers are still “contributing,” and thus still must file Form 8886.
It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction as described in the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20, which classifies 419(e) transactions, appears to be concerned with the employer’s contribution/deduction amount rather than the continued deferral of the income in previous years. This language may provide the taxpayer with a solid argument in the event of an audit.
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans; speaks at more than ten conventions annually; writes for over fifty publications; is quoted regularly in the press; and has been featured on TV and radio financial talk shows. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams (John Wiley and Sons), Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexperts.org or www.taxlibrary.us.
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