Lance Wallach
On January 9, 2012, the IRS announced the reopening of its
offshore voluntary disclosure program (now in its third iteration) to assist
people who have been hiding offshore accounts in becoming compliant with their
tax liabilities. The 2012 offshore voluntary disclosure initiative (OVDI)
offers reduced penalties for a taxpayer who failed to report non-us financial
accounts and assets on an FBAR (IRS form TD F 90-22.1, "Report of Foreign
Bank and Financial Accounts") and who failed to report income from those
accounts and assets on his or her us income tax returns, but who comes forward
before the IRS identifies them.
In 2009 and 2011, the IRS offered similar voluntary
disclosure programs. The 2012 OVDI is a response to the success of the 2009 and
2011 programs and to the continued interest on the part of taxpayers and practitioners.
Those who came forward after the 2011 OVDI, which ended on September 9, 2011,
are eligible for the 2012 OVDI. Those who come forward under the 2012 OVDI can
mitigate their risk of criminal prosecution. Unlike the 2009 and 2011 OVDI
programs, the 2012 OVDI has no set deadline for an application. However, the
IRS has indicated that the terms of the program could change at any time.
Moreover, the IRS may decide to end the program at any time.
The civil penalty scheme under the 2012 OVDI is as follows:
(1) a one-time 27.5 percent penalty on the highest aggregate annual balance in
the unreported accounts during the look back period (an increase from the 20
percent penalty under the 2009 program and the 25 percent penalty under the
2011 program); and (2) a 20 percent accuracy-related penalty or delinquency
(late filing and late payment) penalties on the amount of us income tax that
should have been paid during the look back period on any unreported income. The
look back period for the 2012 OVDI is eight years.
A taxpayer with offshore accounts or assets that, in the
aggregate, did not surpass $75,000 in any calendar year covered by the 2012 OVDI
qualifies for the 12.5 percent rate on the highest aggregate annual balance in
unreported accounts (the same rate offered under the previous programs). A 5
percent rate may also apply in limited circumstances, including for a long-term
non-US resident who earned a de minimis amount of US-source income and who has
been compliant with his or her tax obligations in his or her country of
residence.
The potential penalties that the IRS could impose on a
person who does not come forward under the 2012 OVDI include the civil fraud
penalty (75 percent of unpaid tax); penalties for failure to file various
information returns (such as form 5471); and penalties for willful failure to
file the FBAR (the greater of $100,000 and 50 percent of the foreign account
balance). All of these penalties apply annually.
A taxpayer who participates in the 2012 OVDI must submit all
original and amended tax returns and information returns (including FBARS) for
the last eight years and must pay taxes owing, interest, the applicable
one-time penalty on the highest aggregate annual balance in the unreported
accounts, and the 20 percent accuracy-related penalty or delinquency (late
filing and late payment) penalties. As was the case under the 2009 and 2011
programs, a person who believes that the applicable penalty under the 2012 OVDI
is disproportionate may opt out of the program and instead undergo an
examination in order to persuade the IRS to impose a lesser penalty.
The IRS recently indicated that it is currently developing
procedures by which dual citizens and others who are delinquent in filing but
who owe no us tax can come into compliance with US tax laws. On December 7,
2011, the IRS released Fact Sheet FS-2011-13, which provides guidance to us
citizens who reside outside the United States and who have failed to file US
tax returns and information returns, including FBARs. The fact sheet recommends
that those taxpayers file returns for the previous six years and indicates that
the IRS may consider reasonable-cause arguments for the waiver of penalties for
failure to file US tax returns and FBARs.
In announcing the 2012 ovm, Commissioner Douglas H. Shulman
warned taxpayers that the IRS is "following more leads and the risk for
people who do not come in continues to increase." However, there are still
many unanswered questions about the 2012 OVDI, particularly with respect to
dual citizens and other non-residents who were unaware of their us tax and
information reporting obligations. US citizens living in Canada should
carefully consider their options for coming forward, including whether to
proceed with the filing of six years of returns (as suggested by the fact
sheet) if they have a reasonable cause for not filing previously.
We suggest filing for tax amnesty and then opt out. In that
way you can fight the fines in appeals. In our opinion that is the best way to
reduce your penalties. We also suggest that you use an ex IRS agent that was in
the international or appeals division of the IRS. He should also be a CPA with
years of experience.
If you do not opt out correctly you will have lots of
problems.
Do not let your accountant learn on the job. The result is
usually not good for you. If he knew what he was doing, you would not have this
problem to begin with.
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.
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