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The New 2014 IRS Offshore Voluntary
Disclosure Program
Steven L. Cantor & Arthur J. Dichter
September 30, 2014
STEP Bahamas
OVDP Statistics
• More than 45,000 taxpayers have come forward
• About $6.5 billion in taxes, interest, and penalties paid
Overview of Changes
• Significant changes to OVDP made on June 18, 2014,
effective July 1, 2014
• Expansion of streamlined filing compliance procedures
• Creation of 2014 OVDP
• Transitional treatment rules for 2012 OVDP
• Delinquent FBAR and international information Return
submission procedures
Streamlined Procedures:
2012 Eligibility Criteria
• Original streamlined procedures were available only to
taxpayers meeting the following criteria:
• Lived outside United States since January 1, 2009
• No U.S. income tax returns filed since January 1, 2009
• Insignificant tax liability
• Low compliance risk
NEW Streamlined Procedures:
The Basics
• Available to resident and non-resident taxpayers if failure to
report foreign financial assets and pay taxes did not result
from willful conduct
• Non-willful conduct = Conduct that is due to negligence,
inadvertence, or mistake or conduct that is the result of a
good faith misunderstanding of the requirements of the
law
• Must have failed to report income from a foreign financial
asset and failed to pay tax, and may have failed to file an
FBAR
• Submission under the Streamlined Procedures does not
protect taxpayers from criminal charges
Expansion of the Streamlined
Procedures
• Original criteria no longer applicable:
• Eligibility extended to U.S. taxpayers residing in
United States
• Eligibility extended to U.S. taxpayers who previously
filed U.S. income tax returns
• Low compliance risk level eliminated
Streamlined Procedures:
U.S. Taxpayers “Living” Abroad
• Must meet applicable non-residency requirement
• Individuals who are U.S. citizens or lawful permanent
residents – In any one or more of the most recent three years
for which U.S. income tax return due date has passed:
• No U.S. abode, AND
• Physically outside of United States for at least 330 days
• Individuals who are not U.S. citizens or lawful permanent
residents – In any one or more of the most recent three years
for which U.S. income tax return due date has passed:
• Did not meet substantial presence test
Streamlined Procedures:
U.S. Taxpayers “Living” Abroad
• File 3 years of delinquent or amended tax or information
returns and pay tax and interest
• File 6 years of delinquent FBARs
• NO PENALTIES !!!
Streamlined Procedures:
U.S. Taxpayers “Living” in U.S.
• For U.S. taxpayers residing inside the United States or
who fail to meet one of the applicable non-residency
tests
• Must have previously filed a U.S. income tax return (or
would not have been required to file returns if unreported
income was taken into account) for each of the most
recent 3 years for which the U.S. income tax return due
date has passed
Streamlined Procedures:
U.S. Taxpayers “Living” in U.S.
• File 3 years of delinquent or amended tax or information
returns and pay tax and interest
• File 6 years of delinquent FBARs
• Penalty of 5% of the highest aggregate balance/value of
the taxpayer’s foreign financial assets that are subject to
the miscellaneous offshore penalty during the 6 year
period
The Miscellaneous Offshore Penalty
• Intended to apply to all of the taxpayer’s offshore holdings
that:
• Should have been, but were not, reported on form 8938
for that year
• The asset was properly reported but gross income in
respect of the asset was not reported
• Assets include all assets directly or indirectly owned by the
taxpayer
• Financial accounts holding cash
• Securities or other custodial accounts
• Tangible assets (real estate, art, etc.)
• Intangible assets (patents, stock, etc.)
2014 Offshore Voluntary
Disclosure Program
• Continuation of the 2012 program with some important
changes
• Changes effective July 1, 2014 and August 4, 2014
2014 OVDP: New 50% Penalty
• For pre-clearance letters submitted after August 4, 2014,
taxpayers subject to a 50% offshore penalty under certain
circumstances
• Applies if FFI at which taxpayer had an account OR a
facilitator who helped taxpayer establish offshore
arrangement has been publicly identified as being under
investigation or as cooperating with a government
investigation
• Some “blacklisted” institutions have already been
identified including Bank Ltd, Stanford Group
2014 OVDP: Other Highlights
• Additional information requested in preclearance letter
• Elimination of reduced offshore penalties
• Offshore penalty must be paid at time of submission
• Account statements must be provided for all financial
accounts regardless of account balance
• Taxpayers may submit certain documents electronically
Transitional Treatment
• Allows taxpayers “currently participating” in the 2012
OVDP to take advantage of favorable penalty structure of
Streamlined Procedures
• Must have submitted OVDP voluntary disclosure letter
and required attachments prior to July 1, 2014
• Must be eligible for either Nonresident or Resident
Streamlined Procedures
• Not eligible to receive transitional treatment if a Closing
Agreement has already been executed
• No refunds
Coordination of Streamlined
Procedures with OVDP
• Once taxpayer makes submission under either
Nonresident or Resident Streamlined Procedures,
taxpayer may not participate in OVDP
• Taxpayer who submits OVDP voluntary disclosure letter
may not participate in Streamlined Procedures but still
may opt out of OVDP
Delinquent FBAR
Submission Procedures
• Available to taxpayers who had no unreported income
and who do not need to use the OVDP or Streamlined
Procedures, but who:
• Have not filed an FBAR
• Are not under civil or criminal investigation by IRS
• Have not already been contacted by IRS about FBARs
• FBARs must be filed electronically at FinCEN and include
a statement of why submission was late
• No failure to file penalties imposed if qualify and proper
procedures followed
Delinquent Information
Return Procedures
• Available to taxpayers who do not need to use the OVDP
or Streamlined Procedures, but who:
• Have not filed one or more required international
information returns
• Have reasonable cause for not timely filing
• Are not under civil or criminal investigation by IRS
• Have not already been contacted by IRS about the
returns
• Delinquent returns must be attached to an amended
return and provide a statement of facts establishing
reasonable cause for failure to file
Some Ways to Get Caught
• IRS Litigation
• Changes in Law
• Whistleblower
• Renewal of U.S. Passport
• Audit by Infection
• Entry into U.S.
• Ownership of U.S. assets at time
of death
• Criminal Investigations
Riding to the Rescue
CW Tax Services
Our firm advises and assists various international clients, including
professional trustees and foreign trust settlors and beneficiaries, foreign
sellers of United States real property interests, and executors of the
estates of nonresident alien decedents on a variety of United States tax
reporting issues. Our work in this area has included:
•
Preparation of reporting forms such as the Report of Foreign Bank and Financial
Accounts (Form FinCEN 114 – FBAR), Statement of Specified Foreign Financial
Assets (IRS Form 8938), Annual Return To Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts (IRS Form 3520), Annual Information
Return of Foreign Trust With a United States Owner (IRS Form 3520-A), Foreign
Trust Beneficiary Statements, and other forms directly related to the foreign trust
structure and/or foreign investments
•
Preparation of Reporting and Paying Tax on U.S. Real Property Interests (IRS
Forms 8288 and 8288-A)
CW Tax Services Cont…
•
Application for Withholding Certificate for Dispositions by Foreign Persons of
U.S. Real Property Interests (IRS Form 8288-B)
•
Preparation of reporting forms for U.S. investors in foreign assets such as
Information Return of U.S. Persons with Respect to Certain Foreign
Corporations (IRS Form 5471), Return of U.S. Persons with Respect to Certain
Foreign Partnerships (IRS Form 8865), Information Return of U.S. Persons with
Respect to Foreign Disregarded Entities (IRS Form 8858), and Information
Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund (IRS Form 8621)
•
Initial and Annual Expatriation Statement (IRS Form 8854)
•
Annual Return for Partnership Withholding Tax (Section 1446) and Foreign
Partner’s Information Statement of Section 1446 Withholding Tax (IRS Forms
8804 and 8805)
•
When appropriate, preparation of United States Estate (and GenerationSkipping Transfer) Tax Return for Estate of nonresident not a citizen of the
United States (IRS Form 706-NA)
Contact Information
Steven L. Cantor
Arthur J. Dichter
Cantor & Webb P.A.
1001 Brickell Bay Drive
Suite 3112, Miami, FL 33131
Tel: (305) 374-3886
Fax: (305) 371-4564
Email: [email protected]
Email: [email protected]
www.cantorwebb.com