IRS Streamlined Filing Program (used to catch up for Failing to File Certain Foreign Asset Reporting forms) May Now Be Audited

The IRS may soon begin to audit those who have filed under the Streamlined Program which is used to

catch up the filing of certain foreign asset reporting forms which the taxpayer failed to file. These forms include form 5471, 8865, 114 (FBAR), 8938, etc.  Entering this program avoids certain penalties and may permit you to file or amend the past three years tax returns and six year Forms 114 (FBAR).

Read more about the forthcoming audits and how to prepare here.  If you wish further help email us at ddnelson@gmail.com.  All consultations are protected by attorney/client privilege.

IRS Streamlined Program - Allows you to Surface with IRS with limited Penalties, and Exposure

he following streamlined procedures are referred to as the Streamlined Foreign Offshore Procedures.

Eligibility for the Streamlined Foreign Offshore Procedures

In addition to having to meet the general eligibility criteria, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must:  (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct.  Non-willful conduct is 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.

For information on the meaning of foreign financial asset, see the instructions for FinCEN Form 114, which may be found at FinCen and the instructions for Form 8938, which may be found at Instructions for Form 8938.

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”):  Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.  For more information on the meaning of “abode,” see IRS Publication 54, which may be found at Publication 54.

Example 1:  Mr. W was born in the United States but moved to Germany with his parents when he was five years old, lived there ever since, and does not have a U.S. abode.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Example 2:  Assume the same facts as Example 1, except that Mr. W moved to the United States and acquired a U.S. abode in 2012.  The most recent 3 years for which Mr. W’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents: Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).  For more information on the substantial presence test, see IRS Publication 519, which may be found at IRS Publication 519.

Example 3:  Ms. X is not a U.S. citizen or lawful permanent resident, was born in France, and resided in France until May 1, 2012, when her employer transferred her to the United States.  Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013.  The most recent 3 years for which Ms. X’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011.  While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011.  Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.

Read More about Procedures, etc. Here.

If you need assistance of wish to discuss entering the program, etc. email us at ddnelson@gmail.com.

What facts do I need to include in completing the narrative statement of facts portion of the Form 14653?

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts.

Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.
Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset.

The following points address common situations that may apply to you

We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.

We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions.

If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor.

If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

IRS STREAMLINED COMPLIANCE PROCEDURES FORM 14653 NOW REQUESTS MORE INFORMATION THAN OLD FORM.

Form 14653 ( used then a taxpayer has not filed for many years forms required to report foreign  assets, bank accounts, foreign corporations, foreign trusts, etc) in which you must explain the reasons you did not willfully fail to file your tax forms reporting foreign assets has now been expanded to request much more information from applicants. Failure to use the new form asking this information may cause problems with your application which needs to be accompanied with last three year incorrect or past due returns and 6 year past  due amended or original FBAR forms (Form 1140  It now requests the following;


1. Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. 

2 Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.

3 Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/ management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.

4  If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

If you need help catching up with past unfiled foreign asset reporting forms you may be qualified for the streamlined program.  We can help you come into compliance and reduce or eliminate some very heavy monetary penalties.  Email us at ddnelson@gmail.com or go to www.taxmeless.com 

IRS Collecting $8 Billion from Offshore Tax Compliance Push

Read in Accounting Today how the IRS is collecting taxes from expatriate taxpayers.  They have over 54,000 taxpayers that have come forward in the Offshore Disclosure Programs or Streamlined Programs.  That still leaves a lot of taxpayers out there who have not yet complied with the US tax rules because there are approximately 8.3 million Americans living abroad.  Do not wait until they catch you through FATCA or through the over 36 signed OECD agreements where the US and other countries have agreed to mutually exchange tax information on their residents.

The IRS  has stressed that it remains committed to stopping offshore tax evasion wherever it occurs, and even though the agency has faced several years of budget reductions, the IRS continues to pursue cases throughout the world.

READ ARTICLE HERE

OPTIONS AVAILABLE TO OFFSHORE US TAXPAYERS FROM IRS

The IRS has prepared several documents that help explain those requirements, including FS-2011-13 and the U.S. Citizens and Resident Aliens Abroad page on IRS.gov. Situations of taxpayers with offshore compliance issues vary widely given the complexity of this area of tax law.  Taxpayers that recently learned of these tax requirements have many options are available outside of the normal filing process to help them get current with their tax obligations.  A number of the common situations and potential solutions are outlined below.

The IRS recommends taxpayers to consult with their professional tax advisor in determining which option is the most appropriate given their facts and circumstance.  We at www.TaxMeLess.com have helped over a hundred clients catch up with the IRS.  If you need to talk about this email us at ddnelson@gmail.com .  We are both attorneys and CPAs. As attorneys we can offer you  complete attorney client privilege (and all of its confidentiality and privacy) on all information we discuss. Regular accountants cannot provide you with that privilege and the IRS can force them to reveal information.

Situation	Compliance Option
Taxpayers who have properly reported all taxable income but recently learned that he/she should have been filing FBARs in prior years to report a personal foreign bank account or to report signature authority over bank accounts owned by an employer.	Taxpayers who reported, and paid tax on, all their taxable income for prior years but did not file FBARs, should file the delinquent FBAR reports according to the instructions (send to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a statement explaining why the reports are filed late. The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.
Taxpayers who only have certain delinquent information returns, but no tax due.	A taxpayer who has failed to file tax information returns, such as Form 5471 for controlled foreign corporations (CFCs) or Form 3520 for foreign trusts but who has reported, and paid tax on, all their taxable income with respect to all transactions related to the CFCs or foreign trusts, should file delinquent information returns with the appropriate service center according to the instructions for the form and attach a statement explaining why the information returns are filed late. (The Form 5471 should be submitted with an amended return showing no change to income or tax liability.) The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3250 if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.
Non-resident U.S. taxpayers with delinquent returns with low risk factors (including tax owed less than $1,500/year).	Filing Compliance Procedures for Non-Resident U.S. TaxpayersNon-resident U.S. taxpayers should file delinquent tax returns, including delinquent information returns, for the past three years; delinquent FBARs for the past six years; and additional required information regarding compliance risk.  Payment of any federal tax and interest due must accompany the submission.
Taxpayers with undisclosed foreign accounts and unreported income.  Taxpayers seeking protection from criminal prosecution.	Offshore Voluntary Disclosure ProgramThe Offshore Voluntary Disclosure Program (OVDP) offers a civil settlement structure in which taxpayers pay an offshore penalty in lieu of a number of other penalties that may be assessed in cases of offshore noncompliance.  The OVDP also offers protection from criminal prosecution.  In order to participate in the OVDP, taxpayers must first request acceptance into the program.  Once they have been preliminarily accepted, taxpayers must submit certain information including eight years of amended tax returns, FBARs, and information returns as well as information about their offshore accounts.  In addition, taxpayers must submit full payment of the tax and interest due, and certain penalty amounts.  Taxpayers who have entered OVDP who disagree with the application of the offshore penalty given the facts and circumstances of their case may elect to opt out of the civil settlement structure of the program.  In such situations, the IRS will determine if penalty mitigation is appropriate.

Additional Information

• New Filing Compliance Procedures for Non-Resident U.S. Taxpayers
• 2012 Offshore Voluntary Disclosure Program

-Interests

TaxPayer Advocate Slams the IRS Offshore Programs as Unfair

The IRS Offshore Voluntary Disclosure Program has unfairly penalized many ordinary citizens and often failed to catch the real offshore cheaters.  It is unfair to most expats and those who are ignorant of the IRS rules ..... primarily due to the IRS's failure to property publish those rules and keep the public informed.  Read more in the Forbes article below;

http://www.forbes.com/sites/robertwood/2015/01/14/national-taxpayer-advocate-slams-irs-offshore-programs-fbar-penalties-demands-change/

Examples of Willful and Nonwillful FBAR (form 114) Excuses for Streamlined Program and Other Purposes

Following article gives excellent FBAR unwillful excuse guidance for the streamlined program and filing foreign reporting forms outside of the streamlined program from the International Tax Blog.

http://intltax.typepad.com/intltax_blog/2014/11/willful-vs-non-willful-fbar-violations.html

If you need help with drafting your unwillful failure to file or report income excuse or a review of what you have written, we can provide that service.

What Unwillful excuse to use for the IRS when entering the Streamlined Program or Offshore Disclosure Programs?

Read this excellent article on writing your "Unwillful excuse" when entering the Streamlined  or Offshore Disclosure Program to file the various international tax forms which you failed to file in earlier years.

http://www.forbes.com/sites/irswatch/2014/08/08/am-i-non-willful-under-the-ovdp-streamlined-procedures/

If you need help with the forms or filing your Offshore Disclosure or Streamlined Filing email us at ddnelson@gmail.com. We have assisted hundreds of clients with these complicated forms and procedures with great success.

IRS OVDP vs. Streamlined: What To Do?

Read the great article below from Forbes in you are not certain whether to enter the  IRS Streamlined

 program or the Offshore Voluntary Disclosure Program (OVDP).   Due to the new rules in the Streamlined program many can now enter that program which has significantly lower monetary penalties and much less paperwork.

Link to Forbes Article:  http://www.forbes.com/sites/irswatch/2014/07/07/irs-ovdp-vs-streamlined-what-to-do/

The disadvantage of the Streamlined Program is that it does not protect you from criminal prosecution and if you are rejected, your entire situation may be sent to the audit department and regular penalties may then be imposed which can be very high.

We have advised or represented in excess of a hundred clients in connection with the Streamlined program or the Offshore Voluntary Disclosure Program. We can advise you which program is best for you after you read the article above.

Delinquent International Information Return Submission Procedures

Taxpayers who do not need to use the OVDP (described in section 1 above) or the Streamlined Filing Compliance Procedures (set forth in section 2 above) to file delinquent or amended tax returns to report and pay additional tax, but who:

(1) have not filed one or more required international information returns,
(2) have reasonable cause for not timely filing the information returns,
(3) are not under a civil examination or a criminal investigation by the IRS, and
(4) have not already been contacted by the IRS about the delinquent information returns

should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.  As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion.  If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.

All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return.  All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.  A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested.

Information returns filed with amended returns will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.

IRS NEW 6/18/14 STREAMLINED DISCLOSURE PROGRAM - DETAILS AND PROCEDURES

The information on the program changes are:

• IR-2014-73, June 18, 2014 is read here; announces the changes.
• OVDP 2012 (as changed 6/18/14), read here.
• Streamline Filing Compliance Process (as changed 6/18/14), read here.  This is the description.  There are two types of Streamline filings:  Non-resident and Resident.  The Nonresident program -- referred to as Streamlined Foreign Offshore Procedures -- is described on a web page titled: U.S. Taxpayers Residing Outside the United States, read here. The Resident program -- referred to as Streamlined Domestic Offshore Procedures -- is described on a web page titled U.S. Taxpayers Residing in the United States, read here.
• Delinquent FBAR Submission Procedures (as changed 6/18/14), read here. 
• Delinquent International Information Return Submission Procedures (as changed 6/18/14), read here. (This relates to the Forms required for entities, such as CFC's, trusts,etc.)
• IRS OVDP 2014 FAQs, read here.  Pay attention particularly par. 1.1 on the changes from the original OVDP 2012.
• Transition Rules FAQs, read here.
• Bank and Promoter List, read  here.  This list is the basis for the 50% penalty in OVDP 2014 (See FAQ 7.2 in the OVDP 2014 FAQs, read here.)   

The new procedures are as follows:

1. Foreign residents (requiring only foreign residence in the 3 year period):  File 3 years of delinquent or amended returns and pay tax and interest.  No penalties (including FBAR or miscellaneous) will be assessed.  Must also complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (i) eligibility for the procedure, (ii) filing of all required FBARs, and (iii) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

2.  Nonforeign residents (Domestic residents):  Must file 3 years of returns and pay tax and interest.  No penalties other than a 5% miscellaneous penalty on foreign financial accounts only will be assessed.  Must complete and Sign the Certification by U.S. Person Residing in the U.S. that (i) eligibility is met; (ii) all FBARs have been filed; (iii) "the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct;" and (iv) that the miscellaneous penalty amount is accurate.

Nonwillful conduct for the purposes of #1 and #2 is:  "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; 

The taxpayers can be audited under the income tax audit guidelines but will not be automatically audited.

A couple of the material changes to OVDP 2012 are described in par. 1.1 of the FAQs as follows:

• A 50% offshore penalty applies if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation. See FAQ 7.2.
• FAQ 7 has been modified to require that the offshore penalty be paid in full at the time of the OVDP submission.

NEW STREAMLINED OFFSHORE DISCLOSURE REDUCES PENALTIES AND IS EASIER

Read new IRS rules below.

http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures