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Monday, September 30, 2013
Thursday, September 26, 2013
Wednesday, September 25, 2013
Six Major Defects of the IRS Streamlined OVDI Program
Here is the continuation of the discussion about the major issues with IRS streamlined OVDI.
The Internal Revenue Service claims, its answer, it came up
with the streamlined OVDI program. At first, I was optimistic. This might
reduce the compliance cost as well as penalties for numerous people who did
nothing all that wrong. My optimism was crushed, once I started out analyzing
the nitty gritty of the streamlined program. And I observed six major
deficiencies.
First, this streamlined program is only open to whoever has
not filed a US tax return within the last six years. Again, if you filed a US
tax return you cannot participate in the streamlined program regardless of how
little your unreported taxes was. It is a perverse standard, as someone who
made a partial attempt at compliance is at a disadvantage to a person who made
no attempt.
Second, the streamlined agreement only holds true for expats
or American people living abroad. So for the vast amount of Visa holders as
well as green card holders and also dual citizens residing in the US, this plan
is completely useless. This is particularly unfair as a non-citizen US
individual is in the worse position to learn about the United States tax
system, and definitely benefited less from this, than someone who is an actual
citizen.
Third, the streamlined program is only available in case
your unreported taxes were $1500 or less in a year. This can be unfair
likewise. Imagine a person had $0 in unreported taxes for 5 years and $1501 for
just one year. Well as stated by the program requirements, they'd be
disqualified out of the streamlined program. That is, a person who has
significantly less unreported income will be treated more harshly when compared
with somebody who has larger unreported income.
Fourth, the vagueness. The program is only open to those
who're something the IRS calls low compliance risks. However the IRS doesn’t
provide any kind of concrete specifics of the huge gray area between low and
high. I've got a good idea about how the lowest risk will be. But because we
move up the continuum - what about medium risk? And what might someone with
medium risk do? At the very least the standard OVDI will provide relief from
legal prosecution - which makes all the compliance work worthwhile. However the
IRS provides absolutely no such sufficient protection for someone coming up
with a streamlined disclosure.
Fifth, this 'low risk' 'high risk' analysis will give
several tax experts cover to suggest a ‘soft’ disclosure. Let me get to my
point. The OVDI program is REALLY complicated. Not to mention this streamlined
process simply just made it more complicated. And based upon exactly how many
tax experts are advising soft disclosure, I assure you a lot more of them,
falsely quoting the streamlined OVDI program as an authority to claim somebody
in a low compliance risk thereby, can just blindly sent in amended returns and FBARs outside of the OVDI program. The IRS has cautioned relating to this. So
let me make this clear: Low compliance risk is applicable only in case you
qualify for the streamlined OVDI. Don't even think about risk analysis if you
live in the America or already have filed tax returns - this line of
questioning of what your ‘risk’ profile is will not applicable to you.
Sixth, with this initiative, there could be a perceived
implication that the IRS can come out with one more streamlined program that
addresses many of the concerns I brought up above. The shifting standards can
convince someone to delay a decision to make use of the standard OVDI program,
because after all, they wish-cast for more and more understanding the IRS.
Look the streamlined OVDI is fine. But it only works if you
reside outside of the US, you never filed a return, and your outstanding taxes
are less than $1500 per year or you’re a low-compliance risk - whatever that
is. But for others, exactly who misses one of those qualifications, if you'd like
avoid criminal charges and staggering penalties, you need to use the standard
2012 OVDI program.
Concluding remarks. Look, I understand the IRS is handling a
lot of overseas account holders are a raw deal. I know it is unfair. But simply
because it is really unfair does not mean it isn't true. Right now, my firm is
taking on new clients who are now under audit and have unreported overseas accounts. Sure, we will be able to help them. But these individuals wished that
they accepted the painful reality and got into the standard program whenever
they had a chance.
Tuesday, September 24, 2013
Monday, September 23, 2013
Saturday, September 21, 2013
The Painful Truth about IRS OVDI Program
In this blog
post, I’ll be showing you six major defects of the IRS Streamlined OVDI and the
one painful truth.
But before
we go into it, I'm going to give an outline to those who is unfamiliar with
OVDI process some background information.
The U.S. has
something called universal tax jurisdiction. This means if you're a American
person - incidentally an American individual isn’t just a US citizen, but can include
permanent resident card holders AND foreign national in on a visa - well, if
you are a US individual the government requires you report all of your global
earnings. Even if you paid taxes in your home country. And not just only that,
the Internal Revenue Service will penalize you for failing to report the
presence of your overseas banking accounts which are above $10,000, on the
aggregate.
During 2009,
the IRS came out with its first Offshore Voluntary Disclosure Initiative to
provide amnesty to those who either purposely or unintentionally didn't report income
or bank accounts. However, the problem with this initiative would be that the
penalty fee structure was the exact same for someone who avoided taxes and
someone who just made a true mistake.
So in 2011,
the IRS changed the rules through increasing penalties on people who purposely
involved in tax evasion and gave those who made innocent mistakes an
opportunity to claim for a decreased penalty by “opting out” from the typical
penalty structure.
The deadline
passed for the 2011 OVDI and now there exists a rolling 2012 OVDI. The
2012 Offshore Voluntary Disclosure Initiative is vastly similar to the 2011
with one important difference. The penalties have increased again for those
stepping into deliberate evasion. But there is an opportunity for those who
made innocent mistakes to “opt-out” of the usual FBAR penalty structure.
Like most
things of the OVDI, now the area of ‘opt-out’ is confusing. By opting out, a person is not really opting
out from the OVDI. If you opt out, all the exact same protections from felony
charges continue to be in place. The opt-out signifies the standard penalty
structure and even more importantly, opting out of the 27.5% FBAR equivalent
penalty.
This FBAR equivalent penalty is actually computed on the highest account value within the
last eight years. Or any income generating assets were the income was not
reported. For example, the FBAR equivalent penalty will be calculated against
rental building, although rental property is something that you do not need to divulge
on an FBAR. I told you the rules are
complicated.
And I have to make a pretty important note. The 2009 OVDI just had a 6-year look back. But the 2011 and 2012 OVDI’s come with an 8 year period.
Currently,
approximately 34,000 OVDIs have been filed from 2009 to 2012. By looking at
this number, the IRS knows that lots of people have not come forward and won't
come forward, which explains why they are stepping up their enforcement by
auditing individuals it suspects of having overseas bank accounts.
The people
we have seen coming forward in 2012 to make the most of the OVDI are generally
individuals who made innocent or no worse than negligent mistakes. Among these
clients, and understandably so, there has been extreme grumblings about how the
OVDI program is really unfair to people who was clueless about what was going
on. Not only are the lower penalty charges still relatively punitive, but
please let me be blunt: lawyer and accounting fees are very real as well.
In the next
blog post, I will discuss about the major defects of the IRS streamlined OVDI
program.
Friday, September 20, 2013
Tax preparer screwed up
Tax preparer screwed up
Did I ever tell you about the time(s) I represented clients who mistakenly claims a $50,000 slavery reparations? Oh yeah, they got a $50,000 refund form the IRS...but they also got some criminal attention.
Did I ever tell you about the time(s) I represented clients who mistakenly claims a $50,000 slavery reparations? Oh yeah, they got a $50,000 refund form the IRS...but they also got some criminal attention.
Thursday, September 19, 2013
Wednesday, September 18, 2013
Monday, September 16, 2013
Tuesday, September 10, 2013
IRS fees for Installment Agreements and Offers in Compromise to increase
Well, which fees are we talking about, first of all? In this case, we’re talking about the fees for Offers in Compromise and Installment Agreements with the IRS. Some interesting facts about this:
Read more
- The general fee for an Offer in Compromise will rise on January 1, 2014, from $150 to $186. The curious thing about this is that the amount finally decided upon is so much below the actual cost of the process to the agency, which they report to be $2,718. And if you can’t pay this fee, you can also request an waiver.
- To enter into an Installment Agreement, the fee will rise from $105 (or $52 if you do direct debit or $43 if you’re low income) to $120. Again, interestingly, the actual cost reported by the agency to complete this process is $282 (or $122 for the direct debit option).
- To restructure an Installment Agreement that’s in default will go from $45 to $50, while the agency reports the actual cost to them is $85
Read more
Monday, September 9, 2013
Friday, September 6, 2013
Thursday, September 5, 2013
Wednesday, September 4, 2013
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