Frequently Asked Questions Regarding The IRS 2012 Offshore Voluntary Disclosure Initiative.
Having represented taxpayers in making Voluntary Disclosure to the IRS including under the 2009 IRS Offshore Voluntary Disclosure Program and 2011 IRS Offshore Voluntary Disclosure Initiative (OVDI), here are the most common questions and concerns of taxpayers inquiring about what has become the IRS Amnesty Program.
1. What incentive is there to apply for amnesty in the 2012 OVDI when there is no deadline to apply?
The IRS has reserved the right to change the terms of the IRS Offshore Voluntary Discloser Program and announce its expiration without advance notice. A prompt filing into this program will lock in the maximum penalty rate and will not be affected by the IRS’ eventual termination of the program. Following the trend of the three programs, rates are only going up. A prompt filing will also pre-empt the IRS from starting any investigation which if started before the filing of amnesty would disqualify the applicant from the program.
2. Can I still make a Voluntary Disclosure if the IRS has notified me that I am under investigation?
NO. However, by promptly filing a Voluntary Disclosure with the Criminal Investigation Office of IRS, we can pre-empt the IRS’ ability to start an investigation.
3. If I file my delinquent FBAR’s and amended income tax returns reporting my undisclosed foreign accounts and income, I will avoid penalties and IRS investigation?
FALSE. Over 2,200 taxpayers followed this strategy referred to as a “quiet disclosure” thinking they could bypass IRS scrutiny without entering into the OVDI. Instead these filings were intercepted by the IRS and are awaiting assignment to special agents for criminal investigation program.
4. If I write to my Congressman and complain that the IRS is being harsh and unfair, my Congressman will protect me from criminal investigation and secure better terms?
FALSE. Your Congressman upon receiving your correspondence will forward it to the IRS Office Of The Taxpayer Advocate who will then respond that the IRS is fully within its authority to take this action and that you should be treated no differently from any other similarly situated taxpayer.
5. The IRS is merely scaring taxpayers to come forward because the IRS does not have the resources to start a criminal investigation on every taxpayer with undisclosed foreign accounts and income?
FALSE. The IRS has created a new unit that will be comprised of auditors and professionals with specialized experience in investigating cross-border transactions and foreign banking activity involving U.S. accountholders. With the addition of thousands of specially trained agents who will be responsible for monitoring and examining individual U.S. taxpayers as well as businesses and other entities suspected of offshore tax evasion, they will be aggressively pursuing individual U.S. taxpayers with undisclosed foreign accounts and will likely take on those 2,200 taxpayers who filed with a quiet disclosure.
6. The Federal government would never prosecute a taxpayer who did not report his foreign accounts and did not report his foreign income?
U.S. v. Mauricio Cohen Assor (Florida, 2011) got 120 months jail time – his son was also convicted and received the same jail time.
U.S. v. Diana Hojsak (San Francisco, CA, 2007) got 27months jail time.
U.S. v. Igor Olenicoff (Orange County, CA, 2007) got 2 years probation and 120 hours community service.
U.S. v. Monty D. Hundley (New York, 2005) got 96 months jail time.
U.S. v. Brett G. Tollman (New York, 2004) got 33 months jail time – his mother and other relatives also were convicted and are serving time.
... and this is just the tip of the iceberg. Click here for more convictions.
7. There is no benefit to hire a tax attorney to make a Voluntary Disclosure?
FALSE. It is illegal to not disclose your foreign accounts and income just like it is to leave the scene of an accident in a hit and run that you caused. For the latter, would you consider visiting the police station to recite your testimony without an attorney? Why should it be any different with the IRS? We can help get you through the legal procedures and secure various tax credits and other benefits to minimize your back tax liability and OVDI penalty.
8. Should I use my accountant to make a Voluntary Disclosure?
NO. The Voluntary Disclosure Program is administrated by the Criminal Investigation Division of IRS and in criminal matters there is no accountant-client privilege. Therefore, anything you disclose to your accountant and the accountant’s work papers and work product is not protected and subject to subpoena by IRS. The IRS will use this information against you.
9. My ignorance or lack of knowledge of the tax law requiring U.S. persons to report worldwide income should avoid imposition of prosecution or fines?
FALSE. The IRS can still impose hefty fines and penalties for failing to disclose foreign income and accounts without proving willfulness. There is the $100,000 fine for each delinquent FBAR (Form TD F 90.22-1) over the last 6 years. Also, a 75% civil fraud penalty applies to each year’s income tax deficiency.
10. My returns were prepared by an accountant who never asked me about having foreign accounts and income so I should avoid prosecution?
FALSE. Generally a taxpayer cannot use his preparer as a defense to submitting a return that was not true and accurate. Under the 2012 OVDI, it makes no difference whether the incorrect original returns were self-prepared or prepared by a tax preparer.
11. The IRS will never find out about my foreign accounts?
FALSE. The IRS is getting cooperation from banks, foreign revenue authorities, internal sources and other government agencies. So if you were to liquidate your foreign accounts and move the funds, these transactions should be reported in the bank channels that feed information to the IRS. With the additional analysts working for the IRS in reviewing this information, non-compliant taxpayers will likely be uncovered and assigned to investigation. Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.
12. I am too small to be picked up by IRS?
FALSE. The IRS is looking for taxpayers to be fully compliant with the U.S. tax laws. No case is too small for the IRS to set an example. This is no different than the IRS selecting taxpayers for routine tax examinations.
13. I closed my undisclosed foreign accounts and transferred the funds to the U.S. so there is no need to seek protection under the amnesty program?
FALSE. The IRS will still pursue an investigation as the recent closure of the accounts does not cure the prior years of unreported income and undisclosed foreign accounts. Also, the recent liquidation will likely be reported by the banking channels thus elevating your status to be an easy target by the IRS.
14. . 2011 is the first year I reported my foreign income on my Form 1040 and 2011 is the first year I filed an FBAR (Form TD F 90.22-1) so there is no need to seek protection under the Voluntary Disclosure Program?
FALSE. The IRS will still pursue an investigation as the recent reporting of income and accounts does not cure the prior years of unreported income and undisclosed foreign accounts. Also, the recent reporting which will be picked up by IRS analysts will likely elevate your status to be an easy target by the IRS.
15. Did the Federal government impose a new reporting requirement to disclose foreign assets starting with the 2011 tax return filing season?
YES. A new law requires U.S. taxpayers who have an interest in foreign assets with an aggregate value exceeding $50,000 to report those assets to the IRS. Taxpayers who are required to report must submit Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return. This reporting will serve as an additional tool for the IRS to determine prior noncompliance of taxpayers who have undisclosed foreign accounts or unreported foreign income. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer's obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
16. How is the Federal government intensifying its efforts in identifying taxpayers who are not in compliance with foreign asset and foreign income disclosure?
In order for foreign banks doing business with the U.S. to avoid withholding on certain types of payments relating to U.S. investments, pursuant to the Foreign Account Tax Compliance Act ("FATCA") a foreign bank will have to enter into an agreement with the IRS to:
- Identify U.S. accounts,
- Report certain information to the IRS regarding U.S. accounts,
- Verify its compliance with its obligations pursuant to the agreement, and
- Ensure that a 30% tax on certain payments of U.S. source income is withheld when paid to non-participating foreign banks and account holders who are unwilling to provide the required information.
17. How do the information-sharing provisions common to U.S. tax treaties with other countries help the Federal government get information on U.S. account holders with foreign accounts?
The Federal government is establishing a special disclosure pact with France, Germany, Italy, Spain and the United Kingdom. Under this approach, foreign banks would disclose data on U.S. account holders to their own governments, which would then provide information to the IRS. The Federal government is looking to expand this pact to other countries as well.
18. I applied for amnesty after the close of the 2011 OVDI program and before January 9, 2012, what terms would apply to me?
For those taxpayers who have come in since the 2011 OVDI program closed on September 9, 2011, they will be able to be treated under the provisions of the 2012 OVDI program.
19. There are too many of us who do not disclose foreign accounts and income so that if we stand up to the government on this, we can get the government to back off?
FALSE. The government is running at a deficit and is limited in making further spending cuts and faces unpopularity in raising taxes. There would be much more public outcry if people were allowed to get off from violating the tax law.
20. What experience does the Law Offices of Jeffrey B. Kahn, P.C. have in handling amnesty cases?
We have found that the Revenue Agents working these cases have made errors that favor the IRS. These errors include using the wrong exchange rate, wrong valuation dates, including foreign assets not subject to the FBAR penalty, and not considering all mitigating circumstances to abate penalties or apply a lower FBAR penalty rate of 12.5% or 5%. Let our experience work for you to avail you of the benefits of the Voluntary Disclosure Program with the lowest liability possible.
21. I started the amnesty process on my own and need expertise. Can I still engage the Law Offices Of Jeffrey B. Kahn, P.C.?
YES. For those taxpayers who have filed for amnesty and are having difficulty with their case or do not have the confidence in their representative to secure the best possible result, we offer a service whereby we would evaluate your case and discuss your options and if engaged by you, promptly take control over your case.
22. Will the Law Offices Of Jeffrey B. Kahn, P.C. handle your amnesty representation in an efficient and expedient manner?
We will act as your advocate and effectively work your case. We have helped many taxpayers not only in California. Let us have the opportunity to help you.
23. I have more questions. How can I contact you?
For prompt evaluation of your case, we encourage you to contact us using our toll-free number at 866.494.6829 or send us an email for your free and confidential analysis.