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IRS To Announce New Initiative For U.S. Expats Not Willfully Evading Taxes.

With more than six million U.S. citizens living abroad, the IRS is looking to expand its net to bring in those U.S. Expats who are noncompliant with their tax obligations but are not willfully evading taxes may to come into compliance.  On June 3, 2014, the Commissioner of the Internal Revenue Service, John A. Koskinen, spoke at the U.S. Council For International Business-OECD International Tax Conference in Washington, D.C.

In his speech the Commissioner acknowledged that the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”) and its predecessors (the 2009 Offshore Voluntary Disclosure Program (“OVDP”) and the 2011 Offshore Voluntary Disclosure Initiative) have resulted in many U.S. taxpayers coming into compliance and that the IRS is currently considering making further program modifications to accomplish even more.  Unlike the two previous programs which had set terms and a definite expiration date, the current 2012 OVDI program’s terms are subject to change by the IRS and at any time the IRS may even terminate this program.

While the current attitude of the IRS is to keep the doors open and allow as many taxpayers as possible to come forward, the IRS is mindful of the balance between those taxpayers willfully evading their tax obligations and those taxpayers who lack willfulness.  The IRS is also aware that adjustments in OVDI may be necessary to accommodate those U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives, and that those taxpayers should be treated differently than U.S. resident taxpayers who were willfully hiding their investments overseas.

The Commissioner said that the new changes to OVDI should be announced soon.

Offshore Voluntary Disclosure Initiative (“OVDI”)

This program was first created in 2009 as the Offshore Voluntary Disclosure Program (“OVDP”) but in 2011 was renamed to OVDI.  Generally, the miscellaneous offshore penalty under the OVDI program (the “OVDI penalty”) equals 27.5% of the highest aggregate balance in the foreign assets or entities during the years covered by the OVDI program, but may be reduced in limited cases to 12.5% or 5%.  Certain taxpayers may qualify for even greater savings through a reduction of the offshore penalty.

Taxpayers participating in the ongoing 2012 OVDI generally agree to file amended returns and file FBARs for eight tax years, and in addition to paying pay the OVDI penalty (which is assessed in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) taxpayers would pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20% of any income tax deficiency

Taxpayers whose highest aggregate foreign account balance is less than $75,000 for each of the years in the OVDI disclosure period may qualify for a reduced 12.5% OVDI penalty.

Taxpayers who fall into one of three specific categories may qualify for a reduced 5% OVDI penalty.  The first category includes taxpayers who inherited the undisclosed foreign accounts or assets.  Second, taxpayers who are foreign residents and who were unaware that they were U.S. citizens may qualify for a reduced 5% OVDI penalty.  Finally, U.S. taxpayers who are foreign residents may also qualify for the reduced 5% OVDI penalty in certain circumstances.

What Should You Do?

If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (“OVDI”). If the IRS announces adjustments to this program that are more favorable to U.S. Expats those benefits should apply to current OVDI applicants.  Likewise, if the IRS were to tighten the terms of OVDI and increase the penalty, anyone registered in OVDI before such a change should still be under the pre-existing terms.   But once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDI.

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