IRS COOPERATION SPURRING SUCCESS OF ITS AMNESTY PROGRAMS
The IRS announced recently that since the inception of its amnesty programs in 2009, over 100,000 delinquent taxpayers have taken the plunge and decided that participation is their best option. According to the IRS, 55,800 taxpayers have used the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties, while an additional 48,000 taxpayers have used the Streamlined Procedures, paying approximately $450 million.
The success of the IRS amnesty programs over the past several years can be attributed in large part to the IRS’s increasing cooperation with taxpayers, with its fellow agencies in the United States, and with foreign taxing authorities as well.
COOPERATION WITH TAXPAYERS
In recent years, the IRS has made it clear to taxpayers that it is more interested in disclosure than in punishing late filers or non-filers. In 2014, the IRS expanded its more lenient program, the Streamlined Procedures, allowing taxpayers to participate if they can explain in a written statement how their delinquency was not intentional.
One of the strongest benefits of entering a tax amnesty program is the ability to become completely compliant without having to disclose your entire past. The IRS recognized that gathering financial information about the distant past can be cumbersome, if not impossible, so in order to encourage disclosure, it limited the tax years that require filing.
Under the Streamlined Procedures, taxpayers are required to file only the prior 3 years of tax returns, including required information returns, and 6 years of FBARs. A taxpayer who qualifies for the foreign offshore Streamlined Procedures can come clean with the IRS and potentially suffer no penalties. The IRS’s leniency has motivated many taxpayers to come forward and participate in the Streamlined Procedures.
COOPERATION WITH OTHER AGENCIES
The IRS Amnesty programs require taxpayers to file FBARs, a form that is actually not filed with the IRS, but rather with the U.S. Treasury Department through its BSA e-filing system. This has required the IRS to coordinate with the Treasury in two capacities. First, the Treasury notifies the IRS if it has or has not received FBARs from participating taxpayers.
Further, generally speaking, the IRS is tasked with using its enforcement powers, namely monetary penalties, to punish those who do not timely file their FBAR forms. In this regard, it should be noted that opposed to previous years, for tax years 2016 and onwards, the FBAR due date is April 15th, with a maximum extension of 6 months.
COOPERATION WITH FOREIGN TAXING AUTHORITIES
As we’ve written in our previous blogs, the United States government has ramped up its efforts to combat tax evasion through FATCA, which was enacted in 2010 as part of the HIRE Act. The objective behind FATCA is to combat offshore tax evasion by (1) requiring U.S. citizens, including those living abroad, to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS, and (2) requiring foreign financial institutions (“FFIs”) (which include just about every foreign bank, investment house and even some foreign insurance companies) to report to the IRS the balances in the accounts held by customers who are U.S. citizens.
In support of this effort, the U.S. has signed 80-plus intergovernmental agreements (“IGAs”) with other countries, which are designed to promote the implementation of the FATCA. Jurisdictions that have signed IGAs have agreed to implement local measures for gathering and disseminating such information to the IRS.
Expats have been feeling the effects of this international coordination for the past several years. Local foreign banks have begun identifying their American clients and sending out letters informing them that if they indeed have American citizenship, then they need to complete an IRS Form W-9 or other information form, and sign a waiver of confidentiality, in order to maintain an account at the bank. These forms trigger a gathering of information that is meant to ultimately fall in the hands of the IRS. This wake-up call has spurred many delinquent expat taxpayers to consider the IRS’s amnesty programs for fear that their account information will be sent to the IRS.
If you are a delinquent taxpayer, a number of options are currently available to you, including and in addition to the IRS amnesty programs. Each option has its advantages and disadvantages, and choosing the best way forward requires a careful analysis of your particular facts and circumstances. Our experts at Expat Tax Professionals are available to help discuss your options and guide you through each step of the disclosure process.
