Back in 2009, the IRS announced the first Offshore Voluntary Disclosure Program, intended to bring back into compliance US taxpayers with offshore assets and foreign bank accounts. In 2012, the third program was announced, with higher penalties and no deadline. Implementation of the IRS offshore voluntary disclosure programs has brought more the $5 billion to the Treasury. Along with its successes, however, the IRS has received many complaints from taxpayers and tax professionals about excessive penalties and lack of flexibility of the OVDP rules with respect to many taxpayers residing overseas, who unknowingly failed to comply with the FBAR rules.
On June 26, 2012, the IRS made an Announcement IR-2012-65, rolling out the newest program in a plan to help US citizens residing overseas, as well as dual citizens, to catch up with their US tax filing obligations and provide assistance for people with foreign retirement plan issues. The IRS said that it is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). In order to help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.
New IRS procedures will take effect on September 1, 2012. Once the rules kick in, taxpayers will be able to file delinquent tax returns for the past three years and FBARs for the past six years. That’s less than the eight years of amended returns and FBARs for those taxpayers in the OVDP. Payment of any federal taxes owed and interest must accompany the submission of the delinquent returns. The IRS will review the submissions, and according to the announcement, no penalties will be imposed for low compliance risk taxpayers. Those with a higher compliance risk may be subject to more thorough review or audit.
Foreign retirement plans have been addressed by the IRS as well. The IRS SAID that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.
Former IRS Tax Attorneys of Holtz, Slavett & Drabkin are available to assist you with the issues related to offshore assets and foreign accounts. To arrange for a consultations, please contact us at (310) 550-6200.
Copyright (c) 2012 Igor S. Drabkin. All Rights Reserved.