Tuesday, September 11, 2012

Last Chance for Voluntary Disclosures before FATCA becomes effective in 2013!

January 1, 2013 is the effective date of the Foreign Account Tax Compliance Act (FATCA) and with its implementation the associated FATCA disclosures.  FATCA ends historical bank secrecy as previously relied on by many US depositors. 

In anticipation of FATCA implementation, the IRS, revised its Frequently Asked Questions (FAQs), clarifying many uncertainties in the current OVDP, tightening some areas and relaxing others. In addition, the IRS released, updated versions of some of the documentation that taxpayers will be required to file as a part of their acceptance into the OVDP.

The clarifications establish that the OVDP is available to taxpayers who have both offshore and domestic issues that require disclosure. Additionally, the IRS clarified which years are to be included or covered in the required eight-year voluntary disclosure period: for taxpayers who submit voluntary disclosures prior to the due date or extended due date for 2011, the disclosure period includes 2003–2010. For taxpayers who submit disclosures after the due date or extended due date for 2011, the disclosure period is 2004–2011.

The IRS added two new categories of persons ineligible for the OVDP. Under the OVDP, a taxpayer is required to notify the U.S. Attorney General of any appeal or document submitted in connection with an appeal of a foreign tax administrator's decision to provide account information to the IRS and any such a person who fails to provide the required notice will no longer be eligible to make a voluntary disclosure. Second, the IRS may announce that certain taxpayer groups that have or had accounts at specific financial institutions will be ineligible due to U.S. government actions in connection with the specific financial institutions. Each announcement is to provide notice of the prospective date upon which eligibility for the specific taxpayer group ends.

The IRS also revised certain documentation, the Offshore Voluntary Disclosure letter used to make the formal application to the OVDP has significantly changed and now has a required attachment/questionnaire which, to some extent, replaces an earlier document known as the Foreign Financial Institution Statement and further expands upon the details of the offshore account and the persons involved in the creation of the account. The disclosure letter and the attached questionnaire now call for information regarding deposits/withdrawals, entities affiliated with the account, and a host of information relating to communications with representatives of the foreign financial institution.
The OVDP in response to situations involving U.S. citizens,including dual citizens, residing abroad added two new provisions.The first, which previously posted as Tax amnesty offered to Americans in Canada, describes the IRS giving Canada persons the opportunity to request an extension of time to make the election to Canada to defer U.S. income tax on income earned in, but not yet distributed from, Canadian registered retirement savings plans (RRSPs), pursuant to  the U.S.-Canada Income Tax Treaty. If the election is granted, the RRSP balance will not be included in the offshore penalty base upon which the 27.5% penalty attaches.
The second which previously posted as Instructions - New Streamlined Filing for Non-Resident & Non-Filer U.S. Taxpayers! which describes the IRS' new procedure (to take effect September 1, 2012) that will allow U.S. citizens, including dual citizens, residing abroad to become tax-compliant, without necessarily facing penalties, if they are low-compliance risk taxpayers who owe little or no back taxes (generally, those persons who have simple tax returns and owe $1,500 or less in tax for each of the covered years).
If you have unreported income from Foreign Banks and you want to Get Right with the IRS, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).



1 comment:

  1. Patrick Johnson

    In Canada I am pretty sure of at least 50 cases of renounciation or notification of relinquishment. My hunch is in reality their at least a couple of hundred are going on right now(and I believe this will continue to rise).

    Of the 50 I am pretty sure all of them DIY with no US Tax or immigration counsel involved. Whether or not this is a "smart" decision by the 50 I will leave up to others to judge but I suspect all of them or close to all are not "covered" expatriates. Now half of these 50 or so are actually "relinquishments" which is not easy to understand. Basically these are people whom lost their US citizenship in the past under old nationality law(Basically when they became Canadians often way back in the 1960s and 1970s lost their US citizenship and never did anything to regain it or exercised any rights of US citizenship even after the law changed) but are only formally notifying the State Department now(which they did not believe was necessary at the time of loss of citizenship again way back in the 1960s and 1970s). Of these people a lot as a matter of "principle" are not filing out the exit tax paper work or certifying their compliance. What will happen to them? I am not the one to guess.

    One of the more funny stories(and in many ways sad) story was of a 60 something widowed and retired secretary who became what she believed a sole Canadian citizen back in the 1970s. When she filled out of the form to give notification of relinquishment to the US State Department recently to receive a CLN she had to fill her last US address of residence where she hasn't lived in 50 years no one in her family has lived in for 38 years and was torn down 28 years ago. You want FATCA "Real Life" this is it.

    A second point I will make is while a CLN is considered a proof of "Non US Personhood" I don't think there was really much consideration to putting it into the FATCA regs other than for strictly technical and legal reasons i.e. I don't think the IRS really thought that many people would actually have them. However, I suspect the number of CLN's as alluded earlier being issued is going up quite dramatically especially in Canada however if you have actually seen a CLN it is not a particularily "secure" document other than the Consulate seal.

    There is also the problem that I personally don't think the State Deparment and IRS have good CLN records going back prior to the 1990s. You can bet someone will try to take advantage of this and we will have another UBS affair again.

    Third I hear a lot about especially from financial institutions about "reputational risk" basically we don't want to get called in front of Carl Levin's Subcommittee on Investigations. Canadian FFI's and Canadian politicians though need to start thinking about another kind of risk and that is "Goodbye Charlie Brown" risk after the time in the 1980s a senior citizens famously accosted then Prime Minister Brian Mulroney in the street over his plan to de-index seniors benefits with the words "You lied to us" and "Goodbye Charlie Brown" and forced the then government almost single handedly to make down on a key part of its economic platforms. A senior citizen accosting the current Finance Minister or Prime Minister of Canada over giving into to FATCA(which all of the Canadian FFI's want them to do) will not be a "fun" experience notwithstanding the alternative experience of being hauled before Levin's committee on investigations.