There's something truly special about taking a complex idea, breaking it down, and seeing someone really get it. Unfortunately, the IRS tends to take complicated things and dials them up a notch. So, stick with me as we take a look at how the IRS treats transitional OVDP requests.
The IRS allows eligible taxpayers who are currently in the standard OVDP to be treated under the streamlined process. The streamlined process is worth considering because it has some seriously favorable penalty structures and look-back for unfiled returns. The streamlined program can be — for taxpayers who are eligible — a really great way to significantly lower penalties and reduce the time investment for processing returns.
That all sounds rather nice and pleasant, doesn't it? Well, there's a caveat – these requests are far more scrutinized than what could be reasonably anticipated. The IRS isn't a huge fan of taking less money, so they're not willing to let just anyone transition to the streamlined program. Even though transitioning from the standard OVDP to the streamlined program can be an arduous fight, it's one that we've seen result in a number of huge successes.
A Tale of Two OVDPs
Our first OVDP tale is about a client who ran a company based out of Europe. He was an incredibly smart fellow with a great deal of charisma; it was clear from the start that he had done well for himself. His company was extremely successful and he was able to invest a substantial amount of his money before finally consolidating all of his accounts 10-15 years ago. Already in the standard OVDP, we were doing everything in our power to get him transitioned into the streamlined program. The penalty difference between standard and streamlined can take a staggering tax bill and make it much more reasonable.
It didn't come as much of a surprise when the IRS pushed back against our transitional request. I got the sense that moving funds around prior to consolidating was something that the technical advisory would not like and that they might use that information to deny the request. A flurry of activity can signal to the IRS that you're trying to hide something.
But that wasn't going to keep us down. The Revenue Officer came back to us with several questions about when the funds were transferred, where they were prior to the transfers, where they were afterward, how long they were in each place, when the decision was made to transfer, etc. They wanted to know everything about the transfers so they knew we weren't pulling a fast one.
Luckily for us, proper preparation is the best friend of success. With help from our client, I was able to get all of the underlying information and paint the facts in the best possible light to illustrate the taxpayer's non-willfulness. His transitional request was accepted.
Second time is the… second charm?
Our second tale is of an officer who worked for a multinational corporation. He worked in several countries before coming to the USA, but he still had strong ties back to Europe with his retirement accounts and a partnership. While being incredibly personable and sophisticated, he was terribly ill-informed of how to be in compliance with foreign taxes. There was no way, with him being as unaware of foreign taxes as he was, that he was willful in avoiding his taxes. It was my job to prove that to the IRS.
With his help, I was able to get all of the information I needed to create a compelling narrative to show that he was non-willful in his failure to comply. Thanks to the support and assistance of fellow Parent & Parent staff, the process was about as smooth and efficient as you could hope for. After showing the IRS what we knew, they turned around and approved his transition into the streamlined process. This second case helps solidify what we saw in the first one – taking the time to get the right information can be the difference between a failed and a successful transition.
While as no transition is a surefire thing, there's a big difference between a well-constructed case and a halfhearted attempt. The IRS has shown us a fair amount of pushback, so making sure that every request to transition is as strong as possible is an absolute necessity. Approaching a transition flippantly is the fastest way get stuck paying the extremely high standard OVDP penalty. Hiring the right representation to build a solid case and present it to the IRS in a compelling manner is the best way to ensure a bright future.
Read what past clients of Parent & Parent LLP have to say about their experience with us. If you need assistance getting into the proper disclosure program, or if you'd like us to review the work someone else you hired has done to get a second opinion on it, contact us. We can help.
