Introduction to the IRS Offshore Voluntary Disclosure (OVDP) and Streamlined Process Forms Request for Feedback.
The IRS asked for feedback on many of its current and proposed OVDP and Streamlined Process forms. In the video immediately below, we describe our response. In Part II, which follows, we discuss changes the IRS should make to OVDP Form 14457 the Offshore Voluntary Disclosure Letter.
Part II OVDP Form 14457 Offshore Voluntary Disclosure Letter:
Part III of this webinar, feedback on OVDP Form 14452 Attachment to Offshore Voluntary Disclosure letter is right here. Additional segments will follow. If you do not wish to wait, and would like to see our entire 90 minute presentation that includes all of our requested feedback on the OVDP and Streamlined Process Forms you may do so now by watching it on YouTube by clicking here.
The text of the letter, referenced in the videos that Attorney Michelle Wynn wrote to the IRS regarding OVDP Form 14457 follows below.
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October 7, 2015
Internal Revenue Service
Attn: Christie Preston
1111 Constitution Ave. NW
Washington, DC 20224
RE: Comment from FR Doc. No: 2015-19521: Form 14457, Offshore Voluntary Disclosure Letter, OMB Number: 1545-XXXX or OMB Number: 1545-2241 (see Para. 3 below)
Dear Ms. Preston:
We are responding to the Department of the Treasury’s request for Comment on its request for OMB approval on the above-referenced form, associated with the IRS’s Offshore Voluntary Disclosure Program.
We have attempted to segregate our response into the categories of comments requested in the notice in the Federal Register.
There was an issue with this form, though. The Form 14457 that was sent to our office by Mr. R. Joseph Durbala, when we requested the versions of the forms for which approval was being sought, indicates that it was last revised January 2013 and is not the same form which is currently being used which was last revised July 2014. We have assumed that the correct version of the form for which comment is being sought is the July 2014 version currently in use.
(a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility:
Question 6 asks “Have any of the offshore accounts you are disclosing been identified by the IRS as ineligible for this program?” More than a year ago, the IRS indicated that it would create a “black list” of foreign institutions where if a taxpayer had accounts with that institution, the IRS would not allow them to make a voluntary disclosure. But, when the IRS issued its revised program terms in 2014, it apparently decided instead to create a list of financial institutions for which there would be an increased Miscellaneous Offshore Penalty if the taxpayer had accounts with that institution. Since the IRS has not established any method or circumstances under which accounts would be identified as being “ineligible for the program” there is no reason for this question. It may be more useful to substitute a question about whether the taxpayer has accounts which are on the list of financial institutions for which there is an increased penalty.
Question 9 asks whether the taxpayer believes that the IRS has obtained information concerning his/her tax liability. Presumably any person who has an account with a financial institution or a financial institution in a foreign country that has indicated a willingness to make reports under the FATCA reporting obligations or intergovernmental agreement would have reason to believe that the IRS has received information about his/her tax liability. This question would also not have any bearing on program eligibility or a difference in how the OVDP matter would be considered by the IRS. Therefore, this question appears to serve no useful purpose.
(c) Ways to enhance the quality, utility, and clarity of the information to be collected:
The form appears to be misleading as to the requirements with regards to spousal participation in the program. At the top of the form, it states: “If you filed jointly at any point during the past eight years, your spouse should also apply for the OVDP by answering the questions below.” The FAQs for the program indicate that spouses have a decision whether to submit a joint or separate disclosure and all references to spouses indicate that the relevant steps should be completed if each spouse “desires” or “wishes” to participate in the program. There are occasionally situations where one taxpayer intends to proceed through the OVDP and, for a myriad of possible reasons, their spouse for some or all of the OVDP period does not intend to proceed through the program at all. In our experience, it has been the long-standing practice of the IRS to allow only one spouse to enter the OVDP, but to strongly encourage the other spouse to participate as well. However, this practice is not reflected in writing anywhere, other than a negative inference from the FAQ, and the language of the Disclosure Letter gives a person the impression that having only one spouse participate in the program is not permissible. We recommend that the IRS address such a situation in writing and revise the language on the Disclosure Application in accordance with the written guidance.
On Line 1f-1g, the form requests that the taxpayer and spouse separately list their “Passport Number(s)” and “Country(ies).” However, there is not space to list multiple entries in any of these fields even though many participants would have passports issued by multiple different countries.
On Line 1.i. – Line 1.k., the form requests that the taxpayer and spouse separately list their “Bank Name(s)”, “Name on Bank Account,” and “Bank Account Number(s).” However, there is not space to list multiple entries in any of these fields even though, in our experience, taxpayers participating in the program typically have more than one bank account. Additionally, this request is duplicative as it will also be listed on the relevant attachments.
There is a “Note” between Line 1 and Line 2 that indicates that Estates must include a court document or Form 56 verifying who is authorized to sign the Form 2848. However, nowhere on the form, within the FAQ, or on the “How to Make an Offshore Voluntary Disclosure Page,” does it indicate that a Form 2848 should be submitted with the Disclosure Application if a representative is being appointed.
Some IRS Revenue Agents involved in the OVDP process allow/request authorized representatives to communicate with them via email (while observing the safeguards that have been established for email communications). Additionally, the draft Form 14708 requested taxpayer email addresses, indicating that the IRS intends to expand employee usage of email for communication. If this is a trend that the IRS is seeking to encourage, it would make sense to request the email address for Authorized Representatives along with the other contact information being requested on Line 2.
Line 3 of the form asks taxpayers to indicate whether the Voluntary Disclosure is Offshore Only or is for both Offshore and Domestic issues. If a taxpayer indicates both Offshore and Domestic issues are present, the department processing these requests will then send an Application for Domestic Voluntary Disclosure (which is not presently publicly available on the IRS website). It would be helpful to make that form publicly available and to direct taxpayers to submit that form if checking the box that the disclosure is for both offshore and domestic issues.
Line 4 asks taxpayers to answer “How did you learn about the Offshore Voluntary Disclosure Program?” Our assumption is that this is being asked, at least in part, to aid the IRS in targeting which efforts have been most effective to alert people about the program. To aid in better identifying these efforts, offering a preset selection menu (either as a drop down menu or check box), and allowing a category for “Other” for write-in answers, would allow the IRS to more quickly identify and make use of this information. That method would also allow for use of automated programs that could scan for such information and compile a database of the answers to allow for better and easier access to the information.
Line 10 requests that taxpayers indicate the Highest Aggregate Account/Asset Value per year. The PDF form allows for people to check multiple different value ranges per year. Adjusting the available fields in this section to allow only one value range to be selected could reduce the frequency of improper entries.
While Line 10 requests that taxpayers indicate the Highest Aggregate Account/Asset Value per year, Line 10a only requests that taxpayers list their foreign accounts and does not request any information about other foreign assets. Similarly, there is no requirement to submit an Offshore Voluntary Disclosure Letter Attachment for foreign assets that are not financial accounts. Therefore, at no point during the Disclosure Application process would the IRS learn if a taxpayer had, for example, multiple foreign rental properties that would be disclosed or multiple foreign business entities, if the taxpayer did not have control (or beneficial ownership) over the entity’s financial accounts. With regards to Line 10a and 11a, for taxpayers who have many different accounts that are being reported, which is quite common, there is insufficient space available to list all foreign accounts that would need to be listed. Having this field be an expanding field that would expand to fit the size of the information being entered would better accommodate such situations. Alternatively, the request for this information could be removed from the form since these entries should match the entries for which the taxpayers are required to submitted Disclosure Letter Attachments.
In our experience, many people seek the assistance of professionals in preparing this form. Therefore, it would seem to be appropriate to include a location for a professional to sign the declaration as well. This will also allow for enhanced professional review by the Office of Professional Responsibility, should it be found that some tax professionals are improperly submitting documents under these procedures. Similar reasons are used for having professionals sign on OVDP documents, IRS Collection Alternative requests, and tax returns that they prepare.
There appears to be a typographical error on the Privacy Act and Paperwork Reduction Notice. The last sentence in the first paragraph of this section states “If you chose to apply, however, you are required to provide all the information requested on the foreign account or asset statement” (emphasis added). Since this line is on the Form 14457, Offshore Voluntary Disclosure Letter, and far more documents are requested than the foreign account or asset statement, it is our assumption that this line is meant to read “If you chose to apply, however, you are required to provide all the information requested on the offshore voluntary disclosure letter” (emphasis added).
We thank you for your consideration of this information and we would be happy to provide any additional information or feedback should such be needed or beneficial to this process.
Michelle D. Wynn , Esq.
Parent & Parent LLP
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