The IRS asked for feedback on its Offshore Voluntary Disclosure Program and Streamlined Procedures. Here is our response. On October 16th, members of the IRSMedic Offshore Team presented detailed suggestion on how the IRS can best improve their offshore disclosure processes.
In Part VI of this IRSMedic OVDP series, we conclude with our Feedback on proposed IRS Streamlined Forms:
- Form 14708, Streamlined Domestic Penalty Reconsideration Request Related to Canadian Retirement Plans
- Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures
Watch here, below this video is the letters we sent the IRS.
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Internal Revenue Service
Attn: Christie Preston
Room 6129
1111 Constitution Ave. NW
Washington, DC 20224
RE: Comment from FR Doc. No: 2015-19521: Form 14708, Streamlined Domestic Penalty Reconsideration Request Related to Canadian Retirement Plans, OMB Number: 1545-2241
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 Streamlined Domestic Offshore Procedures.
We have attempted to segregate our response into the categories of comments requested in the notice in the Federal Register.
(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:
The form currently requests that the taxpayer provide his or her telephone number, presumably to allow the taxpayer to be contacted with regards to the request. However, the form does not include any location where the taxpayer could request that his or her representative be contacted in place of the taxpayer, where a valid Form 2848 is on file. We recommend that a section is added allowing the taxpayer to designate that any contact should proceed through a representative and to list the representative’s name and contact information.
The form currently requests that the taxpayer provide his or her email address, presumably to allow the taxpayer to be contacted with regards to the request. However, the IRS has expressed that its position is that email is not secure and therefore will not communicate with taxpayers via email, although some offices will if the taxpayer provides a specific request for such contact via email and is apprised of the risks and so long as the IRS employee follows certain safeguards. Though we are wholeheartedly in favor of the IRS implementing procedures to allow for email correspondence, since the IRS has made it a policy not to do so, there appears to be no legitimate reason to request that taxpayers provide their email addresses on this or other IRS forms.
The Form 14708 contains a requirement that would require a taxpayer to retain all records related to their Canadian retirement plans and all assets subject to the 5% miscellaneous offshore penalty for six years from the date of the request for penalty reconsideration request. As noted in our response on Form 14654, this extends the requirement to retain records beyond the period that the IRS would actually have to assess penalties for failure to file FBARs or for failure to maintain records of account information related to the FBAR filing requirement. Therefore, this form appears to apply a requirement to retain records beyond the period prescribed in the laws that the program purports to be related to and serves no purpose, since the IRS would be unable to assess any penalties for failure to retain this information. Therefore, we recommend that this language is better tailored to match the relevant statutes of limitation.
(b) The accuracy of the agency’s estimate of the burden of the collection of information:
While the form as currently drafted includes an OMB number, it does not currently contain any estimate of the burden of collection of information, so we cannot determine whether the estimated burden is accurate.
(c) Ways to enhance the quality, utility, and clarity of the information to be collected:
The current draft version of the form does not allow information to be saved in the form. We recommend that the final version of the form allow information to be saved in the electronic version of the form to allow for revisions and edits to the form prior to submission.
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.
Sincerely,
Michelle D. Wynn , Esq.
Partner
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October 7, 2015
Internal Revenue Service
Attn: Christie Preston
Room 6129
1111 Constitution Ave. NW
Washington, DC 20224
RE: Comment from FR Doc. No: 2015-19521: Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures, OMB Number: 1545-2241
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 Streamlined Domestic Offshore Procedures.
We have attempted to segregate our response into the categories of comments requested in the notice in the Federal Register.
(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:
The Streamlined Domestic Offshore Procedures call for taxpayers to amend their federal income tax returns for the “most recent 3 years for which the U.S. tax return due date (or properly extended due date) has passed.” In a narrow category of cases, this results in the Streamlined department receiving amended tax returns that are beyond the Statute of Limitations on Assessment, resulting in taxpayers incurring costs to have tax returns prepared that the IRS does not have the power to accept. This happens in instances where a taxpayer filed the earliest of the years’ tax returns by April 15th but filed for an extension prior to filing the most recent tax year prior to the Streamlined Submission. For example, a taxpayer filed his 2011 tax return before April 15, 2012. He then filed an extension for his 2014 tax return, and so his “amended return period” was 2011-2013. He made a submission of his amended tax returns for 2011-2013 as required under the terms of the Streamlined Domestic Offshore Procedures on June 20, 2015. The IRS receives, but is unable to process, the amended tax return for 2011, because it is beyond the Statute of Limitations for Assessment for that year. While the Form 14654 does contain a waiver of the restrictions on assessment and collection of the miscellaneous offshore penalty, it does not have a similar restriction with regards to assessment and collection of tax and interest. While keeping the rule as it is may allow for a level of clarity that is desirable in this program, it also results in the IRS receiving amended returns that it is unable to process.
The Form 14654 contains a few provisions regarding requirements to retain records to be provided upon request in connection with the submission under the Streamlined Procedures. The requirement to retain records related to income and assets during the period covered by the delinquent or amended returns for three years after submission under the Streamlined Procedures appears to comply with other legal requirements and statutory time periods for assessment of taxes, barring the instances pertaining to our comment in the preceding paragraph. However, the form also contains a requirement that would require a taxpayer to retain all records related to their foreign financial assets for six years from the date of the Streamlined Certification. This extends the requirement to retain records beyond the period that the IRS would actually have to assess penalties for failure to file FBARs or for failure to maintain records of account information related to the FBAR filing requirement. Therefore, this form appears to apply a requirement to retain records beyond the period prescribed in the laws that the program purports to be related to and serves no purpose, since the IRS would be unable to assess any penalties for failure to retain this information. Therefore, we recommend that this language is better tailored to match the relevant statutes of limitation.
(b) The accuracy of the agency’s estimate of the burden of the collection of information:
The estimate of the burden of collection of information provided does not appear to be based on any actual studies or other accurate measurements. The estimate provided does not seem to take into account the time required to research the relevant law and guidance to be able to complete the certification. However, barring the research time necessary to determine the impact of relevant laws and guidance, the time estimate appears reasonably accurate for the average individual preparing this form on his/her own, taking into account the wide disparity in time necessary based on individual circumstances.
(c) Ways to enhance the quality, utility, and clarity of the information to be collected:
There is a typographical error in the “Note” directly under the boxes for the Name and TIN of the taxpayers. This paragraph states that spouses should submit a joint certification if they are submitting joint income tax returns under the Streamlined Foreign Offshore Procedures when the form that this phrase is written on is for the Streamlined Domestic Offshore Procedures.
On the same topic of spouses submitting a joint Certification whenever they are submitting joint income tax returns, we have spoken with many individuals who, for one reason or another, need to come into compliance by reporting foreign income that should have been reported on a federal income tax return that was filed Jointly with a spouse, when for one reason or another, the spouse intending to go through the program will not be participating in the program with the spouse that they filed jointly with. The most common instance for this is with couples that have divorced or separated at some point between the start of the “amended return period” and the time that they would make the submission under the Streamlined Domestic Offshore Procedures. We have previously called the OVDP/Streamlined Hotline about these instances and have universally been informed that the taxpayer would be able to proceed through the program by themselves, without the involvement of their spouse. There is currently no written guidance addressing about this issue.
With regards to the OVDP/Streamlined Hotline, there is nowhere in any IRS materials that we have been able to find that advertises that the OVDP Hotline, which has existed at least since the 2012 program was unveiled, now accepts questions about the Streamlined Offshore Procedures. There is no reference to a hotline number within any of the Streamlined Offshore Procedures FAQs (either Domestic or Foreign); the only reference to this hotline is within the OVDP program information. So the people who would have most need for this service, people intending to represent themselves and needing information, are not being informed that they can seek information by calling this phone number.
The Form 14654 requests that taxpayers certify, in accordance with the program eligibility requirements, that they have previously filed original tax returns for the 3 years within the tax return look-back period. However, there is no detail available in any of the program information about the effects of a late-filed tax return. So, it remains unclear whether a taxpayer would remain eligible for the program if they filed original tax returns for all three of the prior years, but did so after the due date but prior to their Streamlined Submission.
The Form 14654 requests that taxpayers self-compute the amount of interest that they will owe on the additional tax owed on their amended returns. However, the IRS does not appear to offer any online calculators to calculate this.
It would be beneficial if the Form 14654 allowed for expanding numbers of rows in listing the foreign financial assets subject to the penalty or if there was an IRS form for an addendum to this form. Currently, the form simply specifies to attach a continuation sheet if necessary and that if a continuation sheet is attached, the taxpayer TIN(s) must be printed and it must be signed with the taxpayer name(s).
Pursuant to the FAQs for this program, the 5% penalty is not intended to apply to assets in which the taxpayer has no financial interest or the portion of assets over which the taxpayer does not have a financial interest. However, there is nowhere on the form where a taxpayer can indicate that he is discounting the value of his interest in a foreign financial asset as a result of only having a financial interest in a portion of the foreign asset. Assuming that the processing department that receives these forms is reviewing the forms to ensure accuracy, failure to allow any place for a taxpayer to make such an indication would cause unnecessary inquiries to be made by IRS personnel.
There are various assets which would be included on the FBARs and Forms 8938 for the relevant years which would not be included within the penalty computation. However, there is no location to specify which assets the taxpayer has self-determined are not includable within the penalty base or why such assets were excluded. This reduces the ability of the IRS to accurately identify taxpayer mistakes in determining which accounts should and should not be included within the penalty base.
The section requesting a narrative specifically requests that a taxpayer identify the name, address, telephone number, and description of advice received for any professional adviser on which the taxpayer relied. This implies that the IRS is compiling a list of professional advisers who incorrectly advised taxpayers for potential investigation or additional education, both of which would be excellent uses of this information. It would make this information clearer for data collection purposes if there was a special location for this information to be entered, rather than leaving it to the taxpayer to place this within the body of a narrative of facts. This would allow for quicker and easier identification of this information and an increased ability to locate the information for future use.
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.
Many people who seek our advice about potentially pursuing the Streamlined Programs are concerned about the certification under penalties of perjury. Their concern is that if the IRS disagrees with their self-assessment of their legal state of mind and later determines that they were not “non-willful”, that they will be subjected to penalties. It is our understanding that so long as the facts contained in the narrative statement, all factual information with regards to account information, and all other fact-based information on the form is accurate, and so long as the person signing the form has a reasonable belief and understanding that their facts meet the provided description of non-willful conduct, that the taxpayer will not be subject to potential penalties for perjury. We recommend that the IRS clarify, on this form or in related program materials, what exactly the taxpayer is attesting is true, correct, and complete, when they are signing this form under penalties of perjury.
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.
Sincerely,
/s/
Michelle D. Wynn
Partner
