September 2015 OVDP Webinar

Thanks to all who joined us on our live OVDP Webinar on September 11th.  It was a great success –  be sure to check back in for additional live webinars as they come back in. Below is the webinar as well as the transcript.


You have those 50% FBAR penalties that can add up. 50% of your account and balance six times can certainly wipe out anyone’s wealth pretty quickly. So there we’re gonna want to go and do that and your FBAR penalty will be capped at 27.5% of a high balance in any year or 50% if you happen to be on that "bad boy" bank account where people who have not, people who have accounts like Sovereign in Panama, HSBC India. There’s about 43 banks right now on the list and here I am going through all of them.


So let me just recap for the people who are watching on YouTube. We just went over the Offshore Programs and these are for people who are non-willful, your informational reporting only, your streamlined foreign Offshore Procedures that’s a zero percent penalty and your streamlined domestic Offshore Procedure which is a five percent penalty. And we just talked about FBAR Willfulness and non-willfulness and now we’re going to talk a little bit about the OVDP, the full OVDP for those who paid 27 1/2% and then also the one that’s little tricky the OVDP with an Opt-out and this is an interesting one.


The OVDP Opt-out this is for people for whatever reasons and there are some strategic reasons that come into play especially when there’s foreign commercial real estate or our client is not all that risk averse and we’d like to challenge something in an opt-out where we think, “Well maybe we’re not a 100% innocent but we think that a chance of it there’s going to be penalties applied it would be not willful penalties at $10,000 per year as supposed to those horrific 15% penalties and sometimes it really makes sense. Now, in an opt-out you’re going to do a full audit and you could really strike out and get hit with significant penalties but that’s not the end of story, because in order for those penalties to mean anything unlike a tax debt, the IRS must sue you in federal district court to convert that title 31 penalties in something that would actually mean something other than just taking your refunds or federal payments that you might be entitled to.


What are some alternatives to the OVDP?


Now, what are the alternatives? I mean when I first head of the 2012 program which is really – this is really what this – or the 2011 program which is the court rules are so much derivative of that. I said well my first thought was thinking of, ”Well let’s just avoid the whole thing right?” Why do I need to have my client’s go through this program which is going to be expensive when we can just file missing FBARs file amending returns. That’s what I was thinking. And the IRS at the said, “No, don’t do it.” We don’t want you to do it.


But I happen to get a call from a friend of mine who said, “Don’t repeat this” well here it is I am repeating it because I think bears repeating because it’s pretty important for you to hear. He said, “Anthony, you are not doing soft disclosures are you?”


I said, “No, I was thinking of it but it doesn’t make sense. They said not to do it and they have control. It’s really their field. You don’t want to upset them.”


He says, “Good, because I have a really good resource that says the IRS is looking to criminally prosecute tax advisers who tell their clients to go to a soft disclosure.”


And I breathe a huge sigh of relief and glad that I was doing the right and never advised a client to do the wrong thing and this is the other reason why, I thought of a really foolish idea. There’s these attorneys and professionals out there advising people take the soft disclosure. Well here’s the thing, you know if they’re advising one person not to make a soft disclosure they’re probably advising somebody else. So now all the IRS needs to do is find that one tax payer that made a soft disclosure, trace it back to the tax professional and now the IRS will have the database of every other client that person represented.


So you’re opening up these huge can of worms. And when we talked to people they say, “Well do you want to use one of the programs or not?” You know probably honestly, I would advise someone to do nothing over making a soft disclosure. I don’t know if I’m quite allowed to say that well I want you to comply but I just want you to realize that you’re really risking everything because this is what goes out the window when you make a soft disclosure, any plausible deniability. You know at that point the IRS you knew what to do but you went ahead and did something you weren’t supposed to do.

And we have spoken with FBARS examiners. They’re just regular tax examiners, nothing special about them they’re just assessing the FBARS penalties. And we’ve talk to some of them who say that, “Yup, we hammer them” and even in a case where the person actually didn’t know their tax adviser made a soft disclosure they still hammered with two willful penalties. I believe it was two willful penalties and the auditor didn’t want to him them with anything but the technical services said told the person to hit them with two willful FBARS penalties. So they mean it, don’t do the soft disclosure and if you have – by the way if you have done a soft disclosure it’s not too late you can use one of the programs and I would strongly advise them to do that.


Will I have prison time?


Next question that comes up a lot, “Am I going to jail?”; how to answer this one. I would say your risk of going to jail could be for something else entirely, maybe for insider trading or obstruction of justice. The IRS only has about room for about 3,000 indictments a year and there’s millions of tax payers who are non-compliant; the IRS isn’t really interested in sending people to jail, they have to send people to jail to send a message. But if you get yourself into a program you’re – the chances are just so small for an IRS unless you lie out of disclosure — you can’t lie on the disclosure.


Our next question, is “Will I raise flags?” Right. People I know if I go through this disclosure will I raise a flag? Am I going to make my life more difficult or not by going through a program? The answer to this is well you really raised the red flag. Right, by having foreign accounts you’ve already raised the red flag. The question is is do you want to put that red flag down right? So that’s sort of the better clear way to look at the issue. The IRS is looking for people – the IRS is looking for people who just want to start things done correctly now. And they’re not looking to go back in ancient history they’re just looking at a closer time period. So get that closer time period corrected and you’re fine.


And this next question is somewhat related to the same one. People ask this, Will I have a “black mark” on my name? Somewhere in your IRS transcript it’s going to say, “Oh, in here is a permanent record. This is a bad taxpayer” right? Well, it doesn’t work like that. There’s only two statuses with the IRS, compliance or non-compliance, there is nothing else. The Voluntary Disclosure Programs were specifically designed to allow a process for those who are non-complaint to be complaint. So if you have a black name this will remove the black mark.


The questions we have, Will I have problems leaving and entering the United States? Inside the program no, outside the program possibly the IRS and the US Customs and Homeland Security are exchanging databases right now. They are not 100% but they’re probably going to get better at it.


Will I be able to access my foreign bank account?


A big question here, Will I be able to access my foreign bank account? Inside program usually the IRS will not do anything to block your access to the foreign account. Usually it will be the bank blocking it but once we can prove out we are in compliance we have started a disclosure with the IRS the freeze releases. Now as a program you’re going to have some difficulties and the reason is because the bank is trying to show the IRS that they’re being a good bank and so that actually could be your biggest challenge. The IRS could say, “No we’re fine with you getting your money” you want to get paid right? And the bank is sometimes the more difficult person to persuade if you were late in getting a program or you get a program after the fact. So in a program we have not had anybody. Anybody who’s gotten in the program we haven’t had anybody we have had treats over banking clause and then we were able to send letters to the bank to say, “Here’s proof that are client is in a program. Please don’t freeze her bank accounts and it hasn’t happened yet.”


Will I have to sign a W-9 letter?


This is the next one, some of you might be getting a W-9 letter and want to know "Will I have to sign a W-9 letter?” The answer to that is yes. But there is you want to be a program if you’re going to sign it, right? Because if you sign it and you’re not in a program you got a little bit of a problem. And sort of related to the last question, the danger of not signing the W-9 comes from the bank first right? The banks are signing this forms and they’re trying to comply with the fact inter –government agreements their country signed. So the banks are really the ones who are doing it so by not signing it will the bank necessarily send your money, your information to the IRS? Maybe not initially but what they could do is potentially worse problem is freeze your assets. So, I would say you would want to sign that W-9 letter and get into a program.


Now after we explained the Streamlined Program to people and it’s a much easier than the full OVDP, the question people ask is, If I go through the Streamlined Program, can I still be audited? And the answer to this is yes. But consider this, you’re risk of audit already exists and if you get audited after making a streamlined submission your audit will be a thousand times better than if you do not use a program or a thousand and one time, something like that. But seriously, it is so much better to make a disclosure and that’s why we take out streamlined submission so seriously when we are preparing the returns we are incredibly thorough.


We are making this as audit proof as possible so if the audit comes we are just grabbing a folder off, the folder is already there. The audit file is already is there ready to go to go to the auditor. Here’s our calculations, here’s all our paperwork. This is why we have these figures, there is nothing missing. So the audit should go extremely well if you do get audited. And now if you’re not in the program at all and you got audited now we have an uphill battle. We have a few of those cases where people have not disclosed and now they’re under audit. Lot of our leverages have gone away but not entirely it’s just a little easier if we’re in a program and then get audited. A lot easier in fact.

How long can an OVDP take?

Here’s a question, “How long is this going to take?” And I know there’s some people on this call who are in a program right now they’re doing themselves or they have another call and they might be banging their head to say, “Why is this taking so long?” So, it is taking a long time. We actually have some cases believe it or not from 2009 right now. And the IRS admitted that they sat on them, and they were lost files, and we decided we weren’t going to mention anything about it because we were going close to the statute of limitations on the FBAR assessments. And then wouldn’t you know it, right before that FBAR limitation was going to ran out the IRS Called to say, “Hey, we have your case” So we have some old cases and those are really from 2009 that sort of got lost.


But really what we’re seeing, people are making FBAR only or FBAR with the many returns they were looking to about three to six month from start to finish when people hire us or what we would consider as reasonable for somebody else. And when you’re doing a Streamlined submission and this is because you want to make that Streamlined submission bulletproof. Right, you’re just not filing returns like H&R Block like hey, garbage in, garbage out, who cares all that happens, what’s the big deal? No, no, no what happens we want to be on top of it.


So there the Streamlines do take a lot. Usually we’re getting our submission in there about six, seven months and then so were about 12 months before the IRS close it out. That’s about right, it could be 14 months something like that. It’s really not out of the ordinary especially when you have some complicated foreign accounts or delays in getting things. With a full OVDP we’re talking one to three years seriously to get that in. These are incredibly complicated things to get and there’s really – and that’s eight years were doing so we know with the foreign accounts you don’t have a 1099 or K1 where you just plugging in the number, you’re developing the K1. You’re developing the 1099.


And then congress and it’s infinite wisdom has created laws to make it punitive for those to invest overseas and that’s just the truth. Foreign life insurance, foreign mutual funds, they’re all taxed at rates in the requirements are so much worse than anything domestic and it’s a dirty little secret of our tax code of how protection it is. With a OVDP with an opt-out they are talking two to five years and we were trying to count out with the OVDP examiners that we recognized and think there’s only about 12 across the country. We’ve run into the same people again and again and I am pretty sure there’s about 12 that we ran into and these are people and the OVDP examiners are really the people at the top of their game and they’re just not enough of them. I mean not only does it take an incredible amount of talent but also takes an incredible amount of raw talent, it takes a lot of years to hone that raw talent and so those people are by far incredibly sharp and normally in typically what we see is they don’t have the vendetta to assess the willful penalties. There's more – while we’re talking to them that they do other audits to so they see this FBAR penalties as really being out of line.


Really the person we need to convince isn’t the auditor but actually the technical service. The technical services is part of the exam and hey support the auditor and they’re the ones who never see the people that they’re dealing with and so they’re mortified, “Yeah, hit them with the 50% penalty they have it, they can pay it.” And those are the people and so those are the people that we have to go and appeal when finding doesn’t go our way and there’s an FBAR penalty appeals process. We’re not going to talk about that because that be another hour or so. But actually we’re on slide 20 and there’s only 25 so we’re getting near the end but of course if you want to ask a questions I do believe – if you have any questions if you are on WebX you are just going to chat, if you want to send your questions to info@irsmedic.com and do that. And I believe YouTube has commenting as well so you have three options there if you do have questions.


What do I do if the IRS contacts me?


And here is our next question is, “What happens if the IRS contacts me?” Well the answer is nothing. If you’re on the program represented you don’t say anything except, “Here’s the name and number of my attorney.”If you’re not in a program you might want to call a criminal tax defense attorney. I would recommend Michael Minns in Houston he runs a bit of money that would probably out any FBAR penalty look small. Plus really one of the big reasons why you want to get into a program. Outside the program you know the IRS has this leverage against you, the threat of criminal prosecution. And they’re going prosecute husband and spouse even if the spouse doesn’t know anything going on. They’re just going to do to put pressure on you to pressure you into taking a horrible plea deal that involves some jail time and horrible penalties as well. So that’s really what you want to do by getting into a program, again so much more leverage.


And a question we have is “Can the IRS go back more than three years in a Streamlined and can they go back more than eight years?" Can they go back more than three years in a Streamlined sure but really here it’s about resource allocation. If you haven’t served the case your attorney is saying you’re not willful chances are incredibly remote. They’re really not interested. The IRS has identified 10,000 people that have made soft disclosures and these are for amounts that are not chicken feed, these are for serious amounts.


The IRS wants to get to those people they just don’t have the man power so they’re just sort of managing which ones are the statutes of limitation coming up on and so the ones that the statues are expiring quickest on they’re trying to get too but the rest of the people they’ll get to eventually. A lot of the OVDP examiners are being trained to become exactly that auditor for the people whom are doing this off disclosure. Now can the IRS go back in eight years, I’ve really don’t know how. I guess if you never filed a return it’s possible but in this case it’s just not likely at all. You know that the OVDP is, all the volunteer disclosure programs are for those who made a mistake and want to be good from here forward, that is what the IRS is aiming for.


Okay, now these we send our invites so here we are going to get to, people have sent us questions and so ahead of time, we have three questions submitted so far from people so I have made the slide for them. And our first slide comes from somebody in Costa Rica and they would like to get into the foreign offshore program but they read – I am condensing their question, but they read something where I said you need to be in compliance in Costa Rica and other countries in order to be in the Streamlined. And they want to know is this going to be a problem? And I didn’t realize what they were asking until a few minutes ago because my answer is no, you have to get into compliance.


As long as you get into compliance with the country you’re living and you can go to the Streamlined Program, that is one requirement you must be in task compliance in Costa Rica in this case. And now I think what they’re asking is how do I get in compliance with Costa Rica? Well we work with the tax firms and CPA’s even advisers from around the world in every country it’s incredibly exciting. And that being in Costa Rica, we have a couple of different firms. If you are looking for big firms we have Arias & Munoz in Costa Rica you know specifically there’s a ton of corporations fillings to do, corporations lookups to do, and there’s a lot of legwork to do that’s a little bit difficult for us to do and cannot make it so we have a few people on the ground to help us out all around the world. So that I hope answers the question, if not again just chat or send an email we can give you some more clarification on that.


Will non-willfulness protect me from the 5% streamlined penalty?


Now this is somebody from I think Switzerland, so I am just condensing her question a little bit. “My facts are those of non-willfulness. I entered into the OVDP and now seek transitional acceptance into the streamlined. Can I avoid the 5% penalty by demonstrating my total lack of willfulness? Now this is a question with the answer is not what you want to hear. And to say the questions another way is, ”Can complete lack of willfulness negate that 5% penalty if I am in the SDOP, that’s the Streamlined Domestic offshore Program". In this case if she was still living in Switzerland she’d be golden. She would file the transitional and she would go to the SFOP zero percent penalties, that would be awesome. But unfortunately she is living in the US and so she has to take the 5% penalty. There is simply nowhere around it. The only things is, it’s better than it used to be. That’s about all that I can say is really before the previous Streamlined in 2012 program applied to so few people, and I think the only penalty and so many people wouldn’t even get that 5% and then otherwise you are looking at a 12.5% of a small account and balance. So the 5% still stinks, it’s a lot better within what could be.


Okay, this is such a long question and by the way, I am not the one who answered this one. I had to go to my people upstairs. Michelle Wynn and Robert Hanson helped me with this one, and I think Sean O’Connor helped me with this one because I got a little lost, and they were really able to help me out. So here’s the question and the next slide will be the answer. “I am a US person in Canada. I am a trustee of a Canadian Discretionary Trust that received dividends from my Canadian Professional Corporation. My mom is a settler of the trust who is a US person. The sole beneficiaries are my my three Canadian-born kids who are not US persons. Is any part of those dividends attributable to me because I am a trustee? Trust specifically excludes anyone but the three kids from any part of the trust. By the way, I know the PC needs to file Form 5471.” I would say pretty good on knowing that PC needs to file that Form 5471, that’s sort of a hidden form. If you’re on a form corporation it’s a big form and it could be really complicated and that’s really why some of the headaches involved in making disclosure and with form and compliance could get out of control. So knowing the 5471, good job on that.


So here’s the answer, and this the committee came up with and I added maybe two sentences to this answer. So again, if this does not make sense to you please send the email to webinar@irsmedic.com or just raise your hand on the checkbox wherever you are who asked this question. If it’s not up here as if the children will receive automatic US citizenship which is good right, so now we don’t have to worry about whatever income they get. But our quick review would indicate that all income of the trust is attributed to your mother, right, and she is a US person and we assume she is still alive. The trustee would have the obligation or the trust to file the required reporting forms for the trust, but the trust would not be treated as having any income from the trust and I think that’s probably, you assume. other than the payments actually made to you in compensation for your services, right, which if you took it any I don’t know if you really took any. You would however have a requirement to file the FBARs reporting for the trust. We’re assuming that some bank accounts associated, there must be as would your mother, your settler. Also, here’s the thing, you requirement to file Form 3520-A. those are the questions we have. I now we have a little bit of a delay so I’m going to give people a few minutes to ask any questions or I’m going give about 30 seconds for people to see if anything comes up because people might have a question and it takes some time to type. Other than that wow, I did talk really fast. I should slow this down on replay.


Anthony Parent: We’re doing good? Nothing on WebX. Okay. Well guys I am so excited that we had a chance to do this. And again if you think of a question later I am so glad that so many professionals were on this too that’s just really – it feels great to be able to help people out. So again if you have any other questions you can send an email to info@irsmedic.com. Look us up; thanks again and keep your eye out for more. We’ll probably going to do one on F Penalty soon, I think it’s going to be the next that we’re going to do. A lot of updates with that. Again this is Anthony Parent for Parent & Parent LLP, the IRS Medic. And I thank you for joining us today.

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