UPDATE 2016: The 2012 Streamlined Program has been, fortunately, replaced with a program with far more favorable rules. Learn more about the new program here.
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The information below is out of date, but presented as proof of actual improvement IRS procedures.
If you participated in the Standard OVDI can you do Streamlined OVDI?
This is a recent question we were recently asked about the IRS Offshore Voluntary Disclosure Initiatives , and the answer is not all that inspiring. Names, countries, certain facts, changed to protect identity.
Homer Gleason retired from the US Navy in 1998. The same year, he married a woman from Thailand, and has been living as an expatiate in the Philippines. The last year he filed US taxes was in 1998. Most of his income came from his military pension — and thanks to the low cost of living in the Philippines, it's all he needs to live quite comfortably. His income is supplanted by some personal savings that he had in a South Korean bank account that he opened when he was stationed there. He closed that account in 2004 and transferred the money to Filipino bank, into an account that he opened the same year.
The highest account value his foreign accounts ever had was $120,000 USD. He never filed an FBAR Form.
In 2011, he learned that he was in non-compliance and could be charged criminally for failing to report his foreign accounts. So he entered into the IRS initiative, later known as the 2012 OVDI.
He now learns that he would qualify for the to 2012 Streamlined OVDI , as he meets several conditions: (1) He is an expatriate. (2) He has never filed returns in the last 6 years. (3) His total tax for any year is under $1500.
So Homer wants to know if he can withdraw from the standard 2012 OVDI and enter into the streamlined OVDI — thus avoiding any FBAR equivalent penalty (the 5 – 27.5% penalty calculated on highest account value).
This question, we directly asked the IRS. And this is what we were told:
Now is this final answer? We are not sure. It seems rather unfair to us. Think about it: That someone who didn't bother to come clean until a few weeks ago is in a better position than someone who came clean nearly a year ago.
A possible way out leads to more uncertainty
One strategy would be to refuse to complete the standard OVDI. That would automatically kick the taxpayer out of the standard OVDI. At that point, the taxpayer would attempt to enter into the Streamlined OVDI. The problem with this tactic is that entrance into the Streamlined OVDI is discretionary as well, and the IRS may refuse entrance, based on previous non-compliance.
So our strategy in this situation is to have our client remain in and complete the Standard 2012 OVDI, but when it comes time for penalty calculations, we will make the argument (and rigorously appeal any denial) that any FBAR-equivalent penalty must be tantamount to the penalties that would have been imposed under the Streamlined OVDI.
If you would like to contact us to discuss your options, contact us at 888-727-8796 or email firstname.lastname@example.org.