Streamlined OVDP Quick Guide




Hi, this is Anthony Parent of Parent & Parent LLP, and thank you for joining me today. We’re going to talk a little bit about streamlined disclosure for expats with unfiled FBARs, aka FinCEN Form 114, and unreported income from abroad. We’re going to give you a brief overview of some of the main questions and concerns people have. And guess what, it’s not OVDP! There actually is no such thing as streamlined OVDP. OVDP stands for offshore voluntary disclosure program which is actually a derivative of the old, and still current, voluntary disclosure program for people with unreported income…and they have some criminal exposure.

The streamlined program is actually streamlined processes. There’s actually no protection from criminal exposure but there really isn’t any criminal exposure to begin with. So the OVDP is sort of like the big program, and there you go back eight years. The streamline is a little easier and a little less expensive, little less intrusive, although it can add up a bit. One of the questions we’re asked all the time with the streamlined is "How many years will the IRS want you to look back?" The answer is three years of tax returns; for some people that ends up being less because they weren't in noncompliance. If you’re in noncompliance for more than three years, you don’t have to do that. Also, if you look at your six years of FBARs and then for some people they don’t have the FBARs filing requirements for all six years, guess what, they don’t do it. And just to clarify something that comes up all the time –  If you had ten thousand offshore accounts worth a dollar each, you would have an FBAR filing requirement. The requirement goes on aggregate amount overseas, not any one account has to be over $10,000 to have that filing requirement.

Another related question, this is can the IRS audit you if you do a streamlined process submission? The answer is they already can audit you! So if you have unreported accounts, you’re just as much at risk, or more, if you do not use one of the processes. Also, if you don’t, you might have an uphill battle and they might refer you to a criminal exposure even if you didn’t do anything. This is just because somebody could get the wrong idea about you. That’s one benefit of using the streamline process; you are able to get out in front of any problem. A big question that comes up is the streamlined penalty-based? Now, this applies for people who are domestic only. There’s two different kinds of the streamlined processes. One, is if you live in the US, and your spouse lives overseas (if you’re overseas for 330 days or more). If you live overseas you are in the best possible position because your penalty base is nothing, that is you pay zero if you live overseas. If you live in the US, you’re going to have a 5% penalty on your year-end balances, it would be less as well I live in say, in the UK, which doesn’t fall in the calendar year, we have a different fiscal. We go by the US tax law. We don’t care about the UK, so we have to go by that December 31st balance, whatever fiscal year the country that your account is in is irrelevant.

Some other benefits of the streamline program over OVDP is that there’s no rental real estate included in that penalty base and also it’s not the high balance unless your year-end happens to be the exact high balance and that could have some significant advantages for people especially those who might have transferred large sums in from the sale of some real estate. But the question we get, is that 5%, let’s assume that you have to do the streamline domestic offshore procedures, is that 5% negotiable? This is –we’re asked this all the time. Now, that’s the deal. If you don’t like it, you do have options and that options would be going full OVDP, going eight years and then opting out. But usually the issue is if you’re going to go eight years, you’re going to owe eight years of taxes, so any penalties that you reduce on this end is made up with more expense, more taxes on the other end and plus your legal fees are going to be a lot more because you’re multiplying everything by eight, not three.

Now, as I said, there is that streamline foreign offshore process, that’s the good one, right? That’s when you pay zero percent, then you have the streamline domestic offshore procedures and that’s the 5%. So let’s just say that the qualification for this are you have to live – you have to be overseas for 330 days. We have people who are close, oh boy, are they closer? Ever so closer to that 330. Let say that they’re overseas for only 320 days and they come to the US for just one week, well, that could be an expensive week and they want to know, “Can I just break the rule?” Bend the rules. “I don’t want to break the rules, I just want to bend them.” or call it what you will. Regardless if you don’t meet the tax, you don’t meet the tax, then what you’re going to do, you do whatever you want to do. But isn’t the entire point of going through these process to clean up a past mess. The point of doing this is to put your tax problem behind you, how does this help you? By filing a certificate saying that you know what the law is and you’re 100% compliance of this. When you know is it’s true, how was that helping you out at all? The answer is, we don’t think it is.

And this goes for a lot of people, ‘cause a lot of people maybe they’re so close to qualifying for an SDOP or SFOP but they’re missing one critical qualification because we do like to see people use the streamline were possible because it is a lot less expensive. It is less onerous. A lot of times it’s just as it work. So one of the things is, you can probably find somebody who will bend the rules for you but this is the problem that you run into, both of these, both of these domestic and the foreign require that certification that you are fully aware of and fully in compliance of all tax laws. Why would you sign that if that’s not 100% true and this is really the question I would ask you, aren’t you better off doing nothing? At least there, you can argue some sort of plausible deniability but here, they got your signature right there that you knew what you were doing which sort of leads into our final questions and we’re are asked this a lot and something is, “Can I do this myself? Is this really a big deal?’ To that, I would say, “Why would you sign anything you weren’t 100% sure of?” Taxation of foreign income is the most complicated thing in the history of history, right? Nobody else taxes like the IRS and there’s things that people don’t know are actually taxable, foreign pensions. You know, just because something is nontaxable in Germany or Hong Kong or Australia, it doesn’t mean it’s not taxable by the IRS. Your foreign life insurance, the IRS probably doesn’t consider life insurance policy for purchase of life insurance policies but it does when it comes to excise tax, did you know that?

Again, it’s the most complicated thing in the history of history. By the way, the IRS posts the wrong tax treaties online. There is something. We found that the other day. The IRS uploaded the wrong US and UK tax treaty. We found the right one eventually, the right one was listed on the UK webpage. So there is something for you. Well, what if you got it wrong and actually was rather significant because it had something to do with foreign pensions. Again, the answer to this question is why do anything unless you’re going to do it 100% correctly, and this is the critical time. When you’re in noncompliance and when you’re going to do some sort of disclosure whether a full OVDP or whether a streamlined, this is a critical part and let’s just say this, you’ve never seen your tax returns done correctly. So this is really where you want to get it done correctly. Maybe in later years, maybe you’ll be able to find a tax preparer who can look at how they’re done correctly and then going forward they can do it correctly for the rest of your life.