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IRS to end Offshore Voluntary Disclosure Program in September

The IRS has announced that it will begin winding down its Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. Under the OVDP, a taxpayer with undisclosed foreign assets or income could come forward to pay tax, interest and reduced penalties in exchange for immunity from criminal prosecution. The IRS will continue its separate Streamlined OVDP, which is only available to certain taxpayers unaware of their international reporting obligations.

The IRS made the announcement now in order to give taxpayers who may still want to come forward time to do so. “Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter in a statement. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

The program has been very successful, collecting more than US$11 billion in tax, interest and penalties from more than 50,000 taxpayers. With advances in international reporting and information-sharing regimes, the IRS has also aggressive pursued taxpayers who have tried to hide assets abroad. Since 2009, it has indicted 1,545 taxpayers for criminal violations related to international activities with 671 indicted specifically on international criminal tax violations.

Even with the OVDP ending, the IRS will not stop vigorously pursuing international tax evaders. Any US taxpayer who may have unreported assets or income abroad should come forward now and take advantage of the OVDP while it is still available. Otherwise, come September, such taxpayers could face huge penalties and potentially even prison.

About Denton’s Tax Controversy

Dentons’ Tax Controversy team has successfully represented over 100 clients in various OVPD and streamlined OVPD proceedings, addressing a wide variety of tax compliance issues from taxpayers all across the globe. In addition, Dentons is one of few firms that has experience litigating Report of Foreign Bank and Financial Accounts (FBAR) penalties under the Bank Secrecy Act, which are almost always at issue in OVDP proceedings.

If you would like to discuss the above further, please contact any of the members of the Dentons Tax Controversy team.

Taxpayers Putting Pressure On Courts to Establish The IRS’s Burden Of Proof In Offshore Disclosure Cases

Recently, the U.S. Fifth Circuit Court of Appeals, in Bernard Gubser v. IRS, et al., was asked to overturn a recent U.S. District Court’s decision. The case involved the appropriate burden of proof the Internal Revenue Service (IRS) must meet when the IRS asserts a willful failure to file penalty for the Report of Foreign Bank and Financial Accounts (FBAR). At issue is whether the IRS must meet a clear and convincing evidence standard to establish willfulness or whether the appropriate measure is the lower preponderance of the evidence level of proof.

The District Court’s dismissed the initial suit for lack of standing. A group of taxpayers filed an amici curiae brief with the Fifth Circuit urging the Court to reverse the District Court’s decision due to the perceived harm that the uncertainty of the burden of proof could cause taxpayers who made an error in failing to file the FBAR, but who believe their oversight was not willful. This comes at a time when an unprecedented number of District Court cases will be filed for FBAR violations due to the inability of many taxpayers to achieve relief through the IRS Appeals process.

The Streamline Program Turns Two

The Streamlined Filing Compliance Procedure (SFCP) is now two years old. The SFCP was designed for taxpayers whose failure to disclose their offshore accounts was “non-willful,” due to a lack of understanding or knowledge of reporting requirements for U.S. persons. Unlike the full blown Offshore Voluntary Disclosure Program (“OVDP”), the SFCP places the burden of proving that the taxpayer’s noncompliance was willful on the IRS once the taxpayer has asserted that their non-compliance was not willful. Taxpayers who’s tax returns and informational filing requirements satisfy the SFCP are only required to file tax returns for the previous 3 years and FBAR’s for the previous 6 years while taxpayers in the OVDP must file tax and information returns and FBAR’s for the previous eight years.

One point of contention for taxpayers who entered into the OVDP before the SFCP was introduced in 2014, and whose noncompliance would have qualified them for the SFCP, is that they should be able to switch to the SFCP and take advantage of the reduced penalties on the income tax liability and file only 3 years of income tax returns. While the reduced miscellaneous penalty is available under the OVDP by requesting transitional relief, such relief is not guaranteed and often denied.

Recently, a group of taxpayers brought suit in the Washington D.C. District Court to challenge the IRS’s position that taxpayers who were enlisted in the OVDP prior to the implementation of the SFCP, cannot have their matter transferred to the SFCP. The taxpayers in this case contend they were being treated unfairly under this system as they were no different than those who came forward later in time and entered the SFCP.

Unfortunately, the court did not decide the merits of the case. Rather, the court held that the suit hinders the IRS’s ability to make decisions regarding the enforcement of tax liabilities and dismissed the suit as being barred under the Tax Anti-Injunction Act (26 U.S.C. § 7421), which prohibits suits that restrain the assessment and collection of taxes.   This case highlights the difficulties that can arise when the Service creates settlement programs independent from regulatory oversight and commentary.

Are You Ready for FATCA?

July 1, 2014, marks the date when withholding under the US Foreign Account Tax Compliance Act (FATCA) first begins to apply. Aimed at addressing perceived tax evasion and avoidance by US persons through the use of offshore accounts, FATCA has a wide-ranging impact on non-US entities that receive, directly or indirectly, many types of US-source income. Additionally, US entities that make payments of many types of US-source income to non-US persons are also affected by the new rules.

In the video interview, Tax partner John Harrington, former international tax counsel for the Department of Treasury, provides an overview of FATCA. In the video, John explains why companies should be actively preparing for the new compliance provisions, even if 2014 and 2015 are considered a “transition period” by the IRS. More specifically, he examines:

  • The broad impact of FATCA and intergovernmental agreements (IGAs);
  • The importance of planning for FATCA’s series of compliance deadlines; and
  • New reporting requirements and expectations under the global information automatic exchange.

US Treasury Releases Substantial FATCA Guidance

Continuing its implementation of the Foreign Account Tax Compliance Act (FATCA), the US Treasury Department recently released a package of proposed and temporary regulations.

According to a fact sheet released by the US Treasury Department along with a preliminary version of the temporary regulations on February 20, 2014, this is “the last substantial package of regulations necessary to implement [FATCA].”

Dentons’ tax lawyers analyze the latest on FATCA in this article.

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US Treasury Department Releases Latest Round of FATCA Guidance

Notice 2013-69, released on October 29, 2013, is the latest effort by the US Treasury Department to provide guidance to US and foreign entities that will be subject to the new reporting and withholding rules imposed by the so-called Foreign Account Tax Compliance Act, or “FATCA.” For information on previous guidance issued by the US Treasury Department and background on FATCA, please see our previous alerts titled US Government Announces 6-Month Delay in Certain FATCA Rules and US Issues Final FATCA Regulations.

Notice 2013-69 basically does three things:

  1. publishes the draft Foreign Financial Institution (“FFI”) agreement with which participating FFIs and Model 2 FFIs must comply,
  2. provides updated information about the responsibilities of participating FFIs and Reporting Model 2 FFIs and the FATCA registration process, and
  3. announces the intent to make limited changes to the recently issued FATCA regulations and to other reporting regulations to coordinate with FATCA reporting.

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Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

US Government Announces 6-Month Delay in Certain FATCA Rules

Recognizing the practical and logistical problems faced by US withholding agents and foreign financial institutions (“FFIs”), and the uncertainty faced by many FFIs and foreign governments about whether an intergovernmental agreement (“IGA”) will be in effect by January 1, 2014, US tax authorities on July 12, 2013, issued Notice 2013-43. Notice 2013-43 states that the US Treasury Department and US Internal Revenue Service (“IRS”) will postpone by six months, to July 1, 2014, the start of withholding required by the so-called Foreign Account Tax Compliance Act, or “FATCA,” and make corresponding adjustments to various other time frames provided in the final regulations. The Notice states that its goal is to allow for a more orderly implementation of FATCA. The Notice gives affected entities more time to adjust to FATCA; it generally does not, however, relax the long-term, substantive withholding and reporting obligations imposed by FATCA.

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Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

US Issues Final FATCA Regulations

On January 17, 2013, the US Treasury Department (IRS) released final regulations to implement the US reporting and withholding rules originally enacted in 2010 and frequently referred to as the Foreign Account Tax Compliance Act, or FATCA. Beginning on January 1, 2014, the FATCA rules generally impose a 30 percent withholding tax on many types of payments of US-source income to a foreign entity (“withholdable payments”) unless the foreign entity reports certain information about any US account holders or owners it possesses. The FATCA rules apply directly to withholding agents, foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs), but their indirect impact is far broader and often affects unsuspecting parties.

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Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

IRS Updates FATCA Guidance

On October 24, 2012, the US Internal Revenue Service (“IRS”) issued Announcement 2012-42 along with a table (reproduced below) that summarizes certain Foreign Account Tax Compliance Act (“FATCA”) due diligence deadlines. The changes announced are limited, but they demonstrate that the IRS and the US Treasury Department continue to make modifications to the FATCA withholding and reporting rules in response to comments, especially comments focused on practical problems encountered by entities trying to implement and comply with FATCA.

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Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

US Department of the Treasury Releases Proposed Regulations Implementing FATCA

On February 8, 2012, the US Department of the Treasury (the “Treasury Department”) issued detailed proposed regulations to implement the withholding and reporting rules commonly referred to as the “Foreign Account Tax Compliance Act” or “FATCA.” The proposed regulations supplement and, in some cases, modify the rules the Treasury Department previously announced in a series of notices. The release of the new rules provide an opportunity, in advance of the implementation dates, for foreign financial institutions (“FFIs”) to, among other things, determine the impact of the reporting and withholding requirements on their operations, including how much due diligence is required, whether the FFI systems must be enhanced, whether FFI records are currently readily retrieveable, whether the current number of customer files require that due diligence commence now, whether the FFI has sufficient staffing levels, whether FFI staff is sufficiently trained to implement FATCA, and whether third party assistance is required.

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Edward Hickman and Jerome Walker, members of Dentons’ Corporate practice, co-authored this article.