Some interesting facts about the current IRS environment:
Many Americans residing outside of the United States are familiarizing themselves with the U.S. tax system, particularly in this past year due to FATCA. They are asked by their non-U.S. banks to certify, under penalty of perjury, certain tax documents simply to hold the most basic checking or savings account. Following that is the filing of U.S. individual income tax returns and foreign bank account reporting forms for those Americans who have lived their entire life outside the United States, amassed savings there and has no financial ties to the United States. A ‘non-willful’ taxpayer is eligible for the Streamlined Procedures, as of juli 1, 2014, which allow a taxpayer to file the previous three years of U.S. income tax returns and six years of FBAR forms without penalties. However, a mystery remains as to what happens to the declarations once they are submitted to the IRS under these Procedures.
One of the stipulations of the Streamlined Procedures is that the IRS does not notify the taxpayer that their ‘non-willful statement’ has been accepted or that no further penalties or civil or criminal charges will be assessed. The statute of limitations starts (or restarts) once the submission is made. One of the stipulations of the Streamlined Procedures is that the IRS does not notify the taxpayer that their ‘non-willful statement’ has been accepted or that no further penalties or civil or criminal charges will be assessed. The statute of limitations starts (or restarts) once the submission is made. This leaves the individual, new to U.S. reporting rules, in a state of ambiguity. The individual may receive an automated notice if tax was calculated incorrectly or if additional interest is due. What if the notice is incorrect? To go further, what if a simple, low-risk overseas taxpayer decides that he wants to become compliant on his own and wants to speak to an agent about the forms to complete?
I am certain that I am not the only CPA who has waited more than 90 minutes on the phone to speak to a revenue agent, gotten a busy signal while trying to call their international hotline (+1-267-941-1000), or simply get an automated message stating that “all agents are busy, call back in a few hours.”
According to the IRS Commissioner, “after five years of budget cuts, and a hiring freeze that has lasted four years, people need to understand that the IRS is going to have to do less with less….If people think they are not going to get caught if they cheat….the system will be put at risk”.
The U.S. tax system is built on the notion of self-assessment and voluntary compliance. This does not mean that taxpayers living abroad should forego any of their U.S. filing obligations or adhere to what is sometimes referred to as the “audit lottery” – this is strongly discouraged. Taxpayers delaying their foreign reporting obligations, in a complete and accurate manner, are at risk of public disclosure. The Department of Justice (“DOJ”) is continuously issuing John Doe summonses to foreign financial institutions to provide names of their U.S. account holders which generally come without any warning. Taxpayers who are being investigated before they come forward are disqualified to enter the Streamlined or OVDP procedures and therefore cannot benefit from the lower or no penalty opportunities. Also, it is important to mention that as of august 20, 2015, the list of Foreign Financial Institutions which are considered as “Facilitators” (…of U.S. tax avoidance and have entered plea agreements with the DOJ) totals 43 from which 30 institutions were added since maart 2015http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators. So far, the IRS and DOJ are focused mostly in Western Europe. With FATCA, it is only logical that the spotlight will expand. Will your bank be #44, 45…. or 70 by the time you read this post?
Richard Barjon is a Senior Manager in the Private Client Services practice of WeiserMazars LLP in the Chicago office. He has over 10 years of experience dealing with gift, estate, and income tax planning for high-net-worth individuals and families.