Many of my readers will recall my earlier posts on the Streamlined Procedures and the Offshore Voluntary Disclosure Procedures (OVDP). In 2014, the IRS greatly revamped the Streamlined Procedures which it had introduced in 2012, making the terms much more user-friendly for taxpayers whose tax noncompliance was “nonwillful”. Many taxpayers whose transgressions were “nonwillful”, but who had previously entered OVDP wished to “transition” from OVDP to the new 2014 Streamlined Procedures, in order to obtain its far more lenient tax and penalty framework. Those taxpayers seeking to “transition” found that they were treated very differently from taxpayers doing a “straight” Streamlined. Tax professionals, as well as the IRS Taxpayer Advocate Service had commented on what was perceived as quite unfair and disparate treatment.
Good Guys Finish Last
In Maze v. United States several taxpayers who had entered OVDP brought a lawsuit regarding the disparate treatment afforded them under the Streamlined Transition rules as compared to the better treatment afforded other taxpayers who delayed joining OVDP until the IRS announcement of the new Streamlined rules in June 2014. In June 2017, the taxpayers ultimately lost the case on what I will call “technical grounds” (The DC Circuit affirmed the district court’s dismissal of the complaint, holding that the district court was without jurisdiction to resolve taxpayers’ claims in light of the jurisdiction-stripping provision contained in the Anti-Injunction Act (AIA), 26 U.S.C. 7421 et seq.).
The Maze complaint is here. Some of the significant differences between the “transition” and “straight” Streamlined procedures can be found in the Complaint at Points 69-72. Long story short, the financial cost to taxpayers for “transitioning” to the new 2014 Streamlined were far greater than the financial cost to taxpayers who directly entered the 2014 Streamlined procedure (for example, filing and paying taxes due plus the interest owed for 8 years of back tax returns versus only 3 years; payment of accuracy related penalties, or, if applicable, failure-to-file and failure-to-pay penalties versus no such penalty impositions at all). Thus, those taxpayers who “waited” were rewarded, while those who sought to do the “right thing” and quickly correct their tax noncompliance, were punished. Not a good feeling!
Are You a Winner?
If you are in OVDP, feel your tax noncompliance was “nonwillful” and you have not yet signed your Closing Agreement, read this carefully. Get some good tax advice because you may be a winner! I am happy to help you if it is possible to save some big tax and penalty dollars. Email me to arrange a consultation [email protected]
IRS Update on January 25
The IRS updated its Streamlined Information page on January 25th. It seems to contain a new section that I had not seen before titled “Coordination Between Streamlined Procedures and OVDP”. I have copied it verbatim, below. Long story short, if you are in OVDP, feel your tax noncompliance was “nonwillful” and you have not signed your Closing Agreement, you may possibly be a winner! Here is the text of that section (emphasis mine):
“Once a taxpayer makes a submission under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, the taxpayer may not participate in OVDP. Similarly, a taxpayer who submits to an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures.
A taxpayer eligible for treatment under the streamlined procedures who submits, or who has submitted, a voluntary disclosure letter under the OVDP (or any predecessor offshore voluntary disclosure program) prior to July 1, 2014, but who does not yet have a fully executed OVDP closing agreement, may request treatment under the applicable penalty terms available under the streamlined procedures.
NOTE: A taxpayer seeking such treatment does not need to opt out of the OVDP but will be required to certify, in accordance with the instructions set forth below, that the failure to report all income, pay all tax, and submit all information returns, including FBARs, was due to non-willful conduct. As part of the OVDP process, the IRS will consider this request in light of all the facts and circumstances of the taxpayer’s case and will determine whether or not to incorporate the streamlined penalty terms in the OVDP closing agreement.”
Somehow this sounds too good to be true. It’s not fully clear to me that the IRS will really permit “the streamlined penalty terms” (e.g., only 3 years of returns required to be filed and no imposition of accuracy-related or failure to file/failure to pay penalties). The IRS Transition Rules FAQs were last updated in August 2017 and provide at FAQ 9 that if the transition is approved then, (among other things), the OVDP disclosure period of 8 years remains the same and payment of accuracy-related, failure-to-file, and/or failure-to-pay penalties, if applicable, are required.
Watch this space for further updates and developments!
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