irs compliance programs and understanding them

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IRS Compliance Programs and Understanding Them

Presentation Template

Answering your frequently asked questions about the offshore voluntary disclosure programs and streamlined

compliance proceduresThe IRS is hoping to provide

greater flexibility to appeal to a greater audience if taxpayers

that have been waiting to come into compliance with their taxes. Previous programs have allowed 45,000 individuals to come forth and understanding the different programs can help you decide if now is the time to clean up your

offshore account taxes.

Freeman Tax Law (855) 935-5945 [email protected] www.freemantaxlaw.com


. In many cases, the banks and financial institutions request that these forms be provided to them. The foreign banks and financial institutions are also requesting that the account holder submit an IRS Form W-9, which is generally required to be

completed by U.S. customers for tax reporting purposes.

Q1 - Is the Offshore Voluntary Disclosure Program (OVDP) or Streamlined Compliance Procedure a new program?


• No, both programs have several years of proven success. • Changes have been made to both programs. • The Streamlined Compliance Procedure is appropriate for those that non-willfully did not comply with tax rules for their offshore funds. • The OVDP has steeper penalties which correspond to the willful intent of the taxpayer utilize an offshore account evade taxes.


Why did I receive this letter?The Foreign Account Tax Compliance Act ("FATCA"), is a law enacted by Congress in 2010 and effective beginning July 1, 2014. The law was enacted to identify noncompliance by U.S. taxpayers using offshore financial

accounts. Under FATCA, foreign financial institutions will generally be required to comply with certain due diligence and annual reporting requirements regarding their U.S. account holders and enter into information sharing agreements with the United States. Foreign financial institutions that do not provide such information to the United States will face a penalty in the form of a withholding of 30 percent of certain U.S. source payments such as

interest and dividends.Many U.S. taxpayers are receiving these letters because, in advance of the effective date of FATCA, foreign banks are undertaking the process of identifying account holders that have a U.S. tax connection. A foreign bank

may find that an account holder has a U.S. tax relationship from information held by the bank such as a U.S. mailing address, a U.S. phone number, account holder birth place or the fact that upon opening the account information the bank was provided a U.S. passport, Green Card or U.S. Visa or other information indicating U.S. residence. If a foreign bank has identified an account as potentially having a relationship to United States, the

institution is likely to send this letter to the account holder.

Q2 - What are the penalties under the two programs?


• The Streamlined Compliance Program has a 5% miscellaneous penalty on the foreign assets that caused the non-compliance issue. • The OVDP has a 27.5% penalty, which could increase to 50% if the foreign institution that the account was held with is investigated by the Department of Justice or IRS.


What is a “Non-Prosecution Agreement” and why was it mentioned in my letter?If your account is based in Switzerland, your letter may have referenced that your Bank has entered into a “non-prosecution agreement” with the U.S. Department of Justice (“DOJ”). Basically, what this means is that the bank has agreed to participate in a program to proactively resolve potential issues that they have with the U.S. Department of Justice if they

have “reason to believe” they violated tax laws of the U.S. There have been 106 banks in Switzerland that have entered into this initiative.The non-prosecution initiative requires the participating banks to disclose how they helped Americans hide assets, disclose the total number of U.S. accounts since 2008, provide

their highest dollar value, and turn over the names of employees who managed these assets. The banks also must use independent examiners to certify findings to the DOJ. According to a January 26th, 2014 article in Bloomberg, “the program is the largest assault in a five-year U.S. Department of Justice crackdown on offshore tax evasion”. The price for participating in non-prosecution agreements with the DOJ is very high. Banks must pay 20 percent of the value of accounts not disclosed to the Internal Revenue Service on Aug. 1,

2008, 30 percent for such accounts opened between then and February 2009 and 50 percent for accounts opened after this date.

Q3 - What criminal penalties or charges does the OVDP protect the taxpayer from?

• The OVDP protects taxpayers

from possible criminal charges steming from tax evasion or concealing tax payment, filing false returns, and failing to file income tax returns.

• Failing to file an FBAR or filing a false FBAR are separate charges and subject to criminal penalties.

• Conspiracy and fraud provisions can also be invoked. Freeman Tax Law (855) 935-5945 [email protected] www.freemantaxlaw.com


Should I close my account and move the money?We have all heard the saying that “you can run, but you can’t hide”. There is a lot of truth to that saying in

this situation. Many taxpayers; however, have chosen the path of closing the account and moving the assets. Instinctually, it is the “flight or fight” response to receiving this type letter. Transferring the funds to

another foreign bank is really not a great idea. Aside from the potential civil and criminal penalties that might be imposed as a result of such actions, the implementation of FATCA has changed the way bank

secrecy laws work for U.S. people around the world. U.S. taxpayers with undeclared foreign bank accounts can no longer rely on foreign assurances that they will be protected by foreign bank secrecy laws or remain undetected by the U.S. government. Foreign banks and financial institutions are being asked through U.S. Department of Justice “John Doe” Summonses to provide “account migration” information, which eventually reveals the names of U.S. account holders that have transferred assets to other banks. Simply closing a

foreign account and moving the funds elsewhere is not a good option because it is likely that the U.S. government will find out about it anyway.

Q4 - When should taxpayers seek to take advantage of these programs?

• Immediately. The IRS is able to change the terms of these programs at any point in time. With additional information flooding in daily from foreign financial institutions it is risky to continue to be noncompliant.

• The best option is to clean up your tax responsibility before the IRS comes looking for you.



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Freeman Tax Law

About Freeman Tax Law

Freeman Tax Law is a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

Freeman Tax Law(855) [email protected]