Further to our June 8th, 2014 email regarding the June 3rd, 2014 announcement by the Commissioner of the Internal Revenue Service that changes to the Offshore Voluntary Disclosure Program (OVDP) and Streamlined Compliance Procedure (SCP) were under development, we are pleased to report that yesterday, the Service published changes to the SCP that substantially improve the way that the people whom we have called “innocent non-filers” will be treated when they bring themselves into compliance by filing their overdue FBAR’s and tax returns.
As you know from posts on our website and prior emails, we have been campaigning for changes to the existing IRS compliance programs, particularly the SCP which, as we outlined in our August 2013 letter to David Horton, IRS Director of International Individual Tax Compliance, was too vague and too restrictive and too uncertain. Our conclusion after speaking to Mr. Horton on March 10th, 2014 that the SCP was being administered more liberally than the written guidance would lead one to expect and would be replaced has been vindicated.
Although there are a couple of minor changes that we intend to pursue, the revised program addresses almost all of our concerns.
The revised SCP is divided into two sections: one for non-resident US citizens and one for US residents.
The revised SCP eliminates the $1,500 limit on unpaid taxes per year; the obnoxious risk questionnaire; and the “simple” tax return qualification; allows taxpayers to participate who are filing amended returns for prior years; allows US resident taxpayers to participate and only requires taxpayers to certify that their non-compliance was non-willful.
The Offshore SCP waives all penalties, both tax and FBAR, only requiring that any tax due be paid along with interest. It also eliminates any penalties for the late filing of information returns that should have been filed with the tax return. The Domestic SCP imposes a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the non-wilful FBAR non-compliance issue. The Offshore SCP maintains the social security number requirement.
We intend to continue to challenge the social security number requirement and to object to the 5% penalty for the Domestic SCP. Even if that is a much lower penalty than under the OVDP, it is still punitive. Why should a truly innocent US resident taxpayer pay any penalty if they relied on the erroneous advice (or absence of advice) of a US tax professional?
We intend to continue to work with the IRS to ensure that the voluntary compliance programs are inclusive of all of the innocent US taxpayers and to eliminate punitive penalties for US taxpayers who do not deserve such a result.
Don’t hesitate to contact us with any questions or comments.