Finally! The IRS seems to be listening to the travails of Accidental Americans with “law-abiding instincts”!?
The IRS Commissioner just announced, on June 3rd, a set of common sense statements about “U.S. citizens” who want to comply with their tax obligations. Commissioner John Koskinen said the IRS will likely modify “in the very near future” (according to an article written by Jaime Arora and William Hoffman of TaxAnalysts) its offshore voluntary disclosure program for U.S. citizens residing overseas.
The full remarks are set out in the paper presented at the OECD international tax conference:
Now, while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety.
For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.- resident taxpayers who were willfully hiding their investments overseas.We are also aware that there may be U.S. – resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.
We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law – abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes.
For years, some of us have argued vociferously that the approach taken by the IRS on offshore assets of USCs and LPRs residing outside the U.S. has been misguided; as a large group of persons with “law-abiding instincts” were caught up in the same net as those USC individuals who had been taking steps to evade U.S. taxation on hidden foreign assets.
See, for instance, page 31 of my article Unsettled Future for U.S. Taxpayers Residing Overseas: Mixed Messages from IRS Commissioner vs. Ambassador—Part I published in the International Tax Journal, Jan-Feb. 2012, which reads as follows:
In addition, I published an article that showed the problems with the current program, based upon the government’s own data. That article is titled – The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program, International Tax Journal, CCH Wolters Kluwer, January-February 2014. PDF version here.
There have been other valuable arguments and information previously provided by other groups and professionals. Specifically, the National Taxpayer Advocate, Ms. Nina Olson and her office has written extensively about these problems. See, See, 2014 Taxpayer Advocate Report – Re: Expanded Reporting Obligations and IRS Form 8938 (FATCA – specified foreign financial assets). Also, see, Taxpayer Advocate Report on Burdens of Benign Taxpayers who Make Mistakes
Hopefully, the current Commissioner will provide meaningful modifications to the OVDP for those good faith individuals residing around the world.