IRS Offshore Voluntary Disclosure Program Report

Offshore International Today                                        

IRS Offshore Voluntary Disclosure Program Reopens

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By Lance Wallach, CLU, CHFC

Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

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Today, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.  Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs.

The Offshore Voluntary Disclosure Program (OVDP) was reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will remain open indefinitely until otherwise announced.

Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS.  According to Lance, it requires years of experience to obtain a good result from the program.

He suggests using a CPA-certified, ex-IRS agent with lots of international tax experience. While this is not a requirement to file under the program, Lance has heard many horror stories from people who have tried to file by themselves or who have used inexperienced accountants.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The new program is similar to the 2011 program in many ways, but it has a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we've said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort accompanies another announcement that Shulman made today, that the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program.  That figure reflects closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who come in after the closing of the 2011 program will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

The new program’s penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or the value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. 

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning.  He writes about 412(i), 419, Section79, FBAR, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as the AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexpert.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Guidance on applying the Section 6707A penalty provisions

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, DC 20224
LARGE BUSINESS AND INTERNATIONAL DIVISION
LB&I Control No.: LB&I-20-0211-001 Impacted IRM: 20.1.1,20.1.5

January 19, 2011
MEMORANDUM FOR INDUSTRY DIRECTORS DIRECTOR, FIELD SPECIALISTS DIRECTOR, INTERNATIONAL BUSINESS COMPLIANCE DIRECTOR, INTERNATIONAL INDIVIDUAL COMPLIANCE
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FROM: Cheryl P. Claybaugh /s/ Cheryl P. Claybaugh
~ Director, Pre-Filing and Technical Guidance

SUBJECT: Amended IRC Section 6707A Penalty -Interim Procedures

The purpose of this memorandum is to provide guidance on applying the Section 6707A penalty provisions amended by the Small Business Jobs Act of 2010 that was enacted on September 27, 2010. The amount of the penalty was changed, but the application of the Section 6707A penalty did not change. The amendment applies to penalties assessed after December 31,2006.
Prior to the Act, the amount of the penalty was unrelated to the tax shown on the tax return as a result of the reportable transaction. Under the amendment, the penalty is "75 percent of the decrease in tax shown on the return" as a result of the reportable transaction. The maximum penalty in the case of a listed transaction is $100,000 for a natural person and $200,000 for all other taxpayers and in the case of a non-listed reportable transaction is $10,000 for a natural person and $50,000 for all other taxpayers. The minimum penalty for both listed transactions and non-listed reportable transactions is $5,000 for a natural person and $10,000 for all other taxpayers. Procedures are being developed to centralize processing of closed cases (i.e. calculation of new penalty amounts, processing of partial abatements, and notices to impacted taxpayers). Revised case processing procedures for open and future cases will be developed.

The Future of Life Settlements

Lance Wallach

President, VEBA Plan

Lance Wallach is the National Society of Accountants Speaker of the Year and the President of VEBA Plan, a New York based accounting, insurance, financial, and estate planning consulting firm. Some of Mr. Wallach's national engagements have included National Association of Attorney... Full Profile

   

By Lance Wallach Many insurance professionals now think that the life settlement market is ending. Agents assisting their clients in the sale of their unneeded life insurance policies have no doubt been frustrated by the lack of bids in the current life... Read More

 And what about the lawsuits that have started? The life settlement market saw double-digit annual growth for a decade until 2008. When the financial crisis hit, global markets and credit evaporated, and the life settlement markets came to a standstill. How did this happen to a market that was supposedly not correlated to other markets?

The life settlement market has long been touted as a non-corollary asset class. Even today many promoters looking to raise funds from investors still highlight this investment benefit. I have always doubted everything about the market and have urged people to stay away. How would you know if Tony Soprano is buying your mother’s life insurance policy? I am a member of the Sons of Italy. I was awarded membership even though I am Jewish. Why? Because I am a friend of the President of the local chapter. 

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Interest rates and stock market prices impact the portfolios of life insurance carriers. The solvency of a life insurance company directly impacts its ability to meet death claims. Why would life settlements be immune? If carriers like AIG teeter on the edge of financial ruin, then credit risk becomes a primary concern for life settlement investors. You may have heard that an ‘A’-rated carrier has never failed to pay a death claim. This is a great lie. The insurance company is usually no longer rated ‘A’ by the time they fail to pay.

I think that the life settlement market will not have any future source of funds within two years.

Life insurance companies have been attacking the market for years. Their vast experience in underwriting has already proven victorious as table changes in 2008 damaged the Net Asset Value of all life settlement funds. Their lobbying against life settlements has also been successful. Overly burdensome and poorly written life settlement regulation in various states has simultaneously increased the operating expenses for life settlement firms and decreased the opportunity for the consumer. 

Life insurance companies are adjusting their COI rates higher and blaming life settlements for the change. They will sell insurance to preserve and protect wealth, yet the very products they sell are backed by investments mired in mountains of debt, equities with high P/E ratios, and issued in a currency that is deeply flawed. Even though many carriers survived the Great Depression, our financial markets are considerably more complex today than they were then and this may cause many carriers to soon find themselves with big problems in the future.

Lance Wallach, CLU, ChFC, the National Society of Accountants Speaker of the Year, also writes about retirement plans, 412(i) plans, and 419 plans. He speaks at more than ten conventions annually, writes for over fifty publications, and is quoted regularly in the press. He has authored numerous books for the AICPA, Bisk TotalTape, Wiley and others. Mr. Wallach does expert witness work and his side has never lost a case. 

 

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

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