We are members of the American Bar Association Section of Taxation, which on May 2, 2018 submitted comments to the IRS on the IRS Offshore Voluntary Disclosure Program (“OVDP”), the Streamlined Domestic Offshore Program (“SDOP”), and the Streamlined Foreign Offshore Program (“SFOP”).

We co-authored the ABA comments.

The comments are very constructive. It is hoped that the IRS carefully considers and adopts many of the comments. Below are the summary comments.



These Comments are presented in connection with the effort by the Department of the Treasury and Internal Revenue Service (the “Service” or “IRS”) to collect information on the paperwork and other burdens facing U.S. taxpayers who are participating in one of the Service’s programs to voluntarily disclose previously unreported offshore assets, and specifically in response to the Notice and Request for Comments published in the Federal Register on February 28, 2018 (“Notice and Request”).1 These Comments address issues related to the Offshore Voluntary Disclosure Program (“OVDP”) and the “Streamlined Filing Compliance Procedures” (“Streamlined procedures”), which consist of the Streamlined Domestic Offshore Procedures (“SDOP”) and the Streamlined Foreign Offshore Procedures (“SFOP”).


The Service’s voluntary disclosure programs have been remarkably successful with more than 56,000 taxpayers participating in the OVDP since 2009 and more than 65,000 taxpayers taking advantage of the Streamlined procedures. For many taxpayers, these options helped solve a potentially paralyzing problem; namely, the repatriation of foreign assets without fear of unpredictable penalties or criminal prosecution. However, taxpayers who choose to participate do so at considerable cost in terms of time and resources.


While we recognize the Service needs to do a certain amount of due diligence and information gathering to determine the appropriate amount of tax, interest, and penalties taxpayers must pay to resolve their cases, we think there are adjustments the Service could make in its information gathering process to make this process less onerous on taxpayers. Additionally, although taxpayers disclosing noncompliance should expect that they will be subject to a rigorous verification process, we think that all the Service’s programs and procedures should be administered fairly and equitably and should not be unnecessarily punitive.


Our hope is that the Service will take these Comments into consideration in the continued administration of SDOP and SFOP and in crafting any new OVDP that will be effective after the current iteration of the OVDP ends on September 28, 2018.


With the foregoing thoughts in mind, we provide the following Comments for consideration:


I.                   Comments Provided in Direct Response to the Notice and Request for Comment


  1. Whether the Collection of Information is Necessary for the Proper Performance of the Functions of Agency. The forms created to facilitate the collection of data in connection with the SFOP and SDOP are necessary and appropriate to standardize the process and perform an initial risk assessment. However, it would be helpful for the

1 Proposed Collection; Comment Request on Information Collection Tools Relating to the Offshore Voluntary Disclosure Program (OVDP), 83 Fed. Reg. 40, 8734 (February 28, 2018).


Service to: (1) confirm that the forms are subject to the doctrine of substantial compliance; and (2) provide guidance on the relationship between the forms submitted by spouses filing returns as married filing jointly and the Relief from Joint and Several Liability provisions contained in section 6015.2 In addition, Form 15023 (Offshore Compliance Status Response), which solicits compliance information from taxpayers who were either rejected or withdrew from the OVDP, has caused substantial confusion with respect to the three compliance options. Additional guidance regarding the look-back period for the second and third options would be very helpful, particularly in cases where a taxpayer has been fully compliant in recent years.


  1. Comments on the Agency’s Estimate of the Burden of the Collection of Information. We believe the Service’s estimate of 8 hours to complete the forms associated with the Streamlined procedures, including Form 14653 (Certification by

U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures) or Form 14654 (Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures), substantially understates the time that taxpayers spend gathering and processing information. Participating taxpayers are required to prepare and file three years of amended income tax returns and six years of Financial Crimes Enforcement Network (“FinCEN”) Forms 114 (Reports of Foreign Bank and Financial Accounts) (“FBARs”). We are mindful that the burden estimates for the collection of information often do not reflect the actual burden imposed, but make the above observation to respond to the specific request for comment in the Notice and Request. In addition, considerable time is generally needed to gather the information to prepare a complete explanation for the taxpayer’s prior non-compliance, particularly because the definition of “willfulness” with respect to failure to file FBARs remains unclear.


  1. Ways to Enhance the Quality, Utility, and Clarity of Information to be Collected. Form 14452 (Foreign Account or Asset Statement) could be eliminated or modified to either be more useful to the Service or to prevent duplicative requests for the same data, and, thus, be less burdensome on taxpayers.


II.                Additional Comments Provided with Respect to the OVDP


  1. Whether a New OVDP Should be Announced and if so, on What Terms. The various iterations of the OVDP were very successful, bringing nearly 60,000 taxpayers into compliance and generating more than $11.1 billion in taxes, interest and penalties. The programs also provided the taxpayers and their representatives with a level of certainty and transparency and established guidelines for IRS internal processing of the submissions. Finally, under the terms of the programs, taxpayers came to the Service with full disclosure, supporting documents, and, when possible, full payment of the amounts due, thereby saving the Service from expending limited resources initiating audits and enforcement action. For all these reasons and based on

2 References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (the “Code”), unless otherwise indicated.


the uncertainty that prevailed between the end of the 2009 OVDP and the start of the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”), the Service should announce a new offshore voluntary disclosure program to take effect after September 28, 2018, the scheduled conclusion of the 2014 OVDP, and should take steps to expedite the pre-clearance process, which has become unduly delayed.


  1. Guidance on Treatment of Undisclosed Cryptocurrencies. Taxpayers lack guidance on the proper tax treatment of cryptocurrency transactions held in exchanges or wallets formed outside of the United States. We recommend that the Service issue guidance addressing whether an FBAR or Form 8938 (Statement of Specified Foreign Financial Assets) needs to be filed for such transactions and if so, how the information should be reported. We further recommend that the Service announce an 18-month period in which taxpayers who bought, sold, sent, or received cryptocurrency, including cryptocurrency obtained through Coinbase, Inc. or any other domestic or foreign exchange, may file qualified amended returns pursuant to Treasury Regulation section 1.6664-2(c).


  1. 50% OVDP Super Penalty. In light of the guidance issued in 2015 that set the maximum civil willful FBAR penalty at 50% of the high value of a taxpayer’s undisclosed foreign accounts,3 we recommend that the Service: eliminate or substantially reduce the increased penalty imposed on taxpayers with accounts associated with a blacklisted foreign financial institution or facilitator; limit any increased penalty to those specific accounts associated with the identified institutions or facilitators; and establish a de minimis exception to any increased penalty with respect to taxpayers with less than $25,000 in these


  1. Broadness of the OVDP Penalty Base. To incentivize taxpayers to participate in any future voluntary disclosure program, the miscellaneous penalty should be limited to foreign assets that are reportable on the FBAR or Form 8938. Alternatively, we suggest that the Service adopt a de minimis income exception with respect to non- reportable assets so that such assets with minimal income tax noncompliance are not included in the penalty


  1. Eliminating the Use of Substantive Information Required on Pre-Clearance Requests. The 2014 OVDP pre-clearance procedures require that pre-clearance requests disclose the names of the banks and entities associated with the taxpayers’ offshore noncompliance. This information may incriminate a taxpayer before the Service confirms that the taxpayer is eligible to participate in the voluntary disclosure program. As a result, taxpayers are reluctant to come forward. We recommend that the Service issue clear guidance stating that information provided for purposes of a pre-clearance request will not be treated as an admission by the taxpayer in the event of a criminal


  1. Request for a Settlement Program to Accelerate the Efficient Conclusion of Ongoing Audits. Offshore compliance examinations require the Service to dedicate


3 IRS Interim Guidance for FBAR Penalties, SBSE-04-0515-0025, dated May 13, 2015.


significant time and resources to reach resolution of taxpayer cases. Such cases move from exam, to the IRS Office of Appeals, and ultimately to litigation, using up the Service’s limited resources at every step. We recommend that the Service institute a settlement program to resolve offshore compliance audits in a simplified manner.


  1. Collection Alternatives for Taxpayers Unable to Fully Pay OVDP Liability. Taxpayers participating in the OVDP face uncertainty if they are unable to pay the tax, interest and penalties due. We recommend that the Service establish clear guidance that taxpayers participating in an offshore voluntary disclosure program may pursue available collection


  1. Clarification as to When an OVDP Disclosure is Deemed Timely. The current lack of clarity as to the timeliness of a voluntary disclosure discourages some taxpayers from coming forward. We recommend that eligibility be measured as of the date a taxpayer submits a pre-clearance


  1. Request for Additional Safeguards for the OVDP Removal Process. Some revenue agents have inappropriately used removal or the threat of removal against taxpayers participating in the OVDP when taxpayers are unable to obtain foreign account records or wish to pursue a good faith challenge to a position taken by the Service. We recommend that clear guidance be issued protecting taxpayers from unwarranted removal in such


III.             Additional Comments Provided with Respect to Streamlined Procedures


  1. Guidance for U.S. Citizens, including Accidental Americans, Without Social Security Numbers. The Streamlined procedures require U.S. citizens, U.S. residents, and certain other individuals to have a valid Social Security Number (“SSN”). The SSN application process can be onerous and protracted, and while waiting for an SSN, taxpayers risk a triggering event that could make them ineligible for any voluntary disclosure. We recommend that the Service accept Streamlined submissions from taxpayers who have applied for an SSN and are waiting for the application to be processed and approved. These taxpayers can provide an alternative identification number (g., foreign passport number or foreign tax ID number) and the Service could assign a temporary control number that will be replaced with the taxpayer’s SSN when issued. We also recommend the Service seeks ways to work with the Social Security Administration to expedite the processing of requests for SSNs.


  1. Equity of Including Tax Compliant Assets in the Penalty Base. The SDOP requires taxpayers to pay a penalty equal to five percent of the highest aggregate end of year balance/value of the taxpayer’s foreign financial assets that should have been, but were not, reported on the taxpayer’s FBARs and Forms 8938 during the covered period, regardless of whether the asset is tax compliant. In other words, even if a foreign financial asset generated no income, or income with respect to the asset was fully reported, the asset will be included in the SDOP penalty base if the asset was not reported on the FBAR or Form 8938. Under the OVDP, if there is no unreported


income, the asset is not included in the offshore penalty base, even if that asset was not reported on the FBAR or Form 8938. The SDOP should not result in a penalty base that exceeds the OVDP penalty base. We recommend that the Service expand SDOP Frequently Asked Questions (“FAQ”) 1 to provide that assets that did not generate reportable income, or for which gross income was accurately reported, are excluded from the five percent penalty base.


  1. Expanding the Streamlined Procedures to Non-willful Domestic Non-filers. The SDOP categorically excludes without exception any taxpayer who did not file a required original return (e., non-filers), resulting in the exclusion from the program of all domestic non-willful non-filers. This runs afoul of the intent of the SDOP because it penalizes non-willful taxpayers, including Accidental Americans who do not meet the SFOP residency requirement, students and children who may not be aware of their U.S. filing obligations, and other taxpayers whose facts and circumstances clearly dictate a Streamlined resolution. We recommend that the Streamlined procedures be expanded to include all residents and nonresidents whose failure to report foreign financial assets did not result from willful conduct, regardless of whether original U.S. tax returns were filed. If the Service does not want to expand SDOP to include those individuals who have not filed an original return that should have included other U.S. source income, it could limit any revision to those original returns that are filed to report foreign income and assets.


  1. Allowing Submission of Treaty Tie-breaker Returns. Under the SFOP, eligible taxpayers do not include those individuals who are U.S. residents but file their returns on Form 1040NR under tie-breaker treaty provisions. These individuals are not taxed on their offshore income, are among the least likely to have been willful in their noncompliance and are among the most deserving of the full or partial penalty relief afforded under the Streamlined procedures. We recommend that the Service modify the Streamlined procedures to allow tie-breaker individuals filing Form 1040NR to participate.


IV.              Other


  1. Delinquent International Information Return Submission Procedures (“DSP”). The DSP is available to taxpayers who do not need to use the OVDP or Streamlined procedures to file delinquent or amended tax returns to report and pay additional tax, but who have not filed one or more international information returns, such as Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) or Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business), have reasonable cause for not filing the information returns, are not under civil examination or criminal investigation, and have not already been contacted by the Service about the delinquent information returns. Under DSP, taxpayers file delinquent international forms, such as Forms 5471 or 5472, with an amended income tax return, such as a Form 1120X or 1065X. DSP does not apply to taxpayers who have not filed the original income tax returns, and the Service is automatically assessing penalties under sections 6038 and 6038A on late-filed Forms 1120 and


1065 that include Forms 5471 or 5472 regardless of whether the taxpayer’s income tax return reflects any tax due. We recommend that the Service eliminate the process of automatically assessing penalties for delinquent international forms attached to late-filed original income tax returns with no tax due when the evidence establishes benign, non-volitional, and innocent errors. We also recommend that the Service consider expanding the First Time Abate procedures for administrative penalty waivers to include late-filed international forms, including, but not limited to, Forms 5471 and 5472, and issue clear guidance that taxpayers who have unreported income or unpaid tax are not precluded from using the DSP.


  1. Inbound Voluntary Disclosure. Failure of a foreign taxpayer to file a required U.S. income tax return by a specified deadline can result in the loss of otherwise permissible deductions and penalties, often grossly disproportionate to the amount of tax owed. Many foreign taxpayers want to come into compliance but opt not to do so because of the substantial financial costs imposed, despite facts and circumstances that support inadvertence or mistake. We recommend either an expansion of the Streamlined procedures, or a new voluntary disclosure program, to allow foreign taxpayers to submit delinquent federal income tax returns, along with all applicable information returns, for a specified period in exchange for a waiver of the deduction disallowance rule and any penalties for failure to file, failure to pay, and failure to file information returns, such as Forms 5471 and 5472. For foreign taxpayers whose returns for the Streamlined submission period reflect no tax due, we recommend zero penalties, and for those taxpayers with tax due, a miscellaneous penalty equal to a specified percentage of that liability. We also recommend foregoing any requirement that the foreign taxpayer certify non-willful conduct.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.