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Any presidential election brings with it the chance for changes to tax laws and enforcement priorities. IRS Commissioner John Koskinen explains that, at least through November 2017, the Offshore Voluntary Disclosure Program (OVDP) will continue.
Many American citizens who live or have assets overseas don't realize that they are required to report those assets to the Internal Revenue Service (IRS). That has led many U.S. taxpayers to be non-compliant with the tax code and left them facing serious penalties including fines and even jail time. Since at least 2009, the IRS has given taxpayers ways to voluntarily report non-compliance with international income reporting requirements through the Offshore Voluntary Disclosure Program (OVDP). Doing so reduces the possible penalties and gives taxpayers a way out of IRS scrutiny. But the recent election has thrown the future of the OVDP into question.
Parts of the Republican Party, also known as the GOP, have taken a position that the IRS shouldn't be going after non-reporting U.S. taxpayers with assets overseas. In 2016, the House Appropriations Committee approved a funding bill that would have cut $236 million out of the IRS budget. The House also held hearings on whether IRS Commissioner John Koskinen should be impeached – the first such hearings for any executive official below the president since 1876. The impeachment effort was defeated for the year when the matter was referred to the Judiciary Committee in December. Now that the GOP controls the House, Senate, and the Presidency, some are wondering what the future will hold for Koskinen, the IRS, and the OVDP specifically.
After defending his position at the impeachment hearings, John Koskinen sat down with Tax Analysts reporters to address concerns over the future of IRS under the Trump Administration. A Tax Analysts Exclusive reports:
TA: Despite bringing back $10 billion in taxes, interest, and penalties, and more than 100,000 taxpayers coming into compliance, on several occasions -- at conference, and I think in response to a [Treasury Inspector General for Tax Administration] report -- the IRS has indicated or emphasized the nonpermanence of its offshore voluntary disclosure program. Why would the IRS consider terminating or unwinding the OVDP? And if such a thing was contemplated, wout there be advance notice?
Koskinen: We're not contemplating it. In fact, I just had a conversation earlier today about how to expand and modify it and improve its operation. Part of the reason people think about why don't we wind down is because we've done a lot of work looking east, particularly in Switzerland and other places. People say, 'Well you must be running out of possibilities.' If you just turn around and look west, we've got Hong Kong, Singapore, all of Asia where a lot of people have engaged in the same kind of activities they engaged in Europe.
So we have a lot of targets of opportunity out there, and one of the questions is, how can we encourage people to become compliant?
Koskinen said some may have interpreted the IRS push to get people to voluntarily report as evidence it would be a limited time offer. "At some point," he said, "it's going to end and then you're going to be stuck with the normal process and you don't want people saying, 'I'll just wait as long as I can.'"
But he said the real incentive isn't a ticking clock, it is the reduced penalties.
And so the real incentive, though, is if we find out about you after we know you exist with the banks, then the penalties and the implications go up significantly. I think that's more of an incentive for people, and so maybe the word would go out.
In addition, during the 2016 election season, the official GOP platform called for the repeal of the Foreign Account Tax Compliance Act (FATCA), one of the tools the IRS uses to find non-compliant taxpayers and enforce disclosure of foreign assets. Tax Analysts asked Koskinen how the OVDP and streamlined filing compliance would be affected if the GOP gets its way:
Koskinen: Well, FATCA by itself is a more regular way of collecting data from companies. If you repealed it, we're still involved in increasingly international exchange of information developments. We're going into country-by-country reporting for corporations next year. So we will continue, with or without FATCA, investigating banks and operations around the world, but I think FATCA has again become valuable for people, and I'd be surprised if it got repealed at this stage because it's now up and running.
In other words, the IRS is going to continue to collect on unreported foreign assets. The only thing a repeal would change is whether it is done through FATCA's individual reporting requirements and foreign asset disclosures, or through other, less uniform means.
The Koskinen interview makes it clear that, at least until his term expires in November 2017, the IRS plans to do business as usual. Koskinen says:
[I]t's important for taxpayers generally to know we care a lot about everybody paying their fair share, and anybody who is trying purposefully to avoid the tax code and their tax obligations, we're unhappy with them. We're going to chase as long as it takes. If you're trying to become compliant, we'll work with you But if you're trying to avoid taxes and not be compliant, then we're going to actually keep chasing you.
To avoid getting getting caught up in the chase, U.S taxpayers should consider taking advantage of OVDP and streamlined filing options now, before new leadership decides to change the process. Talk to an experienced tax attorney to determine whether you qualify for one of the IRS's streamlined processes, and the reduced penalties that go along with them.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding the FATCA or FBAR reporting requirements contact Joe Viola to schedule a consultation.