Update on IRS Tax Amnesty Programs

Amnesty Programs, Streamlined Filing Procedure, U.S. Citizens Resident In Canada

February 5, 2016

For the last eight years, the Internal Revenue Service has offered a number of tax amnesty programs to allow taxpayers to come forward and declare unreported non-U.S. source income and assets. Using these programs reduces penalties and can prevent criminal prosecution.

We have previously written about some of these programs:

In January 2016, at the Internal Revenue Service’s annual Florida International Conference in Miami, acting deputy commissioner (international), IRS Large Business and International Division, David Horton spoke and provided an update on some of these programs.

Mr. Horton reported that while the IRS continues to receive a steady amount of Offshore Voluntary Disclosure Program applications each month, this program will eventually end. He recognized that practitioners want this and the IRS Streamlined program to continue forever, however he stated that the IRS won’t do that. He explained that these programs are current opportunities, were never meant to be permanent and can end at any time. He emphasized that the IRS wants to make it more a more difficult not to come in and file returns and forms.

Mr. Horton spoke of the 800,000 or so filers of IRS Form 1040NR and how the IRS is looking more closely at these returns. Specifically, the IRS is taking a deeper look at filers’ aggressive positions and questionable treaty interpretations and continues to match IRS Form 1040NR with IRS Form 1042-S “Foreign Person’s U.S. Source Income Subject to Withholding” to ensure completeness in filing

Prior to the conference, the American Bar Association Section of Taxation requested a clearer definition of “willfulness” as the absence of any appropriate guidance in the definition complicates the preparation of tax amnesty applications with an explanation for a taxpayers specific reasons for non -compliance. The determination of willful or non-willful in the context of a tax amnesty application is important as the latter can result in a significant reduction or elimination of penalties. Mr Horton retorted that there would be no definition of willfulness forthcoming. He encouraged taxpayer wishing to enter the IRS streamlined program not to just provide a one-line explanation but to “tell a story why. Give us enough to satisfy non-willful. Lay out the facts”

Like many practitioners, we encourage the IRS to consider leaving these programs in place on a permanent basis. Many of the applications the IRS receives are from accidental oversights where the penalties that can be assessed without these programs are far too punitive. Without such programs, the US should be concerned that more affected individuals will choose not to report or correct past deficiencies.

Notwithstanding our comments, we continue to encourage taxpayers considering a correction to past US tax deficiencies to take action sooner rather than wait.

Thanks to Tax Analysts for their summary of the IRS representatives’ comments.