Posted tagged ‘reporting’

Are Quiet Disclosures of Offshore Accounts Becoming Even Riskier?

October 18, 2013

By Phil Karter

Is the IRS getting closer to ferreting out “quiet disclosures” by taxpayers who chose that route to address the problem of previously unreported offshore accounts rather than by participating in the Service’s offshore voluntary disclosure program (OVDP)?  That’s the conclusion of an increasing number of tax professionals and if taxpayers in this predicament weren’t already worried, they should be.

A quiet disclosure involves the filing of new or amended tax returns that report offshore income, and FBARs (Report of Foreign Bank and Financial Accounts) that provide other account information regarding the taxpayer’s interest in foreign accounts.  It is a discreet disclosure intended to make a taxpayer compliant with his or her tax reporting responsibilities while avoiding penalties imposed under the IRS’s official voluntary disclosure program.

The IRS has made no secret of its distain for those who choose the quite disclosure route over participation in its voluntary disclosure program.  In its frequently asked questions and answers applicable to the most recent iteration of the OVDP, the Service has cautioned taxpayers that those who have already made quiet disclosures should “be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”  The IRS has encouraged such taxpayers to “take advantage” of the program before discovery.  The FAQs also note that detection of a quit disclosure also eliminates the possibility of reduced penalty exposure offered under the OVDP. (See FAQs 15 & 16.)

To some, the calculus about whether to participate in the OVDP, follow the quiet disclosure path, or do nothing has been viewed as another form of the audit lottery, albeit one with very high stakes in terms of potential monetary penalties and possibly criminal prosecution.  As virtually everyone should know at this point, offshore account holders can no longer rely on bank secrecy to protect them, so the issue of detecting unreported accounts has become more a question of when, not if. Although a quiet disclosure addresses the unreported account problem, either currently or retroactively, that is not necessarily the end of the story . . . or the risk.

Earlier this year, the Government Accounting Office issued a report in which it noted a dramatic increase in the number of taxpayers reporting offshore accounts, concluding that the trend may reflect attempts to minimize or circumvent taxes, penalties and interest that would be owed if not corrected before detection or even upon participation in the OVDP.  Among other things, the GAO recommended that the IRS explore methodologies to detect and pursue quiet disclosures.  Apparently, the IRS has taken the GAO’s recommendation to heart by working on new ways to identify them.  The effort, according to former Acting IRS Commissioner Steven Miller, was to include “analysis of Forms 8938, Statement of Specified Foreign Financial Assets, to identify specific characteristics of the filing population and to assess filing behaviors indicating potential compliance issues.”

In predicting the effectiveness of this undertaking, it is worth noting that the IRS has a wealth of experience in implementing computer algorithms on a much larger scale to ferret out trends warranting closer scrutiny.  One need look no further than the Services’ Discriminant Function System (DIF), which is used to flag tax returns for possible audit, among the hundreds of millions filed, to appreciate that improved detection of quiet disclosures is well within the IRS’s capabilities.  Therefore, taxpayers who rely on a limited IRS resources justification to ignore the directional trend regarding quiet disclosures are likely to wish they had examined the issue relative to their own personal circumstances a lot more closely. At the very least, given the prevailing wind on this issue, it would be prudent for those who have made quiet disclosures or are contemplating one to revisit the issue with their tax adviser.

New Section 6045B: Reporting Not Required For Corporate Subsidiaries

January 6, 2011

By Jonathan Prokup

From time to time, we receive questions from readers about current topics on their minds.  One of our readers wrote earlier this week to ask about an article from Monday’s Tax Notes2011 Brings New Return Obligation for Corporate Actions Affecting Basis, by Amy Elliott.  The article discussed the newly effective Code section 6045B which generally requires corporations that engage in some act that affects the basis of their outstanding stock or other securities (e.g., a stock split or a distribution in excess of earnings and profits) to file a statement with the IRS and furnish a similar statement to their security holders describing the effect of the action on the basis of each share of their stock.

After reading this article, one of our readers expressed concern that the provision could apply to all corporate actions, including purely internal actions among domestic and foreign subsidiary corporations.  For large, multinational companies, a requirement to report to both the stockholders and the IRS every action that affected the basis of a subsidiary’s stock could create an obvious burden.  Read literally, the text of the statute would seem to suggest this is exactly what is required, given that the statute applies to “any issuer of a specified security.”  Code section 6045B(a)(1).  (A “specified security” generally refers to any security in which basis reporting is required – e.g., stocks, bonds, derivative contracts.) (more…)

Senate Fixes An Onerous Reporting Requirement With An Onerous Reporting Requirement?

September 16, 2010

By Dustin Covello

As we’ve discussed previously at the TaxBlawg, a minor provision of the Patient Protection and Affordable Care Act – Section 9006, which dramatically expands the requirements for reporting payments on Form 1099 – has become a hot-button issue in Congress.  Prior to the law, Form 1099 reporting was not required for payments for goods or (with some exceptions) payments to corporations.  Section 9006 expanded the Form 1099 requirement to cover such payments made to a single payee if the payments exceed an aggregate of $600 or more during a calendar year.

Over the summer, the small business lobby called foul, arguing that the expansion imposed an oppressive paperwork burden on small businesses.  Consequently, earlier this week, Senate Democrats and Republicans proposed dueling amendments to the Small Business Jobs Act of 2010 to “fix” the expanded Form 1099 reporting requirement of Section 9006.  In the eternal spirit of politics, each party’s amendment failed because neither wanted to give the other credit for being the savior of small businesses.  Despite the failure of these amendments to Section 9006, the Senate passed the bill this afternoon, foreshadowing its likely enactment in the near future.

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Certain Uncertainty: Congress Juggles Tax Proposals

August 4, 2010

By Jonathan Prokup

Although death and taxes might, according to Benjamin Franklin, be the only certainties in this world, Congress is surely striving to add another – that is, the certainty of uncertainty.  Congress, it seems, is committed to keeping taxpayers in as much doubt as possible for as long as possible about the status of a variety of important provisions that will affect both substantive tax liabilities and compliance obligations.

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What Would Happen If A Taxpayer Asks The IRS For The Same “Deal” That Timothy Geithner Got?

June 25, 2010

By George W. Connelly

As my readers know, I focus my practice on representing people who have “misunderstandings” with the Internal Revenue Service.  I can’t count the number of clients who have made a comment along the lines of “get me Geithner’s deal” since it came to light that he had some significant and frankly embarrassing tax problems while working for the International Monetary Fund.  In point of fact, making a statement like that to an IRS employee is probably one of the worst things a taxpayer could say, because the rank and file IRS employees realize that if they did what Mr. Geithner did, they would be fired on the spot.

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