Monday, September 24, 2012

FACTA II: Intergovernmental Agreements Take FATCA Partners One Step Closer To A Virtual International Banking Data Base


Even before the ink dries on the few agreements foreign banks may have entered into with the IRS to be a withholding agent for the US government, the rules are changing drastically. Major western European countries have already entered into agreements with the United States which would allow their respective banks to avoid the IRS completely and simply provide their respective governments with the names, account balances and other details of suspected Americans for the IRS to go after.

Most of these IGA’s have reciprocal provisions with "automatic exchange" of information provisions which will bring the computerized world even closer to the FATCA goal of developing a virtual international banking data base. Privacy concerns? No problem! Any country which is even thinking about signing up will be given a reasonable amount of time to change their laws and even their constitutions if need be, to come up with a disclosure protocol which meets the IRS checklist for "U.S. indicia" (read: suspected Americans). See our blog post of August 27, 2012 where we discussed the meaning of "U.S. indicia".

In a shocker to some, the new proposed rules for IGA’s even scrap the FATCA Proposed Regulations requirement that foreign banks submit their Know Your Customer and Anti-Money Laundering rules to IRS review and scrutiny before they are allowed the privilege of becoming a US withholding agent. Under the new rules, some qualifying foreign banks’ customers will be allowed to "self-certify" that they are not Americans! (Seriously??)

I will be speaking about these controversial proposed Intergovernmental agreements at an international FATCA conference in Miami in January of 2013. Stay tuned for more details.



Wednesday, September 19, 2012

New IRS Streamlined Procedure for Offshore Disclosures

On August 31, 2012, the IRS published the new procedures first announced on June 26 regarding offshore voluntary disclosures.  This is essentially a recognition on the part of the IRS that there are certain “no brainer” fact scenarios which qualify for relief from the more formal, expensive, time consuming and intrusive OVDI procedures which is presently bogged down because of a shortage of  IRS  personnel to work the cases.  We first commented on this new streamlined procedure on July 2.  You can access those comments here. There are no surprises in the August 31 announcement. I still believe it is “too little” because it doesn’t go far enough but not “too late” because it shows the IRS recognizes that the oppressive OVDI “one size fits all” approach simply does not make sense when it is applied to people  who represent the unintended collateral damage of the  FBAR penalties when they are applied literally.

Monday, September 17, 2012

ABA Taxation Section Vents About OVDI Uncertainty

This past weekend, the powerful and influential Taxation Section of the American Bar Association met in Boston and to no one’s surprise, the offshore voluntary disclosure initiative was a front and center focus which practitioners used to voice concern over the issues we have been talking about in these pages for months. One group complained that months or years after a client was successfully closed out of the program, the IRS calls yet again to ask specific questions about a particular bank or banker.

Yet this should be no surprise whatsoever to any experienced practitioner. Remember that one of the collateral benefits to the IRS of agreeing to go easy on OVDI taxpayers has been the continuous receipt of nothing short of a treasure trove of names for agents to work which would hopefully lead to the real bad guys in this arena, the many Swiss and other tax haven bankers who traveled to the US to secretly recruit eager and willing US taxpayers who were more than happy to transfer vast sums of money offshore which they sought to hide from the IRS, even though as a business proposition, their chance of earning substantial dividends and interest was meager compared to what a US investor could earn by keeping his money here in the United States.

Many taxpayers who had been lavishly enjoying luxurious Swiss vacations after a quick visit to check up on their Swiss safe deposit boxes and numbered accounts jumped at the chance to pay a mere 20% tribute to the United States when the 2009 program was opened. A few really laughed up their sleeves at the opportunity to keep all their ill-gotten gains which for some went back to the 60’s. There were more than a few crocodile tears shed for their "good friends" in Lugano, Lucerne and Geneva who entertained them lavishly in both the US and in Europe when they were visited long after their closing agreements were signed by a special agent who reminded them that the quid pro quo for an IRS "get out of jail" pass was the promise to throw their "good friends"—their dear Swiss bankers, under the bus.

IRS special agents, probably the best financial crimes investigators in the federal government, are like kids in a candy store right now running down all the potential targets they have been given by thousands of OVDI customers who gladly served them up to the IRS to save their own skins.

Some of the practitioners who were referenced in today’s Tax Notes article on the Boston meeting


"voiced their fears that the IRS was "throwing the book" at taxpayers who opted out of the OVDI. One audience member said a revenue agent told her that it was the revenue agent's job to prove willfulness once the taxpayer had opted out. "
Voicing fears is one thing and speculation about the possibility of a rogue agent who may not have gotten the memo saying the IRS expects agents to treat "opt out" people fairly is another. This practitioner would rather place his hope in the quote later in the article attributable to John McDougal, SB/SE special trial attorney and division counsel, who said mitigation guidelines aren't binding, but are merely suggestions for an agent to consider.
"I can't tell you what Appeals is going to do . . . but I can tell you that FBAR penalties must be approved by [the chief counsel's office]," he said. "We don't want to set up penalties that we're going to lose in court," McDougal said.

That closing remark speaks volumes about the way the process is supposed to take place. It says two things: (1) we have yet to get a baseline on how Appeals is in fact administering the FBAR mitigation provisions of the Internal Revenue Manual and (2) the Commissioner and the Chief Counsel have wisely put in place, a framework under which the Office of Area Counsel has veto authority on the assertion of any FBAR penalties in opt out cases to make sure nothing  stupid slips through the cracks. When a Chief Counsel attorney says "we don’t want to set up penalties that we’re going to lose in court," the taxpaying public is entitled to read between the lines which really says: "we expect our clients [the revenue agents] to be reasonable in the assertion of their broad discretion to administer FBAR penalties. We are not eager to open the IRS up for a court to slap it down and publish an opinion which says the IRS has failed to act reasonably in the way it administers this program."

Coming next: (1) The Intergovernmental FATCA Agreements give away the store by allowing some taxpayers to "self-certify" their status as a U. S. Person and (2) Is it realistic for the U.S. to expect tax treaty partners to scrap their domestic privacy laws in order to make FATCA work? Good luck with that!