They think it’s expensive because it is. Tax Analysts reports ($link) on a speech given by an IRS international tax deputy commissioner that shows how little the IRS cares about wreaking havoc on the lives of taxpayers who inadvertently fail to comply with the weird and obscure foreign account reporting rules. The talk by David Horton shows that the IRS continues to assume anybody who has failed to file FBAR forms is a bad actor. For example:
The IRS’s 2014 OVDP (Offshore Voluntary Disclosure Program) guidance provides transitional rules for non-willful taxpayers who entered the OVDP earlier, but could have been eligible for the streamlined program. [Robert] Panoff wondered why they were incurring lower penalties than similarly situated taxpayers who completed the OVDP.
Horton explained that these taxpayers are still in the OVDP, so they will get criminal clearance and a closing agreement, while streamlined participants get neither. Criminal clearance and a closing agreement are worth paying for, the thinking goes. A streamlined participant could later get a notice of deficiency for penalties that are assessed as taxes.
So a non-willful failure to file still benefits from “criminal clearance?” That’s a funny thing to need for a non-willful violation, and it shows an “it’s all criminal” mindset. Shoot all the jaywalkers!
The article has this:
Every practitioner hopes to shoehorn his offshore-account-holder clients into the streamlined program. Indeed, the only taxpayers who don’t welcome the streamlined program are recent immigrants who think that 5 percent of a home-country bank balance is a stiff price to pay for a green card.
That’s because it is ridiculously expensive.
Nowhere in the piece is any evidence that they (or the author) are aware that accidental Americans and compliant taxpayers can be financially ruined for failing to meet a requirement unknown to 95% of the populace. There’s certainly no awareness of the fundamental injustice of hitting taxpayers with 5-figure fines for committing personal finance abroad without an FBAR.
There is a crying need for foreign financial reporting reform. Two good first steps:
- Increase the FBAR foreign account thresholds to the amounts that apply for reporting foreign financial assets on Form 8938. These don’t begin to apply until the assets exceed $50,000, or $200,000 for taxpayers abroad. Using this threshold for foreign financial account filing would eliminate the vast majority of filings, leaving them only for taxpayers who actually have enough income to justify the hassle.
- Provide an automatic and penalty-free option to enable taxpayers to come in out of the cold, as long as they file before they are contacted by the IRS and any unreported tax required is relatively small. This would work much like the programs states have for businesses who want to come into compliance. The states benefit from getting the taxpayers in the system, and the taxpayers get in from the cold without financial ruin.
Unfortunately, the IRS apparently wants to go the other way: “Horton reported that while the IRS is still getting a steady flow of offshore voluntary disclosure program filings every month, that program has to end eventually.” Then it will be a choice to either stay out of compliance and risk financial disaster, or come into compliance and guarantee it.
But preparer regulation will help prevent preparer fraud! From a U.S. Attorney press release:
Yolanda Castro, 48, an employee of the U.S. Internal Revenue Service in Fresno, pleaded guilty today to aiding and assisting in the preparation of a false tax return, United States Attorney Benjamin B. Wagner announced.
According to court documents, Castro was employed by the IRS for approximately 20 years, including as a tax examiner and contact representative. Between 2007 and 2013, she prepared and filed false federal income tax returns for herself, her family members and others in which she fraudulently claimed tax deductions and credits. For instance, on her own 2008 tax return, Castro claimed a credit for education expenses that she did not incur, and provided the IRS phony textbook receipts to support the claim. Likewise, in tax returns she prepared for herself and others, Castro claimed child care expenses that had not been incurred.
Surely some ethics continuing education would have saved her.
Robert D. Flach has a little Buzz for your Tuesday. “Not much BUZZ today – but, as I always say, some BUZZ is better than no BUZZ.”
Russ Fox reminds us that it’s 1099 Time for 2016. “The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice.”
TaxGrrrl, No, You Can’t Actually File Your Tax Return Early (And More Info About Tax Refunds). “Some tax preparers are suggesting in ads and on social media that they can somehow help you skip the line and get you a refund before anyone else. Don’t be fooled.”
Robert Wood, 12 Surprising Items IRS Says You Must Report On Your Taxes. You won’t believe number 2!
Jason Dinesen, Glossary: Social Security Wage Base. “The term Social Security Wage Base refers to the maximum amount of wages or self-employment income on which the 6.2% Social Security tax is based.”
Paul Neiffer, Relief for Older Farmers with IRAs. And not just farmers.
Keith Fogg, Improving Payroll Tax Compliance (Procedurally Taxing). “From my perspective working on these cases within the IRS, the failure of employers to pay over the collected taxes usually resulted from poor cash management.”
Renu Zaretsky, New Taxes, Excess Profits, and a Windfall. Lots of cynical posturing by desperate politicians in today’s TaxVox headline roundup.
TaxProf, The IRS Scandal, Day 978. The process of running out the clock continues.
Looking over the list below of remaining tax extenders, none of them seem like “must-pass” policies. As a result, the pressure is off of Congress to renew all of the tax extenders as a package. Instead, Congress should take the time to evaluate the remaining tax extenders one by one, making the good provisions permanent and letting the bad ones expire. Temporary tax policy is bad tax policy, and it’s about time that Congress laid the ritual of tax extenders to rest once and for all.
Let’s hope so.
The Critical Question II: Accounting Firms Allowing Side Gigs: Good Idea or Independence Mine Field? (Caleb Newquist, Going Concern).