The IRS has adopted a new initiative that will allow taxpayers who have been denied a “Pre-Clearance” into the Offshore Voluntary Disclosure Program (“OVDP”) the opportunity to use the Streamline Filing Procedure. The new initiative is described in IRS Letter 5935. The letter lists two Options:
“Option #1
You can make a submission under the Streamlined Filing Compliance Procedures if you meet the eligibility requirements. See the “Streamlined Filing Compliance Procedures” at www.irs.gov for more information about eligibility criteria and how to make a submission.
If you are eligible to use this option, you must write “RESPONSE TO LETTER 5935” in red across the top of your Form 14653, Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures, or Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures.
Option #2
If you’re not eligible or you choose not to use Option 1, submit all required tax returns, information returns, and related filings to the address on the enclosed Form 15023, Offshore Compliance Status Response . (NOTE: FinCEN Form 114, Report of Foreign Bank and Financial Accounts (a.k.a. FBAR), must be filed electronically with FinCEN; additional information can be found at www.FinCEN.gov).
Submissions under this option are subject to all applicable penalties unless you establish that your noncompliance was due to reasonable cause. If you want to present reasonable cause, provide a statement explaining all the facts and circumstances.
Returns submitted under this option won’t be subject to IRS audit automatically, but may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and can also be checked against information received from banks, financial advisors, and other sources for accuracy.”
The IRS announced that it expects to contact 100% of the taxpayers who are identified in responses to John DOE Summons Requests served on offshore financial institutions and presumable the over 13,000 U.S. taxpayers with cryptocurrency accounts at Coinbase.
The option to use the Streamline Filing Procedure wold seem to create a huge benefit to taxpayers, because the penalty under the Bank Secrecy Act is 5% of the “high balance” rather than the OVDP penalty which is either 27.50% or 50% of the “high balance”. The method of calculating of the “high balance” also differs.
Those taxpayers who have waited to come forward to see if they can out wait the Statute of Limitations have been given a new chance to avoid large penalty exposure is they can meet the requirements of Option 1, This is an opportunity no one should miss who is eligible.
