Possible Changes to Streamlined and Filing Compliance Under the Trump Administration

With the new Trump administration, and a Republican regime in the White House, there may be implications to the existing tax laws pertaining to cross-border tax filing. This topic was addressed 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.

With increased enforcement of reporting provisions governing the disclosure of foreign assets, taxpayers who want to use the revised streamlined provisions should act promptly. The key is that eligibility for penalty relief depends upon the taxpayer’s contacting and advising the IRS of their plan to catch up, before being contacted by the them. The advantages that the streamlined procedures offer, should help taxpayers achieve compliance while mitigating penalties.

If the streamlined program ends, individuals will lose the opportunity to come forward with no penalty or exposure. The alternative to the streamlined program will be to catch up under the OVDP(Offshore Voluntary Disclosure Program). Filing under the OVDP means greater penalties, extensive filing processes, and the requirement to file back 8 years instead of just 3. Knowing the workload and costs will double in this scenario, we highly recommend that you act now and file before the program is closed out.

BACKGROUND: The streamlined filing compliance program was introduced in 2012 for individuals residing outside the United States, and was expanded in 2014 to also apply to taxpayers inside the United States. The program offers a potentially easier and less expensive alternative to the Offshore Voluntary Disclosure Initiative (OVDI) for qualifying taxpayers who wish to disclose unreported foreign assets and income and file delinquent information returns. Under the revised procedures, in addition to avoiding criminal prosecution, qualifying taxpayers receive significantly reduced penalties, and in the case of certain nonresidents, penalties may be excused entirely.

The streamlined program is only available to taxpayers whose failure to report assets and income and file required information returns due to “non-willful conduct”. Under the procedures, taxpayers residing in the United States are subject to a 5% miscellaneous offshore penalty, and taxpayers residing outside the United States are not subject to the penalty.

Despite the advantages of the streamlined procedures, some taxpayers may want to proceed under the OVDP because the OVDP would not available to them if the IRS rejects the taxpayer’s disclosure request under the streamlined procedures. This means taxpayers who may have difficulty proving that their conduct was unintentional, should also consider using the OVDP. Our team can help you determine which course of action is best for you.