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OVDP Ending September 28: Now Is the Time to Disclose

by McDermott Will & Emery | Aug 23, 2018 | IRS Audits, IRS Guidance, Privilege and Non-Disclosure, Uncategorized

Earlier this year, the Internal Revenue Service (IRS) announced the ending of the 2014 Offshore Voluntary Disclosure Program (OVDP), its formal amnesty program for taxpayers with previously undisclosed interests in foreign assets and financial accounts. The program deadline is September 28, 2018, and all submissions must be substantially completed by that deadline. Partial or “placeholder” submissions will not qualify. All requests for preclearance into the program must be submitted by Friday, August 24, 2018.

A number of other disclosure options will remain available after September 28, 2018, including the popular IRS streamlined compliance procedures. Regardless, taxpayers with potential questions or concerns regarding reporting of their foreign holdings should seek advice immediately in light of upcoming deadlines.

IRS OVDP Ending | Time Is Now for Coming into US Tax Compliance – Especially for Those with Willfulness Issues

by Daniel J. Bell, K. Christy Vouri-Misso and McDermott Will & Emery | Mar 16, 2018 | Alternative Dispute Resolution, IRS Audits, IRS Guidance, Settlements, Uncategorized

On March 13, 2018, the Internal Revenue Service (IRS) announced that it will begin ramping down the current Offshore Voluntary Disclosure Program (OVDP) and urged taxpayers with undisclosed foreign assets to apply for the program prior to its close on September 28, 2018. We have previously reported on developments in the OVDP.

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Courts Rejects Challenge to OVDP Transition Rules

by McDermott Will & Emery and McDermott Will & Emery | Jul 18, 2017 | IRS Audits, IRS Guidance, Trial Courts, Uncategorized

The Internal Revenue Service (IRS) currently offers non-compliant US taxpayers several different relief programs to report foreign assets and/or income to become compliant with US rules related to the disclosure of offshore income. See here for a link to the different options. The two main programs are the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures (SFCP). The IRS launched the OVDP in 2012 to enable a taxpayer with undisclosed foreign income or assets to settle most potential penalties he may be liable for through a lump sum payment of 27.5 percent of the highest aggregate value of the taxpayer’s undisclosed foreign assets for the voluntary disclosure period, which is the previous eight years. The OVDP replaced prior offshore voluntary disclosure programs and initiatives from 2009 and 2011. OVDP has a number of filing and payment requirements, including paying eight years’ worth of accuracy-based penalties. The IRS updated and revised the OVDP in 2014.

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You Must Comply: IRS LB&I Reveals Details of Its Inbound Distributor and OVDP Decline-Withdrawal Campaigns

by Kristina Novak | May 15, 2017 | IRS Guidance, Transfer Pricing Resource, Uncategorized

On Wednesday, May 10, 2017, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) hosted a webinar with the Association of International Certified Professional Accountants (AICPA) regarding LB&I’s recently-announced campaigns targeting inbound distributors and taxpayers who either were declined by, or withdrew from, the IRS’s Offshore Voluntary Disclosure Program (OVDP). Our previous coverage of LB&I’s campaign initiatives can be found here. The slides from the presentation are available here.

Inbound Distributors

As described by the IRS, this campaign is intended to address transfer pricing in the context of United States distributors of goods sourced from foreign-related parties that may have reported gains or losses that are not commensurate with the functions performed and the risk assumed.

As discussed in Wednesday’s webinar, this campaign is somewhat unique in that the IRS is still evaluating whether this issue presents an actual—rather than a mere potential—threat of noncompliance. The IRS has identified a series of returns to be sent into the field for examination, but is currently holding them to evaluate whether a genuine threat of noncompliance exists. The IRS also stated that the campaign is being designed to allow for flexibility to release returns quickly, if compliance can be readily ascertained. (more…)

Release of “Panama Papers” May Encourage New Wave of OVDP Submissions

by Daniel J. Bell, Jonathan D. Lockhart, Leigh-Alexandra Basha and McDermott Will & Emery | Apr 8, 2016 | IRS Audits, IRS Guidance, Uncategorized

On April 3, 2016, the International Consortium of Investigative Journalists (ICIJ) indicated that it acquired sensitive documents that belonged to the Panamanian law firm, Mossack Fonseca & Co., about the offshore holdings of some of the world’s most prominent and wealthy individuals. The leak has received substantial mainstream media coverage due to the identity of the individuals named.

To date, the ICIJ has not released the identities of all of the hundreds of thousands of offshore entities or the persons related to those entities, which were referenced in the leaked documents. The ICIJ indicated that it would wait until May 2016 to release the full list. By waiting to May, the ICIJ is putting certain US persons on notice that they should consider starting the process to disclose previously undisclosed foreign assets to the Internal Revenue Service (IRS).

The United States subjects US persons to worldwide income taxation. As part of this taxing system, the IRS requires US persons to fulfill certain information reporting obligations related to foreign assets. For example, US persons must report a financial interest or signature authority over a foreign financial account on FinCEN Form 114, Report of Foreign Bank and Financial Account (FBAR). Non-compliance may result in a penalty of up to 50 percent of the highest aggregate value of the foreign financial account as well as criminal sanctions if done so willfully.

The IRS has implemented programs to encourage previously non-compliant US persons to disclose foreign assets and become compliant. One such program is the Offshore Voluntary Disclosure Program (OVDP). OVDP is designed for taxpayers who may have willfully failed to disclose foreign assets to the IRS. The primary benefits of participating in the OVDP are that the IRS will not recommend criminal prosecution to the Department of Justice (DOJ) for non-compliance up to the date of the disclosure and the taxpayer will no longer be subject to civil examination for the years covered by the OVDP disclosure. (more…)

Weekly IRS Roundup October 28 – November 1, 2024

by Kevin Spencer, Evan Walters and Sama Kaseer | Nov 4, 2024 | IRS Guidance, Tax Reform

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 28, 2024 – November 1, 2024.

October 28, 2024: The IRS released Internal Revenue Bulletin 2024-44, which includes the following:

Treasury Decision 9994, which provides guidance on § 367(d) of the Internal Revenue Code (Code) regarding the transfer of intangibles by US persons to foreign corporations. Effective January 1, 2024, the regulations turn off the application of § 367(d) when foreign corporations repatriate the intangibles to a qualified domestic person when certain reporting requirements are satisfied.
Notice 2024-71, which provides a safe harbor under Code § 213(d), treating amounts paid for condoms as medical care expenses eligible for reimbursement under various health plans. These amounts can also be paid or reimbursed, but if reimbursed, they are not deductible.
Notice 2024-75, which expands the list of preventive care benefits that high deductible health plans can provide without a deductible or with a lower deductible, including benefits for over-the-counter oral contraceptives and condoms, regardless of whether they are purchased with a prescription. The guidance is effective for plan years that began on or after December 30, 2022.
Revenue Procedure 2024-33, which updates the guidelines and general requirements for developing, printing, and approving substitute tax forms as detailed in Revenue Procedure 2023-28 to ensure submitted forms can be accepted as substitutes for official IRS forms.
Announcement 2024-36, which revokes the determination for specified organizations under Code § 501(c)(3) and stipulates that contributions made to said organizations by individual donors are no longer deductible under Code § 170(b)(1)(A).

October 28, 2024: The IRS reminded taxpayers to stay alert against online threats like identity theft and fraud. As National Cybersecurity Awareness Month concludes, the agency also offered tips, such as using strong passwords, enabling multifactor authentication, and avoiding phishing scams, to protect one’s personal information.

October 28, 2024: The IRS released Notice 2024-78, which extends the temporary relief provided in Notice 2023-11 for foreign financial institutions required to report US taxpayer identification numbers for certain preexisting accounts. This relief applies to eligible institutions under a Model 1 intergovernmental agreement for the 2025, 2026, and 2027 calendar years.

October 28, 2024: The IRS reminded employers that hiring individuals from specific groups can help reduce their tax liability through the Work Opportunity Tax Credit. To claim this credit, employers must certify the eligibility of new hires by submitting IRS Form 8850 to their state workforce agency within 28 days of the employee starting work.

October 29, 2024: The IRS announced the appointment of its new associate chief counsel for the Passthroughs, Trusts, and Estates office, which will focus on partnerships, S corporations, trusts, and estates.

October 29, 2024: The IRS reminded businesses that they can qualify [...]

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Weekly IRS Roundup November 18 – 22, 2019

by McDermott Will & Emery | Nov 26, 2019 | IRS Guidance, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 18 – 22, 2019.

November 19, 2019: The IRS published final regulations that affect United States persons with direct or indirect ownership interests in certain foreign corporations. The regulations provide rules regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation under section 954(d)(3). In addition, the final regulations provide rules for determining whether a controlled foreign corporation is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income.

November 19, 2019: The IRS posted Large Business and International active compliance campaigns. The campaigns include: (1) Costs that Facilitate an IRC 355 Transaction; (2) Form 1120-F Delinquent Returns Campaign; (3) IRC 199 – Claims Risk Review; (4) IRC 457A – Deferred Compensation Attributable; (5) Nonresident Alien Individual (NRA) Tax Credits; and (6) Post Offshore Voluntary Disclosure Program (OVDP) Compliance.

November 19, 2019: The IRS added section 7122-related (offers in compromise) questions and answers on whether Form 8821 allows a taxpayer to appoint a third party to represent them before the IRS on an offer in compromise (negative) and on whether a spouse’s income must be included on Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, even if the spouse doesn’t owe taxes (affirmative).

November 19, 2019: The IRS issued interim guidance to update the process by which the IRS accepts requests for confirmation that the government received a filed FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR). The IRS will no longer accept verbal verification requests. All requests must be submitted in writing.

November 20, 2019: The IRS issued a news release on its annual report for 2019, including recommendations to the IRS on new and continuing issues in tax administration. The 2019 Public Report includes recommendations on over 20 issues, which cover a broad range of topics and concerns, including guidance relating to the Tax Cuts and Jobs Act.

November 20, 2019: The IRS published questions and answers about the new qualified business income deduction (the section 199A deduction) that may be available to individuals, including many owners of sole proprietorships, partnerships and S corporations, and some trusts and estates. This deduction, created by the 2017 Tax Cuts and Jobs Act, allows non-corporate taxpayers to deduct up to 20% of their qualified business income, plus 20% of qualified real estate investment trust dividends and qualified publicly traded partnership income.

November 21, 2019: The IRS’s National Taxpayer Advocate blog posted highlights of the Taxpayer First Act and its impact on the Taxpayer Advocate Service and taxpayer rights.

November 21, 2019: The IRS published a notice of public hearing on proposed regulations regarding the timing of income inclusion under section 451. The public hearing is being [...]

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More IRS “Campaigns?! IRS Announces Six More Examination Campaigns

by Kevin Spencer and McDermott Will & Emery | Jul 23, 2019 | IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On July 19, 2019, the Internal Revenue Service (IRS) Large Business & International (LB&I) division announced the approval of six new campaigns. As in the past, the IRS stated that “LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” This brings the total number of campaigns to 59! LB&I’s campaign announcements and approved campaigns are available on the IRS’s website.

The six new LB&I campaigns are listed below, verbatim by title and description.

S Corporations Built in Gains Tax
C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners. (more…)

Weekly IRS Roundup July 15 – 19, 2019

by McDermott Will & Emery | Jul 22, 2019 | IRS Guidance, Uncategorized

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 15 – 19, 2019.

July 16, 2019: The IRS issued a news release concerning its provision of additional information to help taxpayers meet their filing and payment requirements for the Section 965 transition tax on untaxed foreign earnings. The IRS released this information in a question and answer format that addresses certain general issues that are not specific to the filing of a 2017 or 2018 tax return. The issues addressed include how to make subsequent installment payments when the transition tax is paid over eight years. The Q&As also address the filing of Transfer Agreements and Consent Agreements. For further information on this release, see our discussion here.

July 17, 2019: The IRS issued a revenue ruling in which it released the prescribed rates for federal income tax purposes for August 2019, including the applicable federal rates (AFR) under tax code Section 1274(d); the adjusted applicable federal rates (adjusted AFR) under Section 1288(b); the adjusted federal long-term rate and the long-term tax-exempt rate under Section 382(f); the appropriate percentages for determining the low-income housing credit under Section 42(b)(1); and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest under Section 7520.

July 18, 2019: The IRS released a publication illustrating the stages of a taxpayer’s journey, from getting answers to tax law questions, all the way through the processes for audits, appeals, collection and litigation. The Taxpayer Advocate Services created the road map to help taxpayers navigate “the road to compliance.”

July 19, 2019: The IRS Large Business and International division (LB&I) issued an announcement that it had approved six additional compliance campaigns. Those compliance campaigns consist of the following: S Corporations Built-in Gains Tax; Post OVDP Compliance; Expatriation; High Income Non-filer; US Territories – Erroneous Refundable Credits; and Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009. We will separately post on these new campaigns. For a list of prior campaigns, see here.

July 19, 2019: The IRS issued a T.D. in which it issued rules for the process by which social welfare organizations must notify IRS of their intent to operate as tax-exempt organizations and in which it described those procedures the IRS issued for submitting form for notification. The rules follow the issuance of Notice 2016-9, which provided guidance for submitting notification to the IRS of a social welfare organization’s intent to operate under tax code Section 501(c)(4), as required by Section 506. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) (Pub. L. No. 114-113, Div. Q, §405) created this notification requirement by adding Section 506. According to the regulations, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), must be submitted to the IRS no later than 60 days after [...]

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Cryptocurrency May Be Subject to US Tax: Come Into Compliance Now

by Kevin Spencer, McDermott Will & Emery and McDermott Will & Emery | Nov 16, 2018 | IRS Guidance, Uncategorized

Lately, we have been frequently asked the question: “I file US tax returns and pay taxes here. Are my cryptocurrency transactions taxable or reportable in the US?”

The answer for US persons and US taxpayers most likely is “yes.” US persons are generally taxable on income earned worldwide, regardless of the manner in which that income is paid (e.g. currency (foreign or domestic) or property (tangible, intangible or virtual)). Thus, if you have bought, sold or exchanged cryptocurrency, those transactions could be subject to federal tax. If your cryptocurrency is held offshore, a number of offshore reporting obligations could also apply to these holdings.

Now is the right time to come forward and resolve any US compliance issues related to your cryptocurrency holdings. As we have seen in recent cases like the Coinbase summons enforcement proceeding (which we reported upon in several previous posts), the Internal Revenue Service (IRS) has stepped up its enforcement efforts regarding undisclosed interests in cryptocurrency worldwide.

How should you come forward? Following an IRS-attended conference earlier this year, comments began circulating that the IRS was considering the creation of a formal voluntary disclosure program for cryptocurrency transactions, similar to the now-ended Offshore Voluntary Disclosure Program. (We reported on that program numerous times, here.) Unfortunately, the IRS has now squashed this rumor, stating that “IRS is not contemplating a separate program related to offshore [virtual] currencies.” A domestic program was not even mentioned.

Despite this news, a number of disclosure options remain available for bringing your US and foreign cryptocurrency into compliance. The IRS’s longstanding voluntary disclosure policy remains in full force and effect. This policy acts to reduce or eliminate the risk of criminal prosecution related to nondisclosure of domestic or foreign taxable assets, and can provide avenues to reduce civil penalties as well. Further, the IRS’s Streamlined Filing Compliance Procedures and Delinquent International Information Return Procedures are still active and may provide reduced (or no) penalties for US international tax non-compliance in appropriate cases.

Practice Point: Beyond the short answer of “yes, cryptocurrency is taxable,” a number of open questions regarding the taxation and reporting of cryptocurrency in the US remain. For example, determining what offshore crypto holdings are subject to FBAR and Form 8938 reporting remains complicated and unclear. Also, although tax reform has eliminated the use of Section 1031 exchanges to avoid currently being taxed for personal property like cryptocurrencies, the IRS’s position on exchanges that occurred prior to 2018 is still unknown. There are also open valuation questions, particularly for crypto accounts subject to access limitations like lock-up periods. The tax treatment of so-called hard and soft “forks” is also unclear. Finally, crypto exchanges are navigating a number of open reporting and compliance issues. If you have significant holdings in cryptocurrency, consult with a federal tax advisor who understands the tax aspects of this unique asset to [...]

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