# Streamlined or OVDP



## poppoinc

Hello,

I'm in a bit of a difficult situation here. My parents who are US tax citizens sold a property overseas back in 2006 for a decent amount of money (about 1.5 million Euros). They paid taxes in full in Europe and declared and filed taxes every single year at the country of origin. Some interest was earned in 2006 and 2007 in Europe (it was declared and paid on in the country of origin). However, in subsequent years (2008-2013), the interest earned was negligible (maybe a couple hundred Euros per year). No FBAR's were filed in the US and none of this income was declared, but all US income was paid and declared in a timely manner. The funny thing is my parents gross income is about 18K in the US (total jointly) and about 10k in Spain (total jointly). Which I believe is well below the minimum required to even file taxes in the US. My father is on disability and my mother is a retired teacher. They sold this property which they bought in the 70's (turned out to be a great investment) to retire basically. 

The rough dollar amounts in these accounts are roughly the following:

~500,000
~300,000
~60,000

This is a lot of money. However, we were completely unaware of these requirements. What options do I have here really?

-M


----------



## Bevdeforges

Actually, your parents can probably take advantage of the Streamlined Compliance procedure. They'd have to file 3 years of back income tax returns plus six years of back FBARs. But under the circumstances, there's a good chance they wouldn't owe any back taxes. (For US tax purposes, they would have to declare their entire worldwide income for those years they are backfiling - but they get credit for any and all income taxes paid in Spain or elsewhere.)

Start here: Streamlined Filing Compliance Procedures But if they sold the property in 2006, it isn't even in the picture for the Streamlined process. 
Cheers,
Bev


----------



## poppoinc

Thanks for the information. Much appreciated. I just thought of one thing. The taxes done overseas were done as a "resident" of that country and the bank accounts also have "resident" status in those countries. Is that something I should be concerned about with regards to how the IRS views that.


----------



## BBCWatcher

No. Overseas residence is quite favorable for the Streamlined Program.


----------



## Bevdeforges

poppoinc said:


> Thanks for the information. Much appreciated. I just thought of one thing. The taxes done overseas were done as a "resident" of that country and the bank accounts also have "resident" status in those countries. Is that something I should be concerned about with regards to how the IRS views that.


The US expat groups have been trying for some time now to get a "country of residence" exception to the FATCA reporting. Unfortunately, they've had no luck with this. Foreign accounts are foreign accounts as far as Treasury and the IRS are concerned, no matter where you are actually resident.

But, so far at least, they have not shown themselves to be at all unreasonable with those backfiling under the streamlined program as long as they meet the requirements of the program (i.e. "normal" type bank accounts and ultimately little or no taxes due). Just be sure to give them only what they are asking for, no more, no less. 
Cheers,
Bev


----------



## Bevdeforges

Basically, if you have nothing to hide, you have nothing to fear.
Cheers,
Bev


----------



## DavidMcKeegan

I agree with the above. Definitely the Streamlined approach is the better way to file (the OVDP is hardly ever a good choice unless you are looking to avoid criminal prosecution). Simply file the last three years of tax returns for them (report their worldwide income- not just US based income) and six years of FBAR.

Full details can be found at:

Streamlined Filing Compliance Procedures

Rest assured, they are in a really common situation, and one that is remedied fairly easily. Also, if you are not comfortable with filing the forms on your own, there are quite a few expat accountants which specialize in these type of situations, and can file for you.


Good luck!


----------



## poppoinc

Thanks everyone. I'm just very scared that the IRS will ask for 2006 documentation to verify the sale of the real estate. Has anyone heard or of any similar cases or that can provide links to the results of a case in a similar situation?


----------



## Bevdeforges

Statute of limitations is 4 years (I think) on income taxes. Granted, income not reported has no statute of limitations. However, given the streamlined program, if you meet those filing requirements, all is forgiven prior to the 3 back years.

The sale of the property is subject to lots and lots of terms and conditions - basis (to determine the actual gain) and whatever taxes they paid in Europe probably the key ones.

If they file openly and honestly under the terms of the streamline program, they have nothing to worry about.
Cheers,
Bev


----------



## borkanizo

Hi there,

Is the Streamlined domestic a good program if after amending 3 years of tax returns, there is an increase of 5k to 10k for each tax year?
The income increase comes from inherited accounts that generated interest. These accounts were not reported. 

I've read that ''under the delinquent foreign form submission procedures reasonable cause explanations will be viewed very positively where all foreign income has been reported.''

It looks that if the tax returns submitted under the SDOP show an increase in income , the IRS could question the non-willfulness certification made under the program.


----------



## Bevdeforges

The domestic streamlined program is a somewhat different animal than the overseas program. If you're amending 3 back years of taxes and coming up with 5K to 10K of additional tax due, I'd be willing to bet that you'll be looking at penalties. If you're talking 5K to 10K of additional income that wasn't reported before, maybe not so much.

It depends on the reasons why the additional income and taxes "just happened to pop up" and how convincing you can be as to whether or not it was "willful." It might just be worth it to pay the interest and penalties and simply be done with it.
Cheers,
Bev


----------



## poppoinc

Ok i'm a bit more concerned now after reviewing my parents accounts....ugh.

There are yearly withdrawls for "foreign currency", basically dollars from the accounts. Roughly between $10,000 and $15,000 per year. Consistently. Although this is definitely not illegal or anything of course, but I'm afraid that an IRS auditor might view this as "willful" and assume that we were aware of this ridiculous law. 

Also, there are cash deposits and withdrawls....

Maybe i'm just being super paranoid about this, I don't know.


----------



## BBCWatcher

Assuming they're seeking to become compliant, this isn't something they control. They're asking the IRS for some measure of relief from penalties and interest (the Streamlined Program), and the IRS will decide how much relief they get. They just present their best, truthful case and see what happens.

Worst case they'll owe some penalties and interest. The Streamlined Program has the (high) potential to improve on those normal penalties and interest.

I try not to worry about outcomes I cannot control given facts that have already occurred. The past is the past and cannot be undone, so there's no sense in worrying about the past at this point. They just forge ahead, that's all.


----------



## diharv

poppoinc said:


> Ok i'm a bit more concerned now after reviewing my parents accounts....ugh.
> 
> There are yearly withdrawls for "foreign currency", basically dollars from the accounts. Roughly between $10,000 and $15,000 per year. Consistently. Although this is definitely not illegal or anything of course, but I'm afraid that an IRS auditor might view this as "willful" and assume that we were aware of this ridiculous law.
> 
> Also, there are cash deposits and withdrawls....
> 
> Maybe i'm just being super paranoid about this, I don't know.


If you insist on digging for trouble , you will surely find it. You stated in your first post that your were all unaware of any of the requirements of US citizens abroad.Therefore nothing ever can be construed as willful. File income tax returns back three years and six years of FBARS. Whatever happened in 2006 is irrelevant. Start at 2011. Also what is the deal with withdrawls from the accounts? Accounts are for withdrawls and deposits. As far as I know they don't analyze the day to day transactions of bank accounts. The only number they need to know is the yearly maximum balance. People gotta withdraw money to live and invest , right ? Just do what is required by the law and volunteer nothing more unless it is asked . Simple. I've gone through my own version of hell with all this also but my accountant did a god job. I've been audited and reassesed and been dinged for additional tax with upon being paid cleared everything up so I am all caught up and good now. The audit process had nothing to do with F(u)BARS or bank accounts or assets . They are concerned that people are paying the proper amount of tax on INCOME and not claiming deductions and credits unless justified. On my 2013 returned I had a tax credit denied so I had to pay more tax. No problem if it clears me up. I had alot of penalties and interest piled up from a messy first year 2009 return but they ultimately waived the failure to file and failure to pay penalties and just charged me interest on the tax due since 2009. Imagine I paid interest on tax due from 2009 when up until 2011 I was completely unaware I had to do any of his. No , it was nothing willful on my part. The waiving of penalties was a very nice surprise however.
Sorry for hijacking this thread but when I see someone being paranoid to the point that the hornet's nest is going to all on them , I have to say something.


----------



## poppoinc

Ok. Did you go through the streamline program?


----------



## diharv

poppoinc said:


> Ok. Did you go through the streamline program?


I submitted my first three years returns under that program but was rejected due to high risk of non compliance which seems stupid because the very act of submitting returns to get into the system is compliance. Then a review and audit followed and after several months of back and forth everything was ironed out. Three years returns and six years FBARS and nothing more was required. The whole experience , although very costly and stressful to me ,turned out fine in the end.


----------



## Bevdeforges

diharv, thanks for jumping in here - and I certainly don't think you've "hijacked" the thread at all. 

Basically, the "streamlined program" is nothing but a standardization of what used to be the old "file three years back and all is forgiven" approach to overseas taxpayers unaware of the filing requirements.

Withdrawing cash from savings accounts isn't really even a red flag of any sort. My father used to brag about his letter from the IRS telling him not to file anymore after he had been living for several years off his savings in retirement. What is a red flag would be large, regular deposits into the accounts - which would indicate some source of income that wasn't being reported. But living off one's savings is standard practice for retirees.

And, also based on my Dad's experience, being audited isn't necessarily a "bad" thing. If they find you owe additional taxes, there is a chance to "discuss" the issue, or you can just pay it and learn from the experience. Very often, if it's clearly not willful, they may even waive penalties. 
Cheers,
Bev


----------



## poppoinc

Thanks Bev and diharv

Just curious. If you don't mind me asking, why did they deem you "high risk" diharv?


----------



## borkanizo

Thanks Bev,

In regard to the penalties to pay, under SDOP, there is the 
penalty that equals 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period.

-also,an increase in tax liability for the 3 years of tax returns would generate a penalty plus interest .

My understanding is that only 2 two (!) penalties would be assessed .


----------



## diharv

poppoinc said:


> Thanks Bev and diharv
> 
> Just curious. If you don't mind me asking, why did they deem you "high risk" diharv?


I'm not sure. Three of four months after submitting my first three years of returns I got a letter stating that elements of my submissions indicate a high risk of noncompliance and therefore I am not elegile for the streamlined program. They then went on to say that a thorough review of my returns was to follow and to sit tight until I hear from them which I eventually did. I can only speculate as to the reasons as they did not say. It could be becuse of some of the answers I gave in the questioaire which I recall my accountant saying they could work against me, but I can't remember what they were. I own an incorporated business so that complicates things or perhaps it was my income level. In any case it cost plenty to get in the system and then it cost plenty more to clean up the mess but it is done now. There was one year 2009 that was the cause of all the problem but each and every year after that has been one and done.


----------



## poppoinc

Alright folks. Here's an update....I really appreciate everyone's opinions. I'm leaning towards doing SVDP (US residency option with the 5% penalty). Just to give a summary of the situation here it is again:

Parents sold property in Spain in 2005 (declared in taxes on Spain filing in 2006) for about 1.5 million Euros. No capital gains were paid on in Spain because of specific laws regarding the age of the building they sold (it was in a historic center of the city). This is a problem now. Sale was not reported on US income in US filing. 

Parents opened bank accounts (4 total now) and have approximately 900,000 Euros in them now. I am a signatory on 3 of them as of a few months ago. Another problem for me. I looked at their income over the past few years in the US and Spain, here's a summary.

US income (jointly filed) ~ 18k (2011, 2012, 2013). Hasn't varied much. 
Spain Income (filed separately in 2001, 2012, jointly in 2013) : 2011 income was about (18k between both), 2012 income was about (16k, between both) and 2013 income was about (12k between both). It appears some credits can be given for taxes paid. I'm assuming there will be penalties and interest for these levels even though worldwide gross income would not be around the 32k range. Still very low in my opinion. 

I spoke to a few attorneys. One mentioned a process called "qualified quiet disclosure", basically going through the OVDP and then opting out, hoping for a leniency on the 27.5% penalty. The problem with going the OVDP route is the sale in 2006 and the huge amount of money we'd have to pay on capital gains. 

Second attorney didn't think the situation sounded that bad but did mention that since SVDP is subject to future audit, they could audit returns in the 6 year statute given that 25%+ gross income was omitted. If the IRS determines or asserts "fraud" then the 2006 year would be open for audit as well. He mentioned he hasn't seen any audits from SVDP yet, but since it's so new they could come. 

Oh one more thing....my mom's account is under her maiden name, which is not the same as her married name in the US. Just trying to think what the auditors will see. ****ing hate these stupid laws of reporting worldwide income. 

Still recommend SVDP?


----------



## Bevdeforges

Wait a minute - who is filing here, you or your parents? And who is or isn't resident in the US - again, you or your parents?
Cheers,
Bev


----------



## poppoinc

We are all residents in the United States. My parents would be filing, but they're 80 year olds so they've put this in my hands really as to what to do. They have no idea what FBAR's are, were or that worldwide income needed to be reported in the US. 

My parents are dual citizens and so am I currently residing in the united states. However, we have a summer home in Spain (the address on the bank accounts).


----------



## Nononymous

The obvious question before you ratchet up the panic-meter: 

Is there ANY suggestion on the Spanish bank accounts of US residency or citizenship - i.e. US mailing addresses? 

In other words, what is motivating the rush towards compliance - are your parents vulnerable to FATCA reporting?


----------



## poppoinc

Nononymous said:


> The obvious question before you ratchet up the panic-meter:
> 
> Is there ANY suggestion on the Spanish bank accounts of US residency or citizenship - i.e. US mailing addresses?
> 
> In other words, what is motivating the rush towards compliance - are your parents vulnerable to FATCA reporting?


No, other than me being a signatory on their accounts (my Spanish ID states I was born in the US). Also, given that my father has a Green Card, which states his country of birth (Spain), i'm inclined that the accounts could be detected. I don't think they're just looking at mailing addresses.


----------



## Nononymous

Well if you are a signatory and your place of birth is recorded by the bank, or US addresses used for correspondence, then yes, there's a risk.

If the bank has no record of your father's green card, nor any US mailing addresses or other indices, then there's probably little risk from that angle.

But given that all three of you are living in the US, compliance is probably not a bad idea. Alternatively, you could all move back to Spain.


----------



## BBCWatcher

The Streamlined Program is a request for leniency. It is granted as long as the program rules are followed. Assuming they're seeking compliance, I don't know why they wouldn't make the request.

By the way, you have your own FinCEN Form 114 (FBAR) filing requirement as you've described the situation.


----------



## Bevdeforges

The FBAR reporting is separate from tax returns. And yes, if you're all resident in the US, it would be an excellent idea to get caught up at least with that. However, reporting foreign bank accounts does not necessarily mean that the IRS is going to be looking for the related income/interest on your tax returns. (Especially if you're reporting only a signatory interest in your parents' accounts. That's perfectly normal.)

When your parents sold the property in 2005 were they US residents? Or did they sell the property in order to move to the US? It could make a huge difference.

The main thing in any event is for them to come forward. If they meet the requirements, file under the Streamlined program. If there is a problem with that approach, someone will be in touch and you can see what they propose. But at least coming forward demonstrates that there was no willful evasion of taxes. Ultimately, you can go to the Taxpayer Advocate if you find the IRS position to be unreasonable - but first you gotta file in some manner.
Cheers,
Bev


----------



## poppoinc

Hey Bev,

Thanks. Hey Bev they were US residents. Again, they thought that income earned in Spain should be paid in Spain, not in the US. They sold the property to have funds to move back to Spain actually. There's a huge burden of proof that the IRS would need to prove "fraud", so i don't really feel to worried, but with the draconian penalties it's just an uncomfortable situation. 

I ran some more simulations with the unreported foreign income for the 3 back years, and it looks like their gross income in the US wouldn't go over 32,000 (without taking any of the FIEC credits), so I doubt there'll be much taxes do actually for those 3 years. I'm assuming that's a good thing.


----------



## Jezebel

I recently read a reference to the FBAR on your forum while looking for information helping us to decide whether to open a Roth IRA for my husband, currently a resident alien. Had never heard of this before. After doing some reading online, I not only realized that he had been required to file said FBAR the last two years but also that we could be assessed serious penalties for not doing so.

I've since done a lot of research and am trying to find information on whether quiet compliance or OVDP opt-out is too risky for us, as the (streamlined?) OVDP penalty seems pretty harsh for our situation.

The facts:

Husband was granted green card in July of 2012 and moved here at that time, did not get a job until June of 2013.
For 2012 tax year, I filed married filing separately; he did not file as he had no income while a resident alien.
For 2013 tax year, I filed married filing jointly using TurboTax. I answered YES to foreign accounts question (true, good thing), but NO to over $10,000 question (false, bad thing). Don't remember any reference to FBAR in TurboTax questions.

However, I've since discovered that the amount in his account was about $18,000. I did not think he had this much as the account is barely used (he has never made a withdrawal and makes a maximum of one deposit a year), and I didn't realize the seriousness of not making sure of my assumption. None of this would be a big problem if I hadn't failed to report the interest income on this account on our 2013 tax return. It honestly didn't even occur to me that I would have to come up with numbers other than those listed on the different 1099s, w2s, and other forms I had gathered. You have to keep in mind this was the very first time I've filed taxes with my foreign spouse. I didn't even realize this account earned interest, but we looked into it and it apparently has great interest rates, and earned like $500-$600 last year, such that we probably owe close to (but not over) $100 in taxes for the 2013 tax year.

I would like to just file the 2012 and 2013 FBARs late with an explanation as to why we did not know we were required to file, and then file an amended 2013 return and pay the taxes owed and interest, as this would obviously cost less than the OVDP penalty. It just seems like OVDP is a tax amnesty program not for people like us but rather for repeat offenders who have willfully been hiding large amounts of assets abroad to escape taxation. And it's hard to believe the IRS would penalize us so harshly. I think under the streamlined program (if we qualify), we would owe 5% of $18000, so about $900. Plus the back taxes. However, if we don't go through the program, we apparently risk the maximum $10,000 late filing fee, in the worst case scenario.

Main question is: what is the risk of quiet compliance (our #1 choice), v. OVDP opt-out (#2 choice) v. straight-up OVDP? All choices are legal as far as I can tell, so we are mostly talking about risk in terms of likelihood and amount we'll have to pay. Assuming OVDP is the recommendation, do we qualify for the streamlined 5% penalty rate?


----------



## BBCWatcher

This is one of those (few) cases where #1 seems to make sense, though I'm not fond of the term "quiet compliance." It's just ordinary late (and/or amended) filing, that's all. Business as usual. There's nothing quiet or loud about it. It's as loud or as quiet as any other filings with the IRS and the Treasury Department. The word "quiet" suggests you're trying to do something sinister or surreptitious, but no, it's not. It's then up to the IRS and/or Treasury, as applicable, whether they hit you with any penalties, up to the statutory/regulatory maximums.

OVDP doesn't make sense in your circumstances, so set that one aside. I think you're asking (or haven't yet found?) whether the domestic version of the IRS's "Streamlined Program" makes sense, but that's not the OVDP. The overseas Streamlined Program is clearly a winner in my view -- I'd take that deal in a heartbeat. The domestic version is still pretty good but your mileage may vary. The advantage of the domestic Streamlined Program is that you know exactly what the maximum penalties will be (or could be -- they might still be waived or reduced), and they are much lower than the statutory and regulatory hypothetical maximums.

Many people would decide they like the greater certainty of the domestic Streamlined Program since it reduces the maximum possible penalties, but it's really a personal decision.


----------



## Bevdeforges

Since your husband wasn't subject to US tax rules until 2012 anyhow, it makes no sense to file six years of back FBARs that are part of the Streamlined program.

File the amended returns for the years where there is an issue. If you're adding the interest income from your husband's overseas accounts, then backfile two years worth of the FBARs. Period. Prior to his arrival, he had no filing obligation (and should they ever come back to you about that, that's what you tell them). But chances are, there will be no comeback on the issue. 
Cheers,
Bev


----------



## BBCWatcher

The Streamlined Program still permits filing less than than the "6 and 3" if a taxpayer was not required to file all those years. It's still an option if desired. The filer simply attaches an explanatory letter.

I believe this aspect is in the instructions for the program, but please check that with the IRS if desired.


----------



## StewartPatton

Bevdeforges said:


> Since your husband wasn't subject to US tax rules until 2012 anyhow, it makes no sense to file six years of back FBARs that are part of the Streamlined program.
> 
> File the amended returns for the years where there is an issue. If you're adding the interest income from your husband's overseas accounts, then backfile two years worth of the FBARs. Period. Prior to his arrival, he had no filing obligation (and should they ever come back to you about that, that's what you tell them). But chances are, there will be no comeback on the issue.
> Cheers,
> Bev


All I want for Christmas is for Bev to stop discouraging people from using the Streamlined program.

Look Bev, here's the lay of the land:

1. The IRS imposes hefty penalties for not filing certain things.
2. The IRS offers several amnesty programs under which those penalties are waived.
3. So, if someone is going to file something anyway, they should always look for a way to file it as part of an amnesty program.

You have repeatedly advised people to just file an FBAR etc. and not use the Streamlined program, and that is simply bad advice.


----------



## Bevdeforges

The FBAR propgram is actually handled by a different department within the Treasury Dept. And they have shown no tendency in prior years to simply assess the maximum penalty on discovery that someone has failed to file something, particularly if they are only a small amount over the threshold for the filing.

Besides, I'm not telling anyone what to do. Just what I would do under the circumstances as described. Back in public accounting days, it was called "taking an aggressive stance" on a tax return. For those of us down in the ranks of the "little people" who are just barely over the various thresholds, it often (if not usually) pays off.
Cheers,
Bev


----------



## ForeignBody

Bevdeforges said:


> The FBAR propgram is actually handled by a different department within the Treasury Dept. And they have shown no tendency in prior years to simply assess the maximum penalty on discovery that someone has failed to file something, particularly if they are only a small amount over the threshold for the filing.
> 
> Besides, I'm not telling anyone what to do. Just what I would do under the circumstances as described. Back in public accounting days, it was called "taking an aggressive stance" on a tax return. For those of us down in the ranks of the "little people" who are just barely over the various thresholds, it often (if not usually) pays off.
> Cheers,
> Bev


The question is not just about failure to file FBARs, but also failure to declare interest/income.


----------



## BBCWatcher

"Aggressive" could be trying to get _an even better deal_ than the Streamlined Program, but skipping the SP sure doesn't seem like the way to do that.


----------



## Jezebel

Thanks, all! Sounds like the jury's still out. Tough decision...


----------



## Bevdeforges

What you need to remember is that there is no single "right" way to handle most tax situations. You need to consider the amounts involved (both reported/unreported amounts and potential tax liabilities) and how you wish to "characterize" the transactions you are reporting.

It's perfectly possible to simply file the 2013 return (and maybe even the 2012 return) "late" - penalties are a percentage of the taxes due, so if there are no taxes due, then no penalty. The FBARs officially aren't supposed to be filed late, however up until this point, Treasury has not shown any great tendency to simply slap the maximum penalty (or really, any penalty at all) on the late filing of FBARs in the "extremely modest" range - certainly under 6 figures. Though this leniency may come to a halt in the near future as the FATCA thing gets ramped up.

There is also the possibility of just starting with a proper filing in 2014 and going forward. Unless there are some large $$ amounts involved, they may just take the 2014 filings and not look back.

You're right however, this is a decision, and a very personal one, on your part. You're the only one who has to live with the consequences of what you decide to do.
Cheers,
Bev


----------



## BBCWatcher

Keep in mind this is an unreported $18,000 (high balance) account and an estimated $100 in unpaid income tax (plus interest and penalties). Not the end of the world.

I tend to agree with Stewart (Streamlined), but standard late filing is also unlikely to be particularly costly. The IRS and Treasury aren't typically in the business of imposing overly harsh penalties on those who voluntarily come forward to correct honest oversights, especially oversights of this small magnitude.

Whatever you decide, I'd act reasonably promptly. Waiting too long isn't compatible with "honest oversight, corrected quickly." Before you start working on tax year 2014, I'd say.


----------



## someNri

Is there any feedback of how the streamlined domestic option is fairing in the real world? Anyone who filed, hear back at all?

I am taking minnow cases, where the unpaid tax liability is under 2k total for 2011 & 2012 combined. balance just under 100k. There is a lot of opinions around risks of doing a non-willful certification, that the reasons given has to be well drafted, can't be in laymen terms etc...


----------

