The 2011 OVDI announced by the IRS is intended to bring non-compliant US taxpayers into compliance with U.S. tax laws and regulations on the understanding that once in compliance the tax payer will continue to comply with U.S. tax requirements in future years. This may be a non-compliant taxpayer’s last best chance to come forward and voluntarily disclose previously undisclosed offshore income and holdings at a cost that can be predetermined without further administrative penalties or fear of criminal prosecution.
United States citizens and residents of the US are taxed on their worldwide income no matter where in the world they might live. US taxpayers are required to file US tax and information returns if their income and offshore assets exceed certain limits even if they do not owe US taxes by way of provision of a tax treaty. The IRS is pursuing taxpayers that have avoided tax on offshore income and holdings with unprecedented vigor. The US has concluded treaties with countries that previously had bank secrecy laws that now require the banks in these countries to provide information requested by the IRS. Offshore banks can no longer guarantee client confidentiality.
Information provided to the IRS under the 2009 offshore initiative provided IRS agents with a deeper understanding of how funds were transferred and how tax avoidance facilitators operated. The Foreign Account Tax Compliance Act, signed into law by President Obama in March 2010, will require foreign financial institutions to either collect and turn over data on U.S. clients with accounts of at least $50,000, or withhold 30 percent of the interest, dividend and investment payments due those clients and forward the money to the Internal Revenue Service.
It has never been more risky to be a non-compliant US taxpayer. With further information gleaned from the 2011 Initiative along with the increased investigative resources that the Administration has requested Congress to provide to the IRS it will become even riskier. The decision that a non-compliant taxpayer makes under the 2011 OVDI can have far reaching and potentially life changing consequences. It is imperative that taxpayers who are contemplating a voluntary disclosure be fully informed about all aspects of the decision that they may make. With these factors paramount Aylett Grant has developed the following program to fully inform and assist their clients.
Initial Consultation
We will arrange an initial consultation with each new client to determine what services the client requires and the best path to come into compliance with US tax requirements. In order to efficiently proceed with the OVDI process we request that potential clients bring with them as much information regarding their tax history as they have available.
Canadian Tax Returns
If the client agrees that Aylett Grant can provide the services that he or she requires we will review the clients Canadian tax returns for the years covered by the OVDI (2003 to 2009) affecting the client. At this point we will be able to determine the most appropriate process for the client to proceed. Our recommendation will be predicated on the least cost and risk to the client. At this point there are several different options available to the client:
- Proceed with the 2011 OVDI.
- Proceed with a voluntary disclosure under the Longstanding IRS Disclosure Policy.
- Proceed with a so-called “Quiet Disclosure”.
- Proceed to file delinquent returns.
Aylett Grant Tax LLP Scope Letter
After reviewing the clients tax history and disclosure requirements Aylett Grant will prepare a detailed letter outlining our recommendations as to how the client should proceed along with the processes involved. We will generally outline the scope of our services and give details of the forms and information returns that the client must file. We will further outline details of any required information that we will be seeking. The more information that can be provided directly by the client the more efficient we can be and the less it will cost. We will also provide the estimated cost of our services based on the provisions outlined in the scope letter and the amount of the retainer required.
Retainer Required
If the client agrees that Aylett Grant should proceed with the services outlined we will request that the client provide the specified retainer.
Follow-up Consultation
Upon receipt of the required retainer Aylett Grant will arrange a second consultation where the client can request further details concerning his disclosure and ask any questions that he or she may have. We will discuss the reasons for our recommendations and the alternatives that may still be available if the client so decides. At this meeting we will receive instructions regarding information that the client intends to provide or what information we might be required to pursue. Our policy dictates that our clients have a clear and complete understanding of our services and the way we can best assist them. Our goal is to so impress those seeking tax and accounting advice with our accurate, timely, and efficient services that they become our permanent clients.
We will also request that the client sign certain forms required by the IRS in order that we may act on his or her behalf and also sign any authorizations that we may require in order to obtain required information from third parties.
Prepare US Tax and Information Returns
Following this second meeting Aylett Grant will immediately set out to obtain missing information and prepare any required tax returns and calculate US taxes owing and tax offsets by way of tax treaties. We will prepare any required FBARs and other information reports required by the IRS and calculate potential penalties under the different scenarios. At this point it ought to be clear as to what outstanding tax obligations the client has and the potential costs.
Consultation with a US Tax Attorney
After the required tax and information returns have been prepared, but before they are actually filed with the IRS, Aylett Grant will arrange an interview with an experienced US tax attorney. It is our aim to make certain that every possible advantage is provided to our clients to ensure that they fully understand what is required and any possible consequences involved. It is also important that the attorney fully understand the client’s complete situation including any details that the client might not wish to reveal to anyone outside the attorney-client privilege.
Final Determination
Following the meeting with the tax attorney a final recommendation on the most appropriate method to proceed will be made to the client based on a thorough analysis of the client’s individual case. This recommendation will be based upon the least costly and least risky or the most convenient process for the client. The client, however, must make the final decision after he or she has been fully apprised of the benefits or consequences of each alternative process. The required returns will be filed in accordance with the instructions of the client.
Follow-up With the IRS
Aylett Grant in conjunction with the attorney will, so far as possible, guide and assist clients throughout the disclosure process until the IRS closes the file. We are not able to predetermine the filing position or attitude that the IRS may take with regard to a particular file. Consequently, we cannot provide absolute assurance that the IRS will accept the information that we have provided on a client’s behalf or that the IRS will not further review a file. Since we have no knowledge or control over what actions the IRS may take in regard to a particular case, the follow up costs and services will be negotiated with the client on a case-by-case basis.
OVDI Protocols
The protocols that Aylett Grant Tax LLP has specified may appear excessive at first blush. We can only stress the importance of becoming compliant with US tax requirements before your name appears on the IRS radar screen through whistleblowers, conspirators, or filings by foreign banks under new tax evasion treaties. Our Website has several articles dealing with disclosure and consequences that we encourage you to read. Non-compliant US taxpayers can be financially devastated if they are detected and the IRS chooses to apply the full provisions of the available administrative penalties. If the IRS succeeds in a criminal prosecution the costs can be financially crippling with a likelihood of incarceration.
It is because of the severity of the consequences that Aylett Grant is so concerned for their clients. We believe that no avenue should be left unexplored regarding becoming compliant with US tax requirements. This may be the last opportunity to come forward without additional administrative penalties or fear of criminal prosecution. This may be the last “kick at goal” so to speak and it must be done on the right way based on each client’s individual circumstances.
AG TAX LLP Can Help
If you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
