IRS Says No New Relief Planned for Canadians

Posted by: Roy A. Berg JD, LL.M (US Tax) | December 16, 2011 | Filed under:  Tax + Estate Planning

On December 15th and 16th I attended the International Taxation conference sponsored by the IRS and held in Washington DC.  There were more than 700 people in attendance and the lunchtime speaker on the first day was Douglas Shulman, the Commissioner of the IRS.  At the end of his prepared remarks he answered only three questions posed by the audience. The first question he answered was mine, which was the following:

“On December 2 the US Ambassador to Canada announced that, before the end of the year, the IRS would issue guidance on tax compliance and penalty relief for Canadian residents [Click here for my prior blog on that topic] and then on December 7 the IRS Issued Fact Sheet 2011-13, which doesn’t really address the relief the Ambassador alluded to, though it does provide some guidance.  [Click here for my prior blog on the IRS announcement].  Is the Fact Sheet the guidance the Ambassador was alluding to, or should we expect further guidance from the IRS?

Mr. Shulman said that the Fact Sheet was the guidance the Ambassador was alluding to.  Further, he said “there is a lot of misinformation out there, and we wanted to clarify [the current state of the law].”

Both my question and Mr. Shulman’s response were quoted in Tax Notes Today on December 16, 2011, which you can read by clicking here.

After he answered my question he introduced me to Rosemary Sereti, who is Director of International Individual Compliance for the IRS.  Ms. Sereti is the chief architect and is in charge of the Offshore Voluntary Disclosure Initiative (OVDI).  I spoke with Ms. Sereti at length at the conclusion of the lunch.  Ms. Sereti was very generous with her time and provided the following insight:

 

  • She confirmed Mr. Shulman’s comment that the Fact Sheet was the guidance the Ambassador had alluded to.
  • Penalty abatement for Canadian residents participating in the OVDI is available only if the taxpayer “opts out” of the program and successfully argues that he had “reasonable cause” for failing to file the returns.
  • The IRS is aware of the problems caused by including registered retirement savings plans (RRSPs) in the OVDI penalty computation.
  • The IRS is on the lookout for taxpayers who attempt to bring their unfiled returns current by using “quiet disclosure” and those who attempt to resolve their filing obligations in this way will face harsh penalties.

    •  

    What we can conclude from my interaction with Mr. Shulman and Ms. Sereti is the following:

     

  • First, it is unlikely that there will be a made-in-Canada-solution for those Canadian residents who are not current on their US filing obligations.
  • Second, there is the possibility of penalty abatement for participants in the OVDI provided the participant “opts out” of the program and can prove they had reasonable cause for failing to file returns.
  • Third, since the IRS is aware of the problems caused by including RRSPs in the OVDI penalty computation and has not issued guidance on the matter it is reasonable to conclude that, for now, the treatment of these accounts is an open issue.
  • Fourth, those who attempt to bring their filing obligations current by using “quiet disclosure” may find themselves in much more trouble than if they had used “voluntary disclosure.