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When my business partner and I found ourselves in a land investment that was abandoned by the developers, we had no reasonable economic choice but to walk away from our mortgage loan.  While we understood that there would likely be tax consequences, the magnitude of our exposure was not fully anticipated.  Thankfully, Mr. Bode was able to work with us to strategize a defensible tax position and mitigate the tax implications of our investment loan abandonment.  I would recommend that anyone facing an investment loss that has tax implications due to debt forgiveness give Gary a call.  It is always best to fully understand the circumstances and the tax rules and related options before paying a hefty bill.  Thanks Gary!

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Expat CPA discusses FATCA Timelines and OVDI

Expat CPA discusses OVDI

Gary Bode, CPA: want to play poker with the IRS Commissioner? (910) 399-2705.

Expat CPAs watch FATCA (Foreign Account Tax Compliance Act) developments carefully. Why? Well clients are still pondering when, if ever, to put through an OVDI (Offshore Involuntary Disclosure Initiative). The delayed FATCA implementation, announced this month, should help you decide. But of course, legally, the deadline was yesteryear.

Foreign banks don’t have a great opinion of FATCA because of the:

  • Red tape.
  • Cost
  • Arrogance of the IRS imposing itself in another nation.
  • Client loss.

After all, some of any foreign bank’s appeal to US taxpayers is that the IRS won’t know about your account. The complaint about cost is moot: they’ll just pass it on to their customers. But there  is red tape.

My opinion on Probable OVDI Developments

OVDI CPAs now deal with the third version of the program, which has an indefinite timeline. This October, the IRS announced it’s delaying the start of foreign bank reporting mandates until January 1st 2014. The implication? Foreign banks would report on any accounts existing in 2014 and the IRS could backtrack tax evaders starting in 2015. So my guess is that the OVDI program will close sometime in 2014. But I expect a fourth and more punitive version of OVDI before that. But remember some nations are already compliant, with unknown reporting consequences. Some countries will take more time. The last bank standing probably wins the remaining tax evaders.

FATCA presumably is an extension of the IRS matching revenue program that works so well. Think W-2s, Form 1099-MISC etc. The reporting institution or employer sends a copy of these forms to you and the IRS.

Of course the legal requirement is for expats, dual citizens and maybe Mitt Romney (wink) to report all their foreign bank relationships now. But the obvious strategy for tax evaders is to transfer foreign accounts to a new foreign bank on Jan 1, 2014. Unless FATCA then requires retroactive reporting. Ouch.

OVDI still uses the carrot and stick approach. The carrot is immunity from criminal charges, and a reduced fine, at least compared to what the IRS would do if they caught you for unfiled FBARs or Form 5471s. The stick is FATCA, aka we will catch you eventually. And the IRS played this well. The OVDI revenue, low administration cost and expected future compliance makes OVDI the most profitable and creative IRS program this expat CPA has ever seen.

What’s the saddest OVDI case I’ve seen as a CPA? A young man, born in America, but living overseas with his parents. He opened a no interest checking account at home, where he lives. He paid thousands to the IRS for seven years of $0 net tax liability tax returns. Every OVDI CPA has a story about the unintended consequences of FATCA.

I’m an expat CPA that deals with OVDI. Our virtual office means we can serve you regardless of where you live. I recommend coming clean the IRS while some version of OVDI exists. But when will OVDI end? I think the IRS Commissioner plays poker! For a free consult call (910) 399-2705.

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