IRS Audited Mitt Romney

Mitt Romney, the presumptive Republican presidential nominee, admitted he has been audited by the Internal Revenue Service.


David Muir of ABC News asked Romney during an interview Sunday in Israel if he had ever paid less than a 13.9 percent tax rate, the lowest rate in the tax returns he has released so far.

“I haven’t calculated that,” Romney replied. “I’m happy to go back and look, but my view is I’ve paid all the taxes required by law. From time to time, I’ve been audited, as happens I think to other citizens as well, and the accounting firm which prepares my taxes has done a very thorough and complete job paying taxes as legally due. I don’t pay more than are legally due, and frankly if I had paid more than are legally due, I don’t think I’d be qualified to become President. I’d think people would want me to follow the law and pay only what the Tax Code requires.”

Romney has come under pressure to release more tax returns, but so far, he has only released his complete tax return for 2010 and an estimate of his taxes for 2011. A complete version of the 2011 return has been promised for release before the election.


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Corporate Penalty for Failure to File Returns

Under California law, corporations in good standing with the California Secretary of State are allowed an automatic extension to file without the need to file a written request if its return is filed within the extension period. For corporations the automatic extension is seven-months. However, if a nonqualified, suspended, or forfeited corporation doing business in California does not file a tax return within 60 days after we send them a legal demand (i.e. FTB 4684 or FTB 4685, Demand for Tax Return) to file their corporate return, we will impose a $2,000 penalty per tax year (Revenue and Taxation Code (R&TC) Section 19135), in addition to other penalties, including the penalty for failure to file after notice and demand imposed pursuant to R&TC Section 19133.

With the amendments to R&TC Section 23101 that add specific conditions (threshold tests) for “doing business” in California for taxable years beginning on or after January 1, 2011, more out-of-state (foreign) corporations will have a California filing requirement.

As a result of this law change, a corporation is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied:

• The nonqualified corporation is commercially domiciled in California.

• Sales of the nonqualified corporation in California, including sales by the corporation’s agents, independent contractors, combined with any pro rata or distributive share of sales from pass-through entities exceed $500,000. California sales of $500,000 or less will also cause the nonqualified corporation to be considered to be doing business if they exceed 25 percent of the nonqualified corporation’s total sales.

• The nonqualified corporation has real and tangible personal property, combined with any pro rata or distributive share from pass-through entities, in California over $50,000. California property of $50,000 or less will constitute “doing business” or if it exceeds 25 percent of the corporation’s total real and tangible personal property.

• The nonqualified corporation paid California compensation, combined with any pro rata or distributive share of compensation from pass-through entities, over $50,000 (or over 25 percent of the total compensation).

When you consider whether or not a business entity has California sales for purposes of the above threshold test be sure to apply the new sales factor rules, including the Market-Based Rules for Sales Other Than Sales of Tangible Personal Property (Regulation 25135-2) for assigning sales as if the business entity made had made an election to use the new single sales factor apportionment method.

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A Lesson from the IRS for Students Starting a Summer Job

IRS Summertime Tax Tip 2012-03


School’s out, but the IRS has another lesson for students who will be starting summer jobs. Summer jobs represent an opportunity for students to learn about the tax system.

Not all of the money they earn will be included in their paychecks because their employer must withhold taxes.

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. Even if you do not earn enough money to owe income tax, you will probably have to pay employment taxes. Your employer will withhold these taxes from your paycheck. If you earn $400 or more from self-employment, you will have to pay self-employment tax. This pays for benefits under the Social Security system that are available for self-employed individuals the same as they are for employees that have taxes withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE, Self-Employment Tax.

5. Food and lodging allowances paid to ROTC students in advanced training are not taxable. However, active duty pay – such as pay received during summer camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are treated as self-employed for federal tax purposes regardless of your age if you meet the following conditions:

  • You are in the business of delivering newspapers.
  • All your pay for these services directly relates to sales rather than to the number of hours worked.
  • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
    If you do not meet these conditions and you are under age 18, then you are generally exempt from Social Security and Medicare tax.

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Ex-IRS Worker Charged with Stealing Taxpayer’s Identity

Domeen Flowers, 48, of Maitland, Fla., was arrested Thursday, in Florida, as a result of an indictment returned by a federal grand jury sitting in Philadelphia, Pa. The indictment charges Flowers, a former IRS employee in Philadelphia, with participating in an alleged identity theft scheme involving the personal information of a taxpayer.

According to the indictment, Flowers used her position with the IRS to make unauthorized computer entries into the IRS’ Integrated Data Retrieval System. After accessing the system, Flowers obtained personal identifying information pertaining to a taxpayer, identified in the indictment only as “E.R.” Flowers allegedly used the information to apply for credits from different credit card companies in E.R.’s name. An initial appearance was held in U.S. District Court in Orlando, Fla. Flowers was released on bail pending an appearance in U.S. District Court in Philadelphia.

If convicted of all charges, Flowers faces between two to 46 years in prison and a fine of up to $1,254,000, a special assessment of $900, and two years of supervised release.

The case was investigated by Treasury Inspector General for Tax Administration’s Philadelphia Field Office and is being prosecuted by Assistant United States Attorney Floyd J. Miller.

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Renting Your Vacation Home

IRS Summertime Tax Tip 2012-08


Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return.

However, if you rent the property for only a short time each year, you may not be required to report the rental income.

The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:

Rental Income and Expenses  Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.

Limitation on Vacation Home Rentals  When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

Special Rule for Limited Rental Use  If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.

IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses.

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Obama Urges Extension of Middle-Class Tax Cuts

President Barack Obama pushed for a one-year extension of the current tax rates, but only for taxpayers making under $250,000 a year.


Speaking with a group of families and workers who would benefit from an extension of the tax rates, Obama rejected the idea of extending tax cuts for upper-income taxpayers.

“Many members of the other party believe that prosperity comes from the top down, so that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth,” he said Monday. “I disagree. I think they’re wrong. I believe our prosperity has always come from an economy that’s built on a strong and growing middle class—one that can afford to buy the products that our businesses sell; a middle class that can own homes, and send their kids to college, and save enough to retire on. That’s why I’ve cut middle-class taxes every year that I’ve been President—by $3,600 for the typical middle-class family. “

Obama noted that at the beginning of the last decade, Congress passed trillions of dollars in tax cuts that largely benefited the wealthiest Americans. “We were told that it would lead to more jobs and higher incomes for everybody, and that prosperity would start at the top but then trickle down,” he said. “And what happened? The wealthy got wealthier, but most Americans struggled. Instead of creating more jobs, we had the slowest job growth in half a century. Instead of widespread prosperity, the typical family saw its income fall. And in just a few years, we went from record surpluses under Bill Clinton to record deficits that we are now still struggling to pay off today. So we don’t need more top-down economics. We’ve tried that theory. We’ve seen what happens. We can’t afford to go back to it.”

Obama acknowledged that the outcome of the November election will largely determine what will happen with tax reform, but he urged Congress to pass a one-year extension to provide more certainty for the middle class. House Republicans plan to introduce legislation this month to extend the current tax rates for taxpayers at all income levels, but Obama insisted that the current tax rates should only be extended for the middle class for now. He noted that his opponent in the general election, who is expected to be Mitt Romney, has a different position on tax cuts.

“In many ways, the fate of the tax cut for the wealthiest Americans will be decided by the outcome of the next election,” he said. “My opponent will fight to keep them in place. I will fight to end them. But that argument shouldn’t threaten you. It shouldn’t threaten the 98 percent of Americans who just want to know that their taxes won’t go up next year. Middle-class families and small business owners, they deserve that guarantee. They deserve that certainty. It will be good for the economy and it will be good for you. And we should give you that certainty now. We should do it now. It will be good for you. It will be good for the economy as a whole.”

Obama said he would immediately sign a bill to extend the tax cuts for the middle class. “So my message to Congress is this: Pass a bill extending the tax cuts for the middle class; I will sign it tomorrow,” he said. “Pass it next week; I’ll sign it next week. As soon as that gets done, we can continue to have a debate about whether it’s a good idea to also extend the tax cuts for the wealthiest Americans. I’ll have one position. The other side will have another. And we’ll have that debate, and the American people can listen to that debate. And then next year, once the election is over, things have calmed down a little bit, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow, and brings down our deficit — because that’s something that we’re going to have to do for the long term. But right now, our top priority has to be giving middle-class families and small businesses the security they deserve. You’re the ones who are driving this recovery forward, and I think it’s time to widen the circle of opportunity and help more Americans who work hard to get ahead. It’s time that we learned the lessons of our past and lay the foundation for a better future. That’s what I’m focused on every day, and I hope Congress will join me in doing the right thing.”

House Ways and Means Chairman Dave Camp, R-Mich., said Republicans would vote to prevent any tax increases from occurring. “Republicans have called for a fairer, flatter and simpler Tax Code that lowers rates, gets rid of lobbyist loopholes and creates more economic growth and jobs,” he said in a statement. “The President is simply calling for higher taxes on families, small businesses and investors, which will only further weaken an already fragile economy. His support for another job-killing tax hike will only provide Washington more money to feed its insatiable appetite for reckless spending. The answer to our weak economy is not to take more money from Americans—the answer is to put American families and job creators first. House Republicans will vote this month to stop the tax hike on every American and create a path for tax reform that levels the playing field for the hardworking Americans and businesses trying to compete in a global economy.”

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Congress Extends Reduced Student Loan Interest Rates

The House and Senate passed a highway bill Friday that contains provisions to prevent a doubling of the interest rates for subsidized Stafford student loans.


Interest rates were set to jump from 3.4 to 6.8 percent at the beginning of July unless Congress acted before Sunday. The House approved a one-year extension of the current interest rates by a vote of 373-52, followed shortly by the Senate voting to approve it by a margin of 74-19.

They also voted to approve a simple one-week extension that President Obama is expected to sign into law by this weekend, and the one-year extension a few days later once the more complex bill is ready for his signature. He has been urging Congress to prevent the loan rate hike for months and made it an issue on the campaign trail.

Congressional Democrats and Republicans had long ago agreed on the need to prevent the interest rate hike, but until recently disagreed on how to pay for it. Earlier this week, congressional leaders agreed to pay for the $6 billion cost of a one-year extension by limiting federal subsidies to undergraduates to up to six years, changing how companies can calculate funds set aside for pensions, and tying the fees that companies pay to federally subsidize their pensions to the inflation rate.

“This legislation proves that when Republicans decide to work with Democrats, we can do a lot to move our economy forward,” said Senate Majority Leader Harry Reid, D-Nev. “Thanks to this bipartisan agreement, seven million college students will not see their education costs rise by a thousand dollars next year. Because of this compromise, millions of workers in the transportation and construction industries know that their jobs will not disappear.”

The bill also provides over $100 billion in funding for highway, mass transit and other transportation programs over two years. Speaker of the House John Boehner, R-Ohio, praised the highway bill for ensuring that taxpayer dollars are spent on high-priority infrastructure projects and not on bike paths and beautification. Of the student loan rate freeze provisions, he added, “Despite the President’s efforts to make this a political issue and distract attention from his failed record on jobs, I’m pleased members of both parties in the Congress worked amicably to resolve the issue.”

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Tax Cut Legislation Blocked in Senate

A bill to provide tax credits to small businesses that hire new workers has been blocked by Senate Republicans after Democrats refused to allow GOP-sponsored amendments on extending the Bush individual income tax cuts.


The small business bill, known as the Small Business Jobs and Tax Relief Act, would have provided a 10 percent income tax credit for businesses that hire new employees or increase wages in 2012. The maximum increase in eligible wages would have been capped at $5 million per employer and the tax credit would have been capped at $500,000. The bill also would have extended 100 percent bonus depreciation for business purchases of plant and equipment.

However, lawmakers bickered over extending the current individual income tax rates, with Republicans insisting on extending them for taxpayers at all income levels and Democrats supporting President Obama’s policy of extending them only for taxpayers earning less than $250,000 a year. Obama gave a speech Monday urging Congress to extend the current tax rates for the middle. Republicans wanted to add an amendment to the small business bill to allow the current income tax rates to be extended for another year, but Democrats blocked that move on Wednesday.

Republicans had also tried to add an amendment containing President Obama’s proposal to extend the current tax rates for only those earning under $250,000, in an effort to embarrass Democrats who are wary of being accused of increasing taxes in an election year. But Democrats blocked that amendment as well, saying that it did not include provisions for the alternative minimum tax, estate tax and dividend tax. Democrats have also said they are still drafting their version of the legislation to extend the tax cuts. They later offered Republicans an opportunity to offer up their amendments for a straight up or down vote without the possibility of a filibuster. But that offer was rejected as the Democrats hold a slight majority in the Senate, and the Democratic proposal was expected to pass, according to The Wall Street Journal.

On Thursday, Senate Republicans blocked the small business bill, which received a vote of 53 to 44, falling short of the 60 votes need to cut off debate. A few lawmakers crossed party lines, with Senators Scott Brown, R-Mass., and Dean Heller, R-Nev., voting with Democrats, and Joe Manchin III, D-W.Va., siding with Republicans, according to the Los Angeles Times.

Senate leaders traded accusations amid the political jockeying. “The legislation Republicans blocked was a common-sense proposal that provided small businesses with two tax cuts designed to create jobs,” said Senate Majority Leader Harry Reid, D-Nev., in a statement. “Under our proposal, small businesses would have received a 10 percent tax cut on the amount by which they increase their payrolls this calendar year. And to help them expand, small businesses would have been allowed to write off 100 percent of the cost of any major equipment or software they purchase. Unfortunately, Republicans played their usual games of obstruction and opposition. There was simply no reason to oppose this bill on the merits, so Republicans manufactured reasons to kill it out of thin air. Republicans claimed they wanted amendment votes, but refused to take ‘yes’ for an answer when I offered them votes on those very amendments. Senator McConnell made it clear that his ‘single most important’ goal is defeating President Obama. It’s sad that the middle class has to suffer for Republicans to achieve their political aims.”

McConnell, for his part, took aim at the Democratic side. “So yesterday the Democrat Majority leader did what the White House told him to: he made sure there wasn’t a vote on a proposal that a President of his own party demanded two days earlier—and then offered a vote today on a bill that isn’t even written, and only if Democrats and Republicans give up their ability to offer amendments to the Reid bill,” McConnell said Thursday. “This is the kind of absurdity you get when you’ve got a governing party that’s more concerned with winning an election than in facing up to the consequences of the President’s failed economic policies. But it gets even more absurd than that—because the Democrat Majority Leader didn’t just block us yesterday from having votes on whether to raise taxes or not. He wouldn’t even let us have a debate about it.”

McConnell noted that the Democrats have still not produced their own legislation to extend the tax cuts. “And yet here’s the Democrat-controlled Senate, blocking votes, blocking debate, and hosting private meetings with the President’s political advisors on political strategy instead of working on serious, bipartisan solutions,” he said. “Last night, Democrat leaders admitted that the bill they wanted Republicans to turn to hadn’t even been written yet. Think about that: the proposal the President announced Monday with so much fanfare hasn’t even been put on paper yet. And yet Democrats wanted us to move to it. Move to what? A speech? This is the level of seriousness we’re seeing from the Democrat-controlled Senate. This is how seriously they take this economy crisis. It’s nothing but a political game to them. If the President has a proposal, we’ll be happy to send an intern down to the White House to pick it up. But we can’t vote on a speech. And, frankly, we can’t continue like this. It’s long past time Democrats at the White House and in the Senate took the lives and challenges of working Americans as seriously as they take politics. It’s time to put childish things aside and get to the business of the people.”

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Property Tax Lien Sales Lead to Elderly Losing Homes

An eye-opening report sheds a harsh light on the growing trend of sales of property tax liens to unscrupulous profiteers, all too often forcing the elderly and impoverished out of their homes due to outstanding tax debts.


The report, from the National Consumer Law Center, found that some homeowners who owe as little as a few hundred dollars in unpaid property taxes are losing their homes at the hands of investors who specialize in buying up liens. The report warns that the practice could lead to a second foreclosure crisis.

“The tax sale procedures in most states are exceedingly complicated and are generally understood only by investors and purchasers,” wrote NCLC attorney John Rao in the report. “Inadequate notice and a lack of judicial oversight over the process leave many homeowners in the dark about steps they can take to avoid a home loss. Homeowners most at risk are those who have fallen into default because they are incapable of handling their financial affairs, such as individuals suffering from Alzheimers, dementia or other cognitive disorders.”

Tax lien sales have proven to be a good investment for those who are tempted to take advantage of “get rich quick” schemes. While most banks currently only provide interest rates on deposits of less than 1 percent, some states are allowing the purchasers of tax liens to earn interest rates as high as 20 to 50 percent, the report noted. That’s one reason why tax lien sales are frequently promoted on the Web and though late-night TV infomercials.

Meanwhile, homeowners can lose huge amounts of the equity they have paid over the years just because they have neglected to pay a tax lien or misunderstood an arcane notice they received in the mail. A tax lien sale can begin even when a homeowner only owes a few hundred dollars. A $200,000 home can be sold at a tax lien sale for just $1,200, the report noted.

The bidding procedures, which are often biased against homeowners, can mean they end up losing not only their home but also thousands or even hundreds of thousands of dollars in equity that represent their only savings for retirement. Tax lien sales can destabilize communities, and few states have procedures in place to protect owners’ equity interests or avoid windfalls to purchasers.

Before a home can be foreclosed upon, owners are supposed to have a right to redeem their property by paying the purchaser of the tax sale the purchase price along with any interest, penalties and costs within the time period allowed by statute, the report points out. The failure to redeem then leads to foreclosure. However, investors and financial firms that purchase the tax liens sometimes tack on expensive legal fees and neglect to tell homeowners that they can buy back the tax lien without paying all the legal costs.

While tax lien laws allow local governments to recoup the tax revenue they need to provide services for taxpayers, states only rarely update their laws to reflect current economic conditions or make certain that they have the necessary safeguards in place to avoid the loss of homes.

The report cites the case of a Baltimore homeowner whose home was sold because of a $362 unpaid water bill. When she could not come up with the $3,600 she needed to redeem her home after interest, penalties and legal fees were added to the redemption costs, she was evicted from her home.

In another case, an 81-year-old Rhode Island homeowner was evicted two weeks before Christmas from the home she had lived in for over 40 years just because she fell behind on paying off a $474 sewer bill. A corporation bought her house at a tax sale for $836.39 and then resold it for $85,000.

In some cases, the tax lien bidders work together to make sure the interest rate is as high as possible on the tax liens they bid upon. There have also been cases where they were worked with corrupt local officials. The report cites the case of a former county treasurer in Illinois who received tens of thousands of dollars in campaign donations from tax lien investors from 1998 to 2009. In turn the interest rates for tax certificates averaged 18 percent in his county, compared to 2 percent in nearby counties. And some of the same banks that were involved in the last financial crisis are also making a big profit off of tax lien sales.

The report includes some key recommendations for states and localities to follow to make the process fairer for homeowners. For example, the NCLC recommends that state laws should be reformed to limit the maximum interest or penalty rate on redemption amounts to reflect current economic conditions, in order to discourage speculation and promote redemption. “States also should not permit investors to pad their profits by charging homeowners unreasonable fees to redeem after the foreclosure process has been initiated,” said the report. “State law should establish a maximum fee schedule based on reasonable, market rates for title searches, attorneys’ fees, and other fees.”

States also should limit the initial tax sale to the sale of a tax lien certificate, rather than granting an entire interest in the property to a purchaser, the report suggests. If a homeowner fails to redeem the property, state law should require the purchaser to seek a court order authorizing final sale of the property. The court should confirm the final sale results and ensure that the sale price is fair and that any surplus funds are promptly paid to the homeowner.

Local tax offices should also collect redemption payments to eliminate the possibility that an unscrupulous purchaser may thwart the owner’s attempt to redeem. The local tax office should accept partial and installment payments. Adequate notice needs to be given at every stage of the tax sale process. Notifications should be used as a tool to avoid loss of homeownership. Comprehensive notices should use plain language, include information about tax exemptions, abatements, and repayment plans, and note the consequences of each stage of the tax sale process.

In one example cited in the report, a notice issued in New Castle, Del., was called a “praecipe for monition.” The notice needs to provide all of the essential details on how the redemption right can be exercised, including the name and address to which the homeowner can send the payment, along with the itemized costs, and the deadline for the redemption payment.

These seem like reasonable guidelines to make sure the property tax lien process works fairly and does not encourage unscrupulous investors to take advantage of impoverished homeowners. Otherwise we could see a repeat of the mortgage crisis.

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IRS Announces Efforts to Help U.S. Citizens Overseas, Including Dual Citizens and Those with Foreign Retirement Plans

Issue Number:    IR-2012-65


WASHINGTON — The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.

“Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues,” said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs).  Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans).  In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.

Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.

The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens.  See IR-2012-64 for more details.

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