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taxmanrog , Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 450
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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Tax Attorney - OVDI Background: Taxpayers are retired

Resolved Question:

Tax Attorney - OVDI


Taxpayers are retired and moved to US in year 2007. Their only income was from Pension payments from the government of foreign country. They were claimed as dependents in year 2007 and 2008 on his son tax return. They filed their tax returns with No tax liability for year 2009, 2010 and 2011. During the period of year 2009 to 2011 they received payments from their pension account from the government of foreign country. They did not report on US tax return the foreign bank accounts or interest income from foreign bank accounts because the pension payments were exempt from taxation by double taxation treaty of US and foreign country and the tax on interest income was off setted by foreign tax credit. They have received pre clearance under OVDI

1Q. The OVDI FAQ states that if the taxpayer had no tax liabiity and tax returns were filed the taxpayer is not subject to the OVDI Penalty. Can the taxpayer invoke this relief based on the above background.

2Q. The taxpayers are retired and have no assets except one apartment but have no income. Can they seek any relief under OVDI?

3Q: What happens to the Pension payment of foreign government for State of NJ tax liability?

Please provide specific answers with references of IRC statutes, regulations or any cases.
Submitted: 2 years ago.
Category: Tax
Expert:  taxmanrog replied 2 years ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!


The 2012 Offshore Voluntary Disclosure Initiative(OVDI), like its predecessor programs, the 2009 and 2011 Offshore Voluntary Disclosure Programs, is offered to those taxpayers with undisclosed offshore accounts or assets. This is not a permanent program, and it can be ended at any time.


Under the voluntary program, the IRS is allowing taxpayers to voluntarily disclose foreign assets and the income they generate in exchange for not charging these taxpayers with tax fraud and the criminal penalties that it brings.


In response to your Question 1, even with no tax due, you still have to pay penalties. The penalties you are still open to are:


  • The 20% accuracy-related penalties under IRC § 6662(a) on the full amount of your offshore-related underpayments of tax for all years (in your case, if no tax liability, it would be zero);
  • The failure to file penalties under IRC § 6651(a)(1), if applicable (in your case, zero);

  • The failure to pay penalties under IRC § 6651(a)(2), if applicable (in your case, zero);

  • Then, an amount in lieu of all other penalties that may apply to your undisclosed foreign assets and entities, including FBAR and offshore-related information return penalties and tax liabilities for years prior to the voluntary disclosure period, a miscellaneous Title 26 offshore penalty, equal to 27.5% (in some cases, you can get a 12.5% rate if the account has never had more than $75,000 in it).


If you cannot full pay the penalties, the IRS will allow you to enter into an installment agreement. In order to do this, you must submit a Form 433-A along with the information.


In response to the Question 2, there is no relief available for low income taxpayers or taxpayers with no assets under this program. The FAQs even state that in some instances it is advisable to elect out of the OVDI and go through the regular civil audit procedures. This would allow an assessment of tax, penalties and interest, and you could then make an Offer in Compromise to have the liability reduced or removed under this program. The FAQs are clear in that the OVDI personnel are not allowed any discretion in assessing or removing penalties.


In response to your Question 3, New Jersey residents must pay NJ income tax on all income received, including pensions. The NJ-1040 instructions for Line 19, Pensions (page 21 of the 2012 NJ-1040 instructions) say that the amount may be different than the Federal amount. Therefore, if the pension is not taxable for Federal purposes due to a tax treaty that we have with a foreign country, it is still taxable in full for NJ purposes.


I hope that this answers your questions! If you have any more, please ask away! If my answer has helped you, please rate me highly! I would appreciate that!


Again, thanks! Have a great week!



taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 450
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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