***Updated Offshore Voluntary Disclosure Program information can be found here***
The IRS has just clarified its rules and created a new 'streamlined' Offshore Voluntary Disclosure Initiative (OVDI) for smaller cases involving expatriates who failed to properly disclose income. The IRS has not legalized or condoned the soft- disclosure and gives the same warning to taxpayers who commit such a soft-disclosure or tax professionals who advise clients to make a so-called 'soft-disclosure.' Because of the confusion, we have created this FAQ to help you decide if you will benefit from any of the new 2012 OVDP rules and clarification.
IMPORTANT NEWS: The IRS may deny you entry into the OVDI if your banker is under investigation or audit. If you are thinking of entering into the OVDI program, it is imperative that you do not delay.
1. I don't have any unreported income. I simply forgot to file my FBARs What should I do?
- File the missing FBARs, with a penalty abatement letter giving a good reason why you failed to file an FBAR (This is a service that we have been providing for clients who are leery about communicating directly with the IRS.) Entry into the OVDP is not required.
2. I have unreported income and missing FBARs or other information returns, however, when I amend my returns because my unreported income was so small or the foreign tax exclusion nullified any additional income, I actually have no additional tax due, what should I do?
- Just like #1 above, file the missing FBARs, with a penalty abatement letter giving a good reason why you failed to file an FBAR. This is a common occurrence in cases where income earned abroad is small and/or foreign income tax exclusion does not change the income tax liability. (Again, this is a service we offer for clients who really don't want to communicate one-on-one with the IRS.)
3. I am an expatriate US taxpayer with unfiled returns and less than $1000-1500 (irs.gov is ambiguous) due in taxes.What should I do?
- The IRS has instituted a new program that allows taxpayers to file the last three years of missing returns and last three years of FBARs, along with payment with interest. Note: This program is only available if NO TAX RETURNS WERE FILED.If you are amending returns, you CAN NOT use this program. This new procedure was implemented to address the fact that many US taxpayers were not even aware that they were "US persons" for tax purposes. Typically people born in the US to non-US citizens or Canadian citizens who came across the border to be born.Under the 2012 OVDP, the taxpayer is not shielded from prosecution.
4. What about soft-disclosure or anyone else not covered who has unreported income and missing FBARs?
- The 2012 OVDP MUST be used. So-called soft or quiet disclosure is still not allowed and the IRS tells us that they will be looking for people making a soft-disclosure and will be looking to convict any tax professional who is advising and assisting taxpayers to make a 'soft-disclosure.' The negative implication of all these rules is that the IRS will not tolerate so-called 'soft-disclosures' as they have been saying all along. This 2012 OVDP update, at first blush, and aside from the procedure referred to in #3, isn't all that surprising to us. #1 and #2 have been the unwritten policies we first learned about from both people we talked to around the IRS and Department of Treasury.
Note: Previously, the IRS referred to the Offshore Voluntary Disclosure Initiative. Now they have been referring to it as the Offshore Voluntary Disclosure Program. So we are now referring to the the 2012 OVDI as the 2012 OVDP, but there is no substantive difference between the two terms.
If you're unsure of the steps you should take, contact us. Any information you share with us will be kept confidential. We have helped thousands of taxpayers get into compliance. Call us at 888-727-8796 or email email@example.com.