Click here for update November 29, 2018: The new OVDP practice
This move comes as little surprise to us. As the years have progressed since the first 2009 Offshore Voluntary Disclosure Initiative (OVDI), we have had more and more Streamlined Disclosure cases and less and less full OVDP submissions. The reasons? The people who are eligible for the Streamlined program continue to grow, whereas, those who intentionally did not file and did not report their worldwide income and assets have likely already made up their minds about whether or not they wish to comply with the IRS.
For instance, every day there are new US immigrants, Visa holders and Green Card holders who are never told about their IRS and FinCEN reporting obligations on their income and assets back home — until after they made a mistake and need the Streamlined program to reduce exposure to what can be devastating penalties if caught in a tax audit.
And every day, there is another US expat who learns that depsite the foreign income exclusion, foreign income and asset reporting is still required, or significant penalties can be imposed. And further, if a tax debt gets high enough, the IRS can revoke a US passport, making life outside the US impossible for some.
For more on Streamlined Disclosure eligibility, click here.
So what does this mean if you have undisclosed foreign bank accounts and assets?
What it means is that if you intentionally hid assets or income by not filing FBARs, reporting income or assets, and are worried about huge penalties and criminal proseuction you only have until September 28, 2018 to make a full OVDP. You also can lock-in a fixed, albeit high, offshore penalty of 27.5% (or 50% if one of your banks is a blacklisted bank). For common questions and answers on the IRS OVDP click here.
If you are confused about what your best move is or if any move is actually required, or would like a second opinion, do not hestitate to contact us for a confidential consultation.
The March 13, 2018 announcement from the IRS follows.
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IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now
WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.
The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.
The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.
Tax Enforcement
The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”
Streamlined Procedures and Other Options
A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.
The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets. Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:
- IRS-Criminal Investigation Voluntary Disclosure Program;
- Streamlined Filing Compliance Procedures;
- Delinquent FBAR submission procedures; and
- Delinquent international information return submission procedures.
Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.
