The IRS Offshore Voluntary Disclosure Program (OVDP) has been an opportunity for U.S. taxpayers who failed to report foreign income and assets to become compliant, pay back taxes, lower their potential penalties and avoid criminal prosecution. The OVDP has been in effect in various incarnations since 2009, coinciding with U.S. Department of Justice (DOJ) offensive against foreign banks, bankers and U.S. taxpayers who committed tax fraud, and the implementation of FATCA (the Foreign Account Tax Compliance Act). Thus, while the government went after wrongdoers, it also encouraged voluntary compliance via the OVDP, with the reward of leniency and lower penalties. The IRS announced in March that the OVDP will close on September 28, 2018.
If readers have foreign assets and are not in IRS compliance, now is the time to address the issue. Soon, it will be more difficult, and probably more expensive, to become compliant. A few items to keep in mind:
- The IRS “Streamlined Compliance Procedures” will continue to be an option for those taxpayers whose non-compliance was non-willful, i.e., unintentional. Taxpayers have to certify their non-willfulness under penalties of perjury. The standards of non-willfulness are high.
- The OVDP submission must be completed and submitted by September 28, 2018. This means that the taxpayer must go through the steps of obtaining pre-preclearance and preliminary acceptance by the Criminal Investigations (CI) Division of the IRS, obtain all relevant foreign financial statements from foreign sources, plus amend as many as eight years of income tax returns – – all by September 28, 2018.
- Penalties inside the OVDP (27.5% of the highest aggregate value of the foreign assets) are almost certainly higher than penalties if discovered by the IRS. Penalties outside the OVDP include as much as a 50% penalty for failure to file the FBAR (Report of Foreign Bank and Financial Accounts), penalties for failure to file IRS Form 8938, penalties for substantial understatement of tax, civil and criminal tax fraud penalties, as well as criminal prosecution.
- Taxpayers who avoid the OVDP and its 27.5% penalty and merely file amended tax returns (known as a “quiet disclosure”) will be specifically targeted by the IRS for additional penalties.
The OVDP presents an opportunity to bring unreported offshore assets into IRS compliance and avoid more onerous penalties and costs. This opportunity will end on September 28, 2018. In light of FATCA, cooperation by foreign banks, IRS summonses, subpoenas and information sharing agreements with foreign governments, continued non-compliance is very risky and inadvisable. Please contact us to discuss US reporting options for offshore assets.