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IRS to End Offshore Voluntary Disclosure Program


On March 13, 2018, the IRS announced it will be closing the 2014 Offshore Voluntary Disclosure Program (OVDP) effective September 28, 2018. If you currently have undisclosed foreign assets, it is recommended you complete your offshore voluntary disclosures prior to September 28 to take advantage of the program’s benefits before it ends.

OVDP was initially launched in 2009 and has collected about $11.1 billion in back taxes, interest and penalties for the IRS. The various offshore voluntary disclosure programs have enabled U.S. taxpayers to resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.

Generally, taxpayers entering the OVDP have willfully disregarded their tax compliance obligations and are subject to criminal prosecution. By entering the OVDP, the risk of criminal prosecution is eliminated, although taxpayers are still subject to monetary penalties.

Streamlined Filing Compliance Procedures

The Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. In order to be part of the Streamlined Filing Compliance Procedures, the taxpayer must certify that their non-compliance was non-willful. Non-willful conduct is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

The Streamlined program is available to U.S. taxpayers living in and outside of the U.S.

Delinquent FBAR Submission Procedures

FBARs are required to be filed by United States persons (including U.S. residents, entities) if:

  • The U.S. person had a financial interest in or signatory authority over at least one financial account located outside the U.S., and
  • The aggregate value of all foreign financial accounts exceed $10,000 at any time during the calendar year reported.

Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended returns to report and pay additional tax, but who meet the following criteria should file the delinquent FBARS in accordance with IRS guidelines:

  • Have not filed a required Report Foreign Bank and Financial Accounts (FBAR/FinCEN Form 114),
  • Are not under a civil examination or criminal investigation by the IRS, and
  • Have not already been contacted by the IRS about the delinquent FBARs.

Pay-up or Lose Your Passport

The IRS is encouraging taxpayers who are behind on their taxes to pay the balance outstanding or enter into a payment agreement with the IRS to avoid jeopardizing their passport. The IRS is required by the 2015 FAST Act to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. The IRS implemented new procedures earlier this year to be in compliance with the FAST Act, which requires the State Department to deny passport application or renewal to taxpayers categorized as “seriously delinquent” debtors. In some cases, the State Department may revoke their passport.

A seriously delinquent tax debtor is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest and for which the IRS has filed a Notice of Federal Lien and the period to challenge it has expired or the IRS has subsequently issued a levy.

Conclusion

The closing of the 2014 OVDP does not signal a change in IRS priorities toward offshore tax noncompliance. Reducing offshore tax noncompliance and evasion remain top priorities of the IRS. Penalties for failure to disclose foreign financial assets are quite severe. For example, civil penalties for non-willful failure to file an FBAR are $12,921 per violation, and for a willful violation penalties can range up to the greater of $129,210, or 50% of account balance at the time of violation. If you have any questions on your filing requirements, please reach out to Liting Chuang at 425-454-7990.