IRS OVDP Offshore Disclosure Program Ending Soon!
On March 13, 2018 the Internal Revenue Service (IRS) announced that the Offshore Voluntary Disclosure Program (OVDP) will be ending on September 28, 2018. The OVDP allows taxpayers to come forward and voluntarily disclose previously undeclared offshore accounts in return for a promise of reduced monetary penalties and the opportunity to avoid criminal prosecution. With OVDP closure only a few short months away, taxpayers need to act now to take advantage of the safe haven from criminal prosecution that comes with completing the program and the IRS issuance of the Form 906, Closing Agreement.
Overview of the IRS Offshore Voluntary Disclosure Program
First launched in 2009, the Offshore Voluntary Disclosure Program (OVDP) served as a critical tool in the U.S. government’s efforts to crack down on tax evasion associated with foreign accounts. The OVDP was designed to help taxpayers with undisclosed offshore accounts and assets come into compliance with U.S. tax laws. In short, the 2009 OVDP created an incentive for taxpayers to come forward and voluntarily report previously undisclosed foreign accounts by offering reduced monetary penalties and the opportunity to avoid potential criminal prosecution.
While the 2009 OVDP only remained in effect until October of 2009, the IRS rolled out subsequent voluntary disclosure programs, including the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the 2012 Offshore Voluntary Disclosure Program. The IRS’s current offshore voluntary disclosure program was launched in 2014 (OVDP 2014). With the recent announcement that this program is set to end on September 28th of this year, the IRS is urging taxpayers who have previously undisclosed foreign assets to voluntarily step forward now to report these assets.
If you have undisclosed offshore assets and accounts and are questioning whether you need to act now, you should discuss your situation with the experienced tax law professionals at Thorn Law Group. While participation in the OVDP can potentially save you substantial amounts of money and allow you to avoid harsh penalties, you must qualify for the program in order to participate. Additionally, even if you meet the eligibility criteria, the OVDP may not be the best option for you. Before you make any decisions, below are some important factors you should know about the OVDP and the IRS’s decision to bring the program to a closure.
- Objective of the Offshore Voluntary Disclosure Program
- What Are the Benefits of Making a Voluntary Disclosure to the IRS?
- How to Determine If the OVDP Is Right for You
- Why the IRS Is Ending the 2014 Voluntary Disclosure Program Now
The IRS launched its initial OVDP in 2009 with the objective of encouraging taxpayers with undisclosed offshore accounts and assets to come forward to admit past failures and submit disclosures required under U.S. tax and related laws. Although the 2009 OVDP came to a close on October 15, 2009, subsequent IRS voluntary disclosure programs, including the 2011 OVDI, the 2012 OVDP and the 2014 OVDP, were established with the same underlying objective as the initial 2009 OVDP.
Because the OVDP offers participants the promise of reduced civil penalties and the opportunity to avoid potential criminal prosecution, the program creates a strong incentive for taxpayers to come forward and voluntarily disclose offshore accounts that were previously unreported. In fact, the IRS reports that since the initial rollout of the 2009 OVDP, more than 56,000 taxpayers with undisclosed foreign accounts and assets have used the IRS’s voluntary disclosure programs to come into compliance with the law.
If you don’t participate in the program and the IRS conducts an examination of your activities, you could face harsh civil penalties. For example, if you willfully failed to file a Foreign Bank Account Report (FBAR), the government could impose a civil penalty amounting to the greater of $100,000 or 50 percent of the total balance of the offshore account for each violation. Even if the IRS finds that your failure to file the FBAR was not willful in nature (but was not due to reasonable cause), you could be subject to a $10,000 penalty for each violation. Moreover, beginning with the 2011 tax year, if you failed to file IRS Form 8938 (reporting of taxpayer’s interests in specified foreign financial assets), you could face a $10,000 penalty for each Form 8938 that you failed to file with the IRS. Additionally, beginning 90 days after you received notice of your delinquency, the government can tack on an additional $10,000 penalty for every month that you failed to file the information return, up to a maximum total of $50,000 per return.
Beyond the civil penalties, if the IRS conducts an examination you could face several different criminal charges, depending upon the particular facts and circumstances of your case. Possible criminal charges include tax evasion, failing to file a federal income tax return, or filing a false income tax return. Additionally, a willful failure to file an FBAR and the willful filing of a false FBAR are both subject to criminal prosecution. All of these crimes come with harsh fines and penalties, including the possibility of a substantial term in prison.
For eligible taxpayers, making a voluntary disclosure under the current IRS OVDP offers an opportunity to avoid potential criminal prosecution and the promise of reduced civil penalties. While the offshore voluntary disclosure program penalties may still be substantial, they are typically less than the penalties a taxpayer would be subject to if the government discovered the undeclared accounts through its own investigation or examination.
Even though the IRS voluntary disclosure programs have created a strong incentive for taxpayers to come forward and make a voluntary disclosure, the OVDP is not the right choice for everyone. In order to participate in the IRS disclosure program, taxpayers must comply with strict requirements, including reporting all of their offshore assets and any income that was not declared on earlier tax returns. Taxpayers must also provide amended tax returns as well as detailed information on the banks and financial institutions where their accounts were held. Additionally, taxpayers are required to any pay back taxes along with the applicable offshore penalties.
The decision to participate in the OVDP should only be made after careful consideration. Tax lawyer Kevin E. Thorn can help you evaluate the potential benefits and risks associated with the OVDP and other alternatives so that you can make an informed decision on how to handle your undeclared foreign accounts and assets.
While over 56,000 disclosures have been made under the 2014 OVDP and its earlier predecessor programs, Acting IRS Commissioner David Kautter explained that the IRS has always made it clear that the OVDP would end at the “appropriate time” and that now is the appropriate time to do so. The IRS further explained that by making the announcement this March, taxpayers with undisclosed offshore accounts would still have time to participate in the program.
With so many taxpayers having taken advantage of the program to date, many people are left wondering why the IRS has decided to bring the program to a close. The IRS points to the fact that the number of annual voluntary disclosures reached a high of 18,000 in 2011, but steadily declined in the following years. In 2017, only 600 disclosures were made under the OVDP. Moreover, the IRS noted that the planned end of the program was also a result of “advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.”
While the OVDP may be ending on September 28, 2018, Don Fort, Chief, IRS Criminal Investigations, explained that combatting offshore tax avoidance and non-compliance will remain a “top priority” at the IRS. He further noted that information technology tools, including advances in data analytics, will be used to help uncover the identity of people with undisclosed foreign accounts.
In its announcement, the IRS also confirmed that it will continue to offer other options for taxpayers with foreign financial assets to address previous failures to comply with U.S. tax laws, including the IRS Voluntary Disclosure Streamlined Submission Process, as well as the IRS Criminal Investigation Voluntary Disclosure Program, the Delinquent FBAR Submission Procedures and the procedures for delinquent international information return submissions.
What Can I Do If I Have Undisclosed Offshore Accounts?
If you have previously undisclosed offshore accounts, you still have time to participate in the IRS’s offshore voluntary disclosure program. However, the window of opportunity will be closing in a few short months, so it is critical to take action now. If you fail to act before the 2014 OVDP is eliminated, you will not be able to take advantage of the potential safe haven from criminal prosecution that comes with completing the program and executing a Closing Agreement On Final Determination Covering Specific Matters (Form 906) with the IRS.
Thorn Law Group has helped hundreds of taxpayers participate in OVDP programs so that they can bring their unreported foreign bank accounts into compliance with legal requirements. Our tax attorneys understand the ins and outs of how voluntary disclosure programs work, and we will guide you through the process from start to finish. We are aware of the potential benefits and risks associated with the various IRS disclosure initiatives, and we will make certain that you have complete and accurate information to make the best decision for your individual situation.
Will the IRS Still Make the Streamlined Procedures Available to Taxpayers?
Unlike the full 2014 OVDP, the IRS streamlined submission process for the reporting of previously undisclosed foreign financial assets is still slated to continue after September 28th. The streamlined submission process creates an incentive for taxpayers with undeclared offshore accounts to voluntarily report these accounts in exchange for an offer of reduced penalties. Taxpayers who meet the qualifications and want to participate in the program must comply with several requirements, including:
- Submitting FBARS and amended tax returns to the IRS for all years in which the taxpayer failed to submit required reports; and
- Making a payment of back taxes and interest along with a five percent penalty for unreported offshore income. The penalty calculation is based upon the highest combined value of the unreported offshore accounts at the end of the years for which the amended tax returns are filed.
Depending upon your specific circumstances, you may be eligible to take advantage of these streamlined procedures and reduced penalties. It is important to be aware, however, that the eligibility requirements for the IRS streamlined procedures are strict, and the process is only open to:
- S. individual taxpayers (or estates of U.S. individual taxpayers) residing either inside or outside of the United States
- S. individual taxpayers who have a valid taxpayer identification number (TIN)
- Taxpayers who certify that that their failure to report all income, pay taxes and submit required information returns associated with their foreign assets was not willful in nature (i.e., the failure to report offshore accounts was not due to an intentional effort to evade or avoid IRS obligations)
- Taxpayers who are not currently under investigation by the IRS. If the IRS has opened a civil examination of the taxpayer’s returns (even if it is not related to the undisclosed foreign assets) the taxpayer is ineligible for the streamlined process.
Even if you meet all the eligibility requirements, the streamlined program may still not be the right course of action for you. There are potential risks involved and depending upon your individual situation, the IRS may determine that your conduct was, in fact, willful in nature. An experienced tax lawyer at Thorn Law Group can provide you with comprehensive guidance as to whether the streamlined process is the best option to resolve your unreported offshore account tax issues.
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