U.S. taxpayers with foreign assets should act fast to take advantage of other programs
The discontinuation of the Offshore Voluntary Disclosure Program (OVDP) marks the end of an era for the IRS and for U.S. taxpayers with foreign assets. Those who have not yet declared all of their overseas accounts now have fewer options, and time is of the essence.
Earlier this year, the IRS announced it would close the program to new participants by September 28, 2018. Taxpayers who still would like to participate in this program must send the application letter and the related attachments to the IRS postmarked by that date.
Since the launch of the OVDP in 2009, more than 56,000 taxpayers have embraced this opportunity and come forward voluntarily to avoid substantial civil penalties and the risk of criminal prosecution. The IRS has collected about $11.1 billion in back taxes, interest and penalties through the program.
While the Offshore Voluntary Disclosure Program has been successful in the past, the number of participants has been declining. With recent advancements in technology and the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2010, it has become very difficult for U.S. taxpayers to leave their foreign assets undisclosed.
Act quickly, but don’t panic
In its announcement about the end of the OVDP, the IRS emphasized that stopping offshore tax non-compliance and tax evasion remain a top priority.
As the OVDP will no longer be available after September 28, 2018, we recommend that taxpayers who are not in compliance do not panic, but do act quickly.
There are still other programs available to help taxpayers come forward about their foreign assets, and in some cases, these other programs may be more beneficial as a result of lower penalties.
Other programs available for taxpayers
Streamlined Filing Compliance Procedures
One of the programs available for U.S. taxpayers who still need to disclose their foreign assets is Streamlined Filing Compliance Procedures. The penalties are as low as 0%- 5% of the highest balance of undisclosed accounts or foreign assets – much lower than the 27.5% the OVDP offered. However, there are some additional criteria taxpayers need to meet in order to qualify for this program. These requirements vary depending if the taxpayer lives inside or outside of the United States (Streamlined Domestic Offshore Procedures versus Streamlined Foreign Offshore Procedures).
One of the key components of this program is that the taxpayer needs to certify under penalties of perjury that his or her conduct was non-willful. In some circumstances, this may be difficult, so the taxpayer’s options to come forward may be limited.
A significant consideration is that the taxpayer could still face additional penalties, or even criminal indictment, if the IRS later determines his or her behavior was willful.
Delinquent FBAR Submission Procedures and Delinquent International Information Returns
Two other options for compliance are the Delinquent FBAR Submission Procedures and Delinquent International Information Returns. These programs are available for taxpayers who had found errors or omitted submitting their offshore compliance forms and have a Reasonable Cause Statement for not timely filing these information returns.
The IRS has indicated that taxpayers who have unreported income or unpaid tax are not precluded from filing delinquent international information returns.
One key component for these programs is that the taxpayer should certify, as part of the Reasonable Cause Statement, that any entity for which the information returns are being filed was not engaged in tax evasion.
The downside is that if the IRS does not accept the explanation of Reasonable Cause, it may impose several additional penalties.
Qualifying taxpayers should consider participating in the IRS disclosure programs that are still available, as mentioned above. It’s important to act quickly, because similar to the OVDP program, the IRS has the discretion of ending these programs at any time.
Contact me or another member of Kaufman Rossin’s international tax team to learn more about the end of the Offshore Voluntary Disclosure Program and the other options that are still available.