Offshore Voluntary Disclosure Program Ends September 28, 2018
The IRS recently announced that it will end its Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018.
To participate in the OVDP before it ends on September 28, 2018, a taxpayer must submit a complete offshore voluntary disclosure. The disclosure must (1) conform to the requirements listed in the 2014 OVDP FAQ 24 (please see FAQ 24 here) and (2) be received or postmarked by September 28, 2018. Acceptable disclosures may not be partial, incomplete, or placeholder submissions. Practitioners and taxpayers must ensure complete submissions by the deadline to request to participate in the 2014 OVDP.
Please see the OVDP FAQs here for an outline of the OVDP sunset provisions.
Benefits of OVDP
Taxpayers holding undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, may benefit from the OVDP because it enables them to become compliant, avoid substantial civil penalties, and generally eliminates the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs.
In contrast, taxpayers simply filing amended returns or filing through the Streamlined Filing Compliance Procedures do not eliminate the risk of criminal prosecution.
Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues.
Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.
Please see 2014 OVDP FAQ 5 and FAQ 6 here for more information regarding civil and criminal penalties that may apply to U.S. taxpayers holding undisclosed foreign accounts and assets.
Please see our past blog articles providing an overview of the OVDP: (1) A Primer In Foreign Bank Account Reporting and (2) Understanding the Basics of the IRS’s Offshore Voluntary Disclosure Program Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.
With the OVDP ending, will the IRS decrease its efforts to identify and penalize U.S. taxpayers with undisclosed foreign financial accounts and assets?
No. The IRS states that it will remain actively engaged in identifying U.S. taxpayers with undisclosed foreign financial accounts and assets. The IRS indicates that this information is increasingly available to the IRS under tax treaties, through submissions by whistleblowers, and from other sources under the FATCA and Foreign Financial Asset Reporting (IRC § 6038D).
The IRS notes in its recent press release that “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.”
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.
FinCEN releases announcement regarding inflation adjustment to FBAR civil monetary penalties
Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, must file an FBAR (Report of Foreign Bank and Financial Accounts, i.e., FinCEN Form 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
A taxpayer may incur significant civil and criminal penalties for noncompliance with the FBAR filing requirements. Civil penalties for a non-willful violation can range up to $10,000 per violation and civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account at the time of the violation.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, has announced the inflation-adjusted increase in the penalty amounts for a failure to file an FBAR reporting an interest in a foreign financial account.
The penalties of up to $10,000 per violation for non-willful violations and the penalties of up to$100,000 per violation for willful violations were adjusted for inflation as follows:
- Penalties assessed after 8/1/2016 but before 1/16/2017: the FBAR penalty for a non-willful failure to report penalty increased to $12,663; the FBAR penalty for a willful failure to report increased to $126,626. A “reasonable cause” exception exists for non-willful violations, but not for willful ones.
- Penalties assessed after 1/15/2017: the FBAR penalty for a non-willful failure to report penalty increases from $12,663 to $12,921, and the penalty for a willful failure to report increases from $126,626 to $129,210.
Please see the IRS website here for more information regarding who must file an FBAR and the FBAR filing requirements.
Please see 31 CFR1010.821 here for the penalty adjustments table.