This is the third article in a series regarding Frequently Asked Tax Questions relating to the Internal Revenue Service’s (IRS’s) Offshore Voluntary Disclosure Program (OVD Program). This series is intended to answer program participants’ most common questions. The first and second posts in this series, offering a basic description of the OVD Program and some of the core requirements, can be found here and here.
Question: What are the requirements for taxpayers who are disclosing a financial account or offshore entity in the IRS’s OVD Program?
Answer: If a taxpayer is disclosing an offshore financial account in the OVD Program, that taxpayer must provide the IRS the following items:
1. Copy of the filed Forms TD F 90-22.1 (FBARs) for foreign accounts maintained during calendar years covered by the voluntary disclosure. You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the taxpayer is filing the FBARs as part of the OVD Program.
2. All applicants disclosing offshore financial accounts with an aggregate, highest account balance in any year of $500,000.00 or more, must provide a copy of the offshore financial account statements reflecting all account activity for each of the tax years covered by their voluntary disclosure. Provide an explanation for all the differences between the amounts reported on the account statements and the corresponding tax returns. Even if the aggregate highest account balance is less than $500,000.00, you still need to have a copy of the offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure to be available upon the IRS’s request.
If a taxpayer is disclosing an offshore entity in the OVD Program, that taxpayer must provide the following items:
1. A statement identifying all offshore entities for the tax years covered by the voluntary disclosure, whether held directly or indirectly, and the taxpayer’s ownership or control share of such entities.
2. When a taxpayer holds accounts or assets in the name of a foreign entity, complete, accurate amended, or original, if delinquent, the IRS requires that information returns be filed, including, but not limited to, Forms 3520, 3520-A, 5471, 5472, 926, and 8865 for all tax years covered by the voluntary disclosure. If a taxpayer is requesting that the IRS waive the information reporting requirement, the applicant should submit a completed and signed Statement on Dissolved Entities.
If a taxpayer is an executor or advisor of an estate, provide complete and accurate amended estate or gift tax returns, or original estate or gift tax returns, if not previously filed, for the tax years covered by the voluntary disclosure necessary to correct the underreporting of assets held in or transferred through undisclosed foreign accounts or foreign entities.
The above list is not intended to be dispositive. Depending on the facts and circumstances of the taxpayer’s case, there may be additional information and documentation that should be provided. Prior to making any disclosure, we recommend contacting a tax professional to review your case and determine what to provide the IRS.