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In January 2012, the IRS announced a new Offshore Voluntary Disclosure Program (OVDP) available to taxpayers with undisclosed foreign assets. The 2012 OVDP is similar to the IRS’ 2009 OVDP and 2011 OVDI, but the 2012 OVDP is (for the time being) open-ended.
The 2012 OVDP is designed to allow taxpayers to come clean with the certainty that they will not face criminal prosecution for not previously disclosing their overseas accounts. Taxpayers have the added benefit of receiving a fixed penalty structure for settlement of past non-compliance.
In order to enter into the Offshore Voluntary Disclosure Program, taxpayers must: Provide copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure; Provide complete and accurate amended federal income tax returns for all tax years covered by the voluntary disclosure; File complete and accurate original or amended offshore-related information returns, including Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) for tax years covered by the voluntary disclosure; and cooperate in the voluntary disclosure process, including providing information on offshore financial accounts, institutions and facilitators, and signing agreements to extend the period of time for assessing liabilities and FBAR penalties;
In exchange for their voluntary compliance and information exchange, taxpayers will be assessed a miscellaneous penalty in lieu of all other penalties that may apply to their undisclosed foreign assets and entities, such as FBAR and offshore-related information return penalties and tax liabilities. Generally speaking, the miscellaneous penalty is equal to 27.5% of the highest aggregate balance in all foreign bank accounts (or foreign assets) during the period covered by the voluntary disclosure. Additional penalties on the taxpayer’s unreported income during the disclosure period may also apply, as well as penalties for failure to file a tax return or pay tax due, if applicable.
On June 18, 2014, IRS announced significant changes to the 2012 OVDP program, including an expansion of the streamlined filing procedures introduced in 2012. According to IRS, the revisions are intended to allow more taxpayers to participate and to better account for taxpayers who have failed to disclose foreign accounts but didn’t willfully evade their tax obligations. For eligible U.S. taxpayers residing in the U.S., the only penalty under the streamlined procedures will be a miscellaneous offshore penalty equal to only 5% of the foreign financial assets that gave rise to the tax compliance issue.
The attorneys at Tax Law Center have experience navigating both the 2011 and 2012 offshore disclosure programs and the more recent June, 2014 changes. In addition, there are alternative methods of disclosure to comply with the law while avoiding the harsh penalty framework of these voluntary programs. If you have unreported assets overseas and are concerned that you may have outstanding FBAR or other offshore asset filing requirements, schedule a consultation with the experienced tax attorneys at Tax Law Center today.