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What the Increased 50% OVDP Penalty Means for You

Last summer, the IRS announced sweeping changes to its ongoing offshore compliance initiatives. The biggest change was the announcement of new Streamlined Compliance Procedures. Under these procedures, eligible taxpayers who resided in the United States can qualify for a reduced offshore penalty of 5%, with those who resided outside of the U.S. paying no penalty at all.

At the same time, the IRS also increased the penalty for participants in the Offshore Voluntary Disclosure Program (OVDP) from 27.5% to 50%, if the taxpayer had accounts at a foreign financial institution or facilitator that has been publicly identified as being under investigation or as cooperating with a government investigation. Currently, the list of such financial institutions includes the following:

  1. UBS AG
  2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
  3. Wegelin & Co.
  4. Liechtensteinische Landesbank AG
  5. Zurcher Kantonalbank
  6. Swisspartners Investment Network AG, swisspartners Wealth Management AG, Swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
  7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
  8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
  9. HSBC India
  10. Butterfield Bank
  11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates
  12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA

This increased penalty, however, does not affect those who are eligible for the Streamlined Domestic Offshore Procedures. Those who are eligible for this program will still pay a 5% penalty, even if their accounts are at one or more of the financial institutions listed above. To be eligible for the reduced 5% penalty, taxpayers must certify under penalty of perjury that their failure to report foreign accounts and income was non-willful. They must file amended tax returns and pay taxes for the three most recent tax years, as well as FBARs for the six most recent years.

Unlike the Offshore Voluntary Disclosure Program (OVDP), the new streamlined procedures do not offer immunity from criminal prosecution. As a result, it is important to discuss the unique facts and circumstances of your case with a qualified attorney to ensure that you are protected.

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