May 16, 2017
IRS to end Offshore Voluntary Disclosure Program on September 28, 2018
On behalf of Lawrence Brown
The program may be advantageous for certain taxpayers who may not be in compliance with offshore account reporting requirements.
The IRS has offered some form of the Offshore Voluntary Disclosure Program since 2009 as a potential way for noncompliant taxpayers to resolve civil liability and avoid criminal liability. According to the agency, over 56,000 taxpayers have taken advantage of OVDP to resolve offshore account reporting and tax liability matters.
After annual OVDP participants declined from a high of about 18,000 in 2011 to only 600 for 2017, the IRS announced in a March 13, 2018, news release that it will end the program on September 28, 2018.
What do foreign assets have to do with U.S. tax reporting and liability?
The IRS does not want U.S. persons to be able to move their banking, investment and income earning activities abroad as a way to evade U.S. taxation. The IRS has stepped up and will continue to prioritize enforcement of offshore account reporting requirements. The agency’s efforts are supported by recent laws, regulations, treaties and international agreements that require or financially motivate foreign financial institutions or FFIs and foreign countries to share information about U.S. taxpayer accounts and earnings with the U.S. government.
The IRS requires U.S. persons to file annually a Form 114, Report of Foreign Bank and Financial Accounts, called an FBAR, electronically with the Financial Crimes Enforcement Network or FinCEN, part of the U.S. Treasury Department, in certain situations. FBARs are required when a U.S. taxpayer has ownership interest or signatory authority over foreign accounts that in combination exceed $10,000 at any point in any given year.
Other reporting requirements may apply. For example, Form 8938 (Statement of Special Foreign Financial Assets) may be required when the value of certain foreign assets exceeds particular levels. Schedule B may be necessary when filing annual returns to report certain foreign account information.
These requirements may apply to citizens (including some with dual citizenship) and resident aliens, whether living here or abroad, depending on the nature and value of offshore assets and earnings. Failure to comply may expose a taxpayer to tax liability, civil penalties, interest and even potential criminal prosecution, depending on the degree of willfulness or negligence.
What does the OVDP do for taxpayers?
Under OVDP, in exchange for voluntarily coming forward to remedy past noncompliance with offshore reporting requirements, the government will forego criminal prosecution when a closing agreement is reached, and limit the size of civil penalties.
There are other similar programs, including the Streamlined Filing Compliance Procedures. It is critically important that anyone who believes that he or she may have been out of compliance with offshore reporting rules speak with an experienced attorney as soon as possible to learn the pros and cons of using the OVDP before it expires, as well as to understand whether other options might be good choices.
What is next?
Before the OVDP ends on September 28, anyone who may have been noncompliant in U.S. tax reporting or paying responsibilities involving offshore accounts, foreign assets or income earnings abroad should consult legal counsel now, before the OVDP is no longer an option for potential resolution.
The IRS is requiring that to meet the September 28 deadline, a full, complete application for consideration for the program be submitted by that date, so the sooner a tax lawyer is consulted, the better the chance for participation, if that is the chosen path for resolution of offshore account issues with the IRS.
The legal team at the Fort Worth, Texas, law firm of Brown, PC, represents U.S. taxpayers in Texas, across the nation and around the world in tax matters related to offshore accounts and foreign assets, including advising them about the OVDP and other ways to resolve offshore account issues.