IRS to End the OVDP in September: Here’s 4 Things You Need to Know About Voluntary Disclosures

Are You a U.S. Taxpayer With Unreported Offshore Accounts? Time is Running Out to Disclose Your Foreign-Held Assets!

On March 13, 2018, the IRS announced that the Offshore Voluntary Disclosure Program (OVDP) will be closing effective September 28, 2018. With only a few months left in the program, taxpayers with undisclosed foreign financial assets may be asking themselves whether now is the time to come forward to make a voluntary disclosure to the IRS. If you find yourself in this situation, our OVDP lawyers have outlined four things you need to know about the OVDP and the IRS’s decision to bring the program to a close this upcoming September. 

1. What Is OVDP and What Are Its Goals?

The IRS rolled out its first Offshore Voluntary Disclosure Program in 2009 in an effort bring taxpayers with undisclosed foreign accounts and assets into compliance with U.S. tax laws. Although the 2009 OVDP ended in October of the same year, the IRS launched subsequent voluntary disclosure initiatives, including the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the 2012 OVDP. All of these initiatives, including the current 2014 OVDP, were designed to crack down on tax evasion and tax avoidance associated with offshore accounts. By offering reduced monetary penalties and the opportunity to minimize the chance of criminal prosecution, the government created a strong incentive for taxpayers to step forward and make a voluntary disclosure of previously unreported foreign financial assets.

2. Rationale for Closing the IRS Offshore Voluntary Disclosure Program

Although the voluntary disclosure programs have been very successful, with over 56,000 taxpayers to date using the programs come into compliance with U.S. tax laws, the IRS has determined that now is the “appropriate” time to close the program. The IRS notes that participation in the OVDP reached a high of 18,000 participants in 2011, but that number has steadily declined to a low of only 600 disclosures in 2017. The IRS further explained that advances in third-party reporting, along with a heightened awareness of the tax obligations and reporting requirements applicable to offshore accounts, contributed to its decision to end the current OVDP. Despite the closure of the program, the IRS asserted in its announcement that combating offshore tax evasion and non-compliance will continue to remain top priorities of the IRS.

3. With OVDP Ending in 2018, How Can Taxpayers Disclose Offshore Accounts After the OVDP CLOSING?

Although the 2014 OVDP will end in September, the IRS explained that it will continue to offer other alternatives to disclose offshore accounts. After the OVDP closing, taxpayers can report foreign assets via:

• IRS Streamlined Voluntary Disclosure Submission Process
• IRS Criminal Investigation Voluntary Disclosure Program
• Procedures for Submitting Delinquent FBARs
• Procedures for Submitting Delinquent International Information Returns

That being said, these options may work for everyone. For this reason, taxpayers wishing to report offshore accounts should speak with an experienced OVDP attorney prior to making any decisions regarding foreign asset disclosure. 

4. The OVDP Is Not Always the Right Option for Everyone

While the OVDP closure means that taxpayers looking to make a voluntary disclosure and avoid potential criminal prosecution through the IRS issuance of Form 906 (Closing Agreement) must act quickly, it is important to recognize that the OVDP is not necessarily the best option for everyone. Participants must satisfy strict requirements and highly intrusive disclosure and reporting obligations, along with the payment of back taxes and applicable offshore penalties. Depending upon your individual situation, there may be other IRS programs, including the IRS Streamlined Filing Compliance Procedures, open to you. An experienced offshore tax attorney at Thorn Law Group can evaluate your situation and help you determine the best approach to resolve any offshore account issues that you may have.

OVDP FAQs

The IRS Voluntary Disclosure Program has evolved over the years. Naturally, this can leave taxpayers with several questions on how best to tackle any foreign accounts that have not been reported as well as how to disclose their asset information in general. Our OVDP lawyers understand how confusing the program can be and how a simple oversight can lead to thousands – or even millions – of dollars owed in back taxes and penalties. Below is a comprehensive list of IRS voluntary disclosure FAQs that can help taxpayers holding offshore accounts.   

Q. OVDP vs. Streamlined: What’s the Difference?

A. The traditional OVDP program is meant for “willful violators,” meaning taxpayers who admit they did not disclose foreign account information. Willful violators are more likely to face strict IRS penalties and consequences. The Streamlined Offshore Disclosure Program is meant for taxpayers who did not “willfully” break any tax laws and who, upon discovering an issue with their offshore account disclosure, wish to resolve them of their own accord and prior to being investigated by the IRS. 

Q. Should I Participate in the Streamlined OVDP Program or Traditional OVDP?

A. If you knowingly withheld or underreported information regarding your offshore accounts and if there is evidence the IRS can use to prove you were a “willful” tax violator, the traditional OVDP program is the better option. However, before making a decision, it is in your best interest to speak with an experienced voluntary disclosure attorney who can review the individual details of your situation and provide you with your best options. 

Q. What Is the Difference Between Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures?

A. Streamlined domestic offshore procedures are meant for “non-willful” taxpayers who reside in the United States and who have previously filed U.S. tax returns, failed to report foreign assets or income, or failed to file an FBAR. Streamlined foreign offshore procedures, on the other hand, are meant for “non-willful” U.S. tax violators who are not residing in the United States and who meet the non-residency requirements set forth by the IRS.

Q. What Do I Need to Do to Meet Streamlined Filing Compliance Procedures?

A. To be eligible for streamlined filing, the following criteria must be established:

• The taxpayer committed “non-willful” tax violations
• The taxpayer has not been investigated by the IRS
• Previous tax penalties must be paid
• The taxpayer has a valid Taxpayer Identification Number

Q. Can I Get Hit With an OVDP Audit?

A. Yes. Just like a regular income tax filing can be audited, offshore account holders reporting foreign assets may also be audited. The IRS is cracking down on offshore account reporting now more than ever. Even if you have disclosed your assets, you may still come under review, whether you filed under the OVDP or OVDP streamlined. If this happens, it is crucial to consult an experienced OVDP attorney as soon as possible who can advise you on how best to respond to the audit and help you gather the necessary documents and evidence to support your case.

Q. What Is the Difference Between Quiet Disclosure vs. Streamlined?

A. “Quiet disclosure” is not a term many taxpayers know about but one that is commonly practiced. In a nutshell, quiet disclose of foreign account information means the taxpayer is attempting to circumvent the proper procedure for disclosing offshore assets. This is not a legal procedure and is likely to result in criminal tax penalties – on top of financial penalties. Examples include trying to bury the account information, underplay the total amount of assets, file amendments to previously filed returns, among others. While voluntary disclosure may be daunting, it is imperative that taxpayers avoid any form of quiet disclosure. 

Q. What Is the Title 26 Miscellaneous Offshore Penalty?

A. The Title 26 miscellaneous offshore penalty amounts to 5 percent of the highest aggregate total of the offshore assets held by a U.S. taxpayer in a foreign account during a tax and FBAR period.

Do You Have Foreign Accounts to Report? Contact Our OVDP Lawyers Now!

To learn more about the various avenues for offshore compliance that may be available to you, contact Kevin E. Thorn, Managing Partner of Thorn Law Group today at 202-349-4033 or email ket@thornlawgroup.com before it’s too late. We also encourage you to read our more in-depth articles on the topic.

Additional OVDP Resources:

• 5 Facts About Voluntary Disclosure Every Taxpayer Should Know
• The Definitive Guide to the 2018 IRS Offshore Voluntary Disclosure Program
• It’s Official: The End of IRS’ OVDP is Near
• Offshore Investigations: The IRS Has Spent Millions, But Has Taken Little Action
• IRS to End Offshore Voluntary Disclosure Program September 28th, Do Not Wait!
• Federal Government Pushes For Prison Time On U.S. Taxpayers With Undisclosed Offshore Accounts
• Offshore Accounts Face Global Tax Evasion Crackdown
• OVDP Streamlined Submissions
• Offshore Bank Account Information
• IRS Tax Amnesty Program
• FATCA Information