Offshore Voluntary Disclosure Program Explained by Washington DC IRS Voluntary Disclosure Attorney – Kevin Thorn

The IRS has announced changes to its popular Offshore Voluntary Disclosure Program (OVDP), opening up the door for more taxpayers to avoid penalties and catch up on their U.S. filing requirements.  The OVDP program was first launched in 2009 and is now in its third generation.  The new changes relaxing the requirements for participation were made in response to feedback from both the National Taxpayer Advocate as well as from tax professionals and past experience with OVDP.

Individuals who have offshore accounts who have been reluctant to participate in the OVDP program should speak with a Washington DC IRS voluntary disclosure attorney today for more information. With new transparency provisions going into effect on July 1, now is the time to act to avoid serious future consequences.  Your attorney can assist you in determining if you qualify under the new OVDP rules and can guide you through the process.

IRS Changes to the Offshore Voluntary Disclosure Program

The IRS made several fundamental changes to the OVDP that were described in a statement made by the IRS Commissioner John Koskinen as “technical in nature.”  The changes include:

• An expansion of the streamlined procedures in order to cover a broader group of taxpayers who may have unintentionally failed to disclose foreign accounts.  

The streamlined procedures were previously available only to non-resident non-filers under 2012 rules. The updated OVDP program applies much more broadly and now applies not only to more U.S. taxpayers living abroad but also to some people living within the United States.

Among the changes, the IRS has eliminated a requirement that taxpayers have $1,500 or less in unpaid taxes. Updates also eliminate the required risk questionnaire.  However, taxpayers are now required to certify that their prior failure to comply was due to non-willful conduct. 

Taxpayers within the United States for whom the existing penalties were too harsh or restrictive may also take advantage of the new OVDP. For eligible taxpayers residing outside the U.S., all penalties will be waived. For eligible taxpayers in the country, the only penalty imposed will be a miscellaneous offshore penalty that is equal to five percent of the foreign financial assets that created the tax compliance issue.

Under the new rules, additional information is now required from taxpayers who apply to the program, but taxpayers are now able to submit paperwork electronically to streamline their submission.  The existing reduced-penalty percentage for non-willful violators is also eliminated because it is no longer necessary due to the expansion of the streamlined procedures. 

• An alteration of the terms for participation in the OVDP for taxpayers whose failure to comply with reporting requirements is considered willful.

Changes for willful violations are designed to focus on individuals who seek relief from criminal prosecution.  Under the new rules, willful violators who wish to participate in the OVDP program are required to submit all account statements at the time of applying for the program and must provide more information than in the past. In some cases, the penalties may also be increased.

Why Act Now?

Provisions of the Foreign Account Tax Compliance Act (FACTA) go into effect on July 1, and the IRS and Department of Justice are dedicating more resources and funding to track down offshore accounts.  More than 100 Swiss Banks also accepted a deal with the Department of Justice that will result in full disclosure of American accounts.  As these new developments occur, it will become more difficult for individuals to keep offshore accounts from the IRS.

The IRS also has increased the offshore penalty percentage from 27.5 percent to 50 percent if it becomes public that a financial institution where a taxpayer holds an account is under investigation by the IRS or the Department of Justice before the taxpayer requests OVDP pre-clearance.

More than 45,000 taxpayers have already come forward and taken advantage of the OVDP to avoid penalties.  If you have non-reported offshore accounts, now is the time to act. Contact a Washington DC voluntary disclosure attorney today to learn more.