Just last week I blogged about a taxpayer's options to report offshore bank accounts that should have previously been reported here. Since the IRS started the various programs that I previously outlined, it has warned that they could change at any moment--and they have changed over the years. But now, the IRS announced today that it will completely end the Offshore Voluntary Disclosure Program (OVDP). The program is set to close September 28, 2018. The IRS hopes that its announcement will encourage taxpayers with undisclosed foreign financial assets to come forward before the program ends.
What is OVDP?
OVDP is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations. The program has extensive requirements. The most significant requirement is the payment of a penalty of the account balance equal to 27.5%. The penalty increases to 50% if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.
How effective was the OVDP program?
As part of its announcement to shutter the OVDP program, the IRS noted that since the OVDP's initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. Those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations. The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.
How should you report undisclosed offshore bank accounts now?
The IRS is not making any changes to its Streamlined Filing Compliance Procedures or its Delinquent International Information Return Submission Procedure, but not all taxpayers will qualify for those programs. All of a taxpayers options are detailed here.
The IRS noted, as part of its announcement regarding the OVDP program, that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations. “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”