By: Steven A. Loeb
According to a recent news release from the IRS, the IRS will be ending its offshore voluntary disclosure program. The Offshore Voluntary Disclosure Program (OVDP) was created in 2014 as 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.” In other words, if you had foreign financial assets and previously failed to pay taxes on them, the OVDP could provide protection.
More specifically, if a party reported foreign financial assets under the OVDP, the Program could provide protection from criminal liability in addition to providing the party with terms for resolving any civil tax and penalty obligations. What do you need to know about the closure of the OVDP and other options for voluntarily disclosing foreign financial assets?
The OVDP Will Close Down in September 2018
According to the news release, the OVDP officially will close on September 28, 2018. However, the IRS is giving taxpayers warning of the closure now so that they can take advantage of the Program. To be sure, U.S. taxpayers who have failed to disclose foreign financial assets can still take advantage of the protections. After September 28, however, those protections will end.
The Acting IRS Commissioner, David Kautter, explained that “taxpayers have had several years to come into compliance with U.S. tax laws under this program,” and that “all along, [the IRS has] been clear that we would close the program at the appropriate time, and we have reached that point.” This means that there are only a matter of months to come forward about undisclosed foreign financial assets in order to avoid criminal liability and to resolve taxes owed.
History of the OVDP
The OVDP was launched in 2009. Since then, “more than 56,000 taxpayers have used one of the programs to comply voluntarily.” Upon voluntarily disclosing assets and unpaid taxes, those U.S. taxpayers collectively have paid approximately $11.1 billion in back taxes, in addition to interest owed and penalties for unpaid taxes. The largest number of disclosures occurred in 2011, when approximately 18,000 U.S. taxpayers disclosed foreign financial assets for which they had not paid taxes. By 2017, only 600 U.S. taxpayers came forward. Given the decline in the number of people reporting, it is logical that the OVDP would begin the closure process.
The 2009 program was the first, but modifications resulted in revised OVDP versions in 2011, 2012, and 2014.
Enforcing Disclosure of Foreign Financial Assets
What happens if you fail to disclose information about foreign financial assets in order to avoid paying taxes on those assets? The IRS emphasizes that there is a reporting requirement under the Report of Foreign Bank and Financial Accounts (FBAR), and that anyone with foreign financial assets over a certain amount is required to report those assets to the IRS.
In addition, third-party reporting is becoming more common. Third-party reporting refers to foreign financial institutions providing information about U.S. taxpayers’ accounts to the IRS. Once OVDP ends, the other options may include the following:
● Streamlined Filing Compliance Procedures;
● Delinquent FBAR Submission Procedures; and/or
● Delinquent International Information Return Submission Procedures.
For more information please contact via email Steven A. Loeb, Esq. or by phone at 973-538-4700 ext. 229.
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