The Internal Revenue Service recently reopened its Offshore Voluntary Disclosure Program (OVDP) as a part of its efforts to help people hiding offshore accounts get current with their taxes.
The IRS decided to reopen the OVDP following an influx of taxpayer requests to enter into the program after the closure of the 2009 and 2011 programs. The influx of taxpayer requests comes in the wake of the IRS’s ongoing efforts to work on a wide range of international tax issues and work with the Department of Justice to pursue criminal prosecution of tax evasion. IRS Commissioner Doug Shulman has sent the following warning to taxpayers: “As we’ve said all along, people need to come in and get right with us before we find you. We are following more leads and the risk for people who do not come in continues to increase.”
The IRS says the new program is similar to the 2011 program in many ways, but with a few key differences.
Deadline. Unlike the 2009 and 2011 programs, the new program will be open for an indefinite period unless otherwise announced. The IRS has cautioned, however, that the terms of the program could change at any time going forward or the IRS may decide to end the program entirely at any point.
Penalty Structure. The overall penalty structure for the new program is the same as it was for 2011, except for taxpayers in the highest penalty category. Under the new program, the penalty framework requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign bank account/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25% in the 2011 program and 20% in the 2009 program. A reduced penalty rate of 12.5% or 5% is available in certain circumstances. For example, a reduced rate of 12.5% is available for taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.
Filing & Payment Obligations. Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years in addition to paying accuracy-related and/or delinquency penalties. Participants must also file all delinquent Forms TD 90-22.1, Report of Foreign Bank and Financial Accounts (FBARs).
The IRS is also aware of dual citizens and others who may be delinquent in filing, but owe no U.S. tax, and is currently developing procedures for these taxpayers to come into compliance with U.S. tax laws.