On March 13, 2018, the Internal Revenue Service (IRS) announced that it is planning on closing the 2014 Offshore Voluntary Disclosure Program (OVDP) on Sept. 28, 2018. This gives U.S. taxpayers a little over six months to come forward with previously undisclosed foreign financial assets.
According to U.S. law, all U.S. citizens, including green card holders, have an obligation to pay taxes on all their worldwide income including any foreign income, regardless of their residency.
In addition, in cases where the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year they also have to e-file (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), (otherwise known as the "FBAR"). This requirement applies to any financial interest including even signature authority over any foreign financial account, such as a bank account, brokerage account, mutual fund, trust, pension plan, etc.
Not complying with ones U.S. tax obligations can result in civil and criminal consequences. Many taxpayers were not aware of their filing requirements. In order to encourage compliance, the IRS launched the first tax amnesty program in 2009, which allowed U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns, by filing amended tax returns, FBAR forms, paying taxes and penalties.
The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011, and as mentioned, in 2009.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
The IRS notes 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.
This change will not affect the Streamlined Filing Compliance Procedures, which will remain in effect after the OVDP ends. This program, which began on Sept. 1, 2012, is available to taxpayers certifying that their failure to report all income, pay all tax and submit all required information returns, including FBARs was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
In addition, the IRS enforces offshore compliance with tax and FBAR requirements using information received under the Foreign Account Tax Compliance Act (FATCA), the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting, and other data-rich sources such as the Department of Justice’s Swiss Bank Program and various John Doe Summonses. The IRS leverages information resources using enhanced data analytics to continue to make it more difficult to evade tax by hiding offshore.
“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.”
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