The Internal Revenue Service announced major changes in IR-2014-73 regarding their offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas and those residing in the United States. The changes are anticipated to provide thousands of people a new avenue to come into compliance with their U.S. tax obligations.
The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP). The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful.
“This opens a new pathway for people with offshore assets to come into tax compliance,” said IRS Commissioner John Koskinen. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”
Balanced against the modified programs is the government’s ongoing effort to combat the misuse of offshore assets. The IRS, working closely with the U.S. Department of Justice, continues to investigate foreign financial institutions that may have assisted U.S. taxpayers in avoiding their tax filing and payment obligations. In addition, on July 1, the new information reporting regime resulting from the Foreign Account Tax Compliance Act (FATCA) will go into effect. Thousands of foreign financial institutions will begin reporting to the IRS foreign accounts held by US taxpayers.
The current Offshore Voluntary Disclosure Program was launched in 2012 and is the successor to prior voluntary programs offered in 2011 and 2009. Since the launch of the first program, more than 45,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.
STREAMLINED PROCEDURES. The changes make key expansions in the streamlined procedures to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts.
The original streamlined procedures announced in 2012 were available only to non-resident, non-filers. Taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire.
The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States.
The changes include:
Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
Eliminating the required risk questionnaire;
Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.
For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.
Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.
OVDP MODIFIED. Modifications to the OVDP include:
Requiring additional information from taxpayers applying to the program;
Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application;
Enabling taxpayers to submit voluminous records electronically rather than on paper;
Increasing the offshore penalty percentage (from 27.5% to 50%) if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice.
Full details of the changes to both the streamlined procedures and OVDP can be found on IRS.gov.
Offshore Voluntary Disclosure Program
Statement of IRS Commissioner John Koskinen
FS-2014-6, IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate
FS-2014-7, Offshore Income and r Taxpayers with Offshore Accounts
WHERE ARE WE NOW re THE OVDP ? Taxpayers who have yet to come into compliance must immediately review the foregoing IRS releases. Many will significantly benefit from the modifications to the streamlined procedures and the OVDP. Others should view these changes in light of the substantial amount of information flowing into the government and that is soon to arrive as a result of FATCA implementation. All should immediately get into compliance and view this as an immediate opportunity to overcome their fear of certain uncertainties that previously existed. All should be aware that certain decisions might be required before the July 1, 2014 implementation of FATCA.
Taxpayers who have an OVDP application in process, must determine whether the recent changes to the IRS program may provide a benefit.
ADDITIONAL INFORMATION IS AVAILABLE AT:
IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate, http://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate
Offshore Income and Filing Information for Taxpayers with Offshore Accounts http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts
IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance
Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets
Streamline Filing Compliance Procedures http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures
U.S. Taxpayers Residing Outside the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States
U.S. Taxpayers Residing in the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States
Certification by U.S. Person Residing Outside of the U.S. http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf
Certification by U.S. Person Residing in the U.S. http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf
Delinquent FBAR Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures
Delinquent International Information Return Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures
FREQUENTLY ASKED QUESTIONS
Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised
Transition Rules Frequently Asked Questions http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
VOLUNTARY DISCLOSURE LETTER
Offshore Voluntary Disclosure Letter http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf
Offshore Voluntary Disclosure Letter Attachment http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf