The IRS announced that the popular offshore voluntary disclosure program (OVDP) used by taxpayers to divulge previously unreported foreign assets with reduced penalties will be ending effective September 28, 2018.
Under the terms of the OVDP, which was originally initiated in 2009, and reinstated and modified in various forms in 2011, 2012 and 2014, taxpayers could avoid criminal charges and pay reduced civil penalties if they willingly disclosed foreign assets that were previously unreported and amended returns to pay back taxes. Per IRS statistics, since 2009, more than 56,000 taxpayers have used the program, resulting in more than $11 billion in taxes being collected. The IRS will close these types of programs to motivate participation and may later open similar programs with higher penalties. There is no guarantee that the program will be reopened.
Foreign Income is Taxable and Many Foreign Assets Reportable
Closure of the OVDP program doesn’t mean taxpayers will stop paying taxes on foreign assets, however. The U.S. government mandates that all international income must be reported on an income tax return. The IRS will continue to provide education to taxpayers who may unknowingly fail to disclose foreign assets, and it will rely on whistleblower leads, civil examination and criminal prosecution to discourage flagrant offshore tax avoidance and noncompliance. The IRS will also rely upon the mandates of FATCA to require foreign banks to report offshore accounts held by US persons.
Additional Options for Undisclosed Foreign Income
For individuals who have not reported foreign income, investments or other monetary assets on their U.S. taxes, the September 28 deadline gives you only a few more months to become compliant with reduced penalties and no-inquiry into motive. Beyond that deadline, the penalties will be higher. Outside of OVDP, the IRS offers other programs for taxpayers who may not have been aware of their filing obligations to utilize. One such program is the Streamlined Filing Compliance Procedure, but, like the OVDP, the IRS may end this program at some point in the future as well.
Other options include:
- IRS-Criminal Investigation Voluntary Disclosure Program;
- Delinquent FBAR submission procedures; and
- Delinquent international information return submission procedures.
These programs and procedures have eligibility rules and possible inquiry into “reasonable cause” claimed by the taxpayer.
When to Consult an Expert
There are a variety of reasons why an individual or organization may fail to claim foreign financial assets. Regardless of the reason, it’s important to work closely with legal professionals who understand the nuances of navigating these difficult situations and can advise you of the best course of action based on your unique circumstances.
Even if you’re not sure if your foreign financial assets are taxable or if you qualify for the OVDP or a similar program, it’s important to consult a legal expert who is well-versed in these matters so you can avoid criminal charges or large financial penalties. Time is running out to utilize OVDP.
If you have questions about your assets or options or would like to discuss this matter further, contact me directly at (248) 642-1485 or by email at firstname.lastname@example.org.