Monday, June 23, 2014

The Offshore Voluntary Disclosure Program has Netted the Government 6.5 Billion Dollars

FS-2014-6, June 2014
Stopping offshore tax cheating and bringing individuals, especially high net-worth individuals, back into the tax system has been a top priority of the Internal Revenue Service for several years.
IRS offshore voluntary disclosure programs are designed to encourage taxpayers with undisclosed offshore assets to become current with their tax liabilities. The programs have been part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA).
The latest series of voluntary programs began in 2009. Overall, the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties. Here are highlights of the different variations of the IRS offshore efforts since 2009:
2009 OVDP
The IRS announced the 2009 Offshore Voluntary Disclosure Program (OVDP) in March 2009. It offered taxpayers an opportunity to avoid criminal prosecution and a settlement of a variety of civil and criminal penalties in the form of single miscellaneous offshore penalty. It was based on existing voluntary disclosure practices used by IRS Criminal Investigation.
Generally, the miscellaneous offshore penalty for the 2009 program was 20 percent of the highest aggregate value of the unreported offshore accounts from 2003 to 2008. Participants were also required to file amended or late returns and FBARs for those years.
Concurrent publicity associated with U.S. enforcement actions against certain foreign banks led to strong demand of this voluntary program.
In the 2009 OVDP the IRS received 15,000 disclosures prior to the Oct. 15 closing date that year. It resulted in the collection of $3.4 billion in back taxes, interest and penalties. It also led to another 3,000 disclosures after the closing date.
2011 OVDI
The 2009 program resulted in many disclosures and furthered the investigation of many individuals and financial institutions that facilitated non-compliance with U.S. tax laws.  As these investigations continued, the IRS responded to requests from tax practitioners that additional individuals sought to come forward and voluntarily disclose their offshore accounts.
In February 2011, the IRS announced the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which lasted until Sept. 9 of that year.
Generally, participants of this program paid a 25-percent miscellaneous offshore penalty on the highest aggregate value of unreported offshore accounts from 2003 to 2010. In addition, some participants were eligible for special 5-percent or 12.5-percent penalties, depending on the severity of their noncompliance.
The 2011 OVDI drew 15,000 disclosures and resulted in the collection of $1.6 billion in back taxes, interest and penalties for the 70 percent of cases that were closed that year.
2012 OVDP
After the two prior voluntary programs, continued strong interest by taxpayers and tax professionals led to a third program. In January 2012, the IRS revised the terms of the 2011 OVDI program and made it permanent until further notice.
Under the 2012 Offshore Voluntary Disclosure Program, participants pay a penalty of 27.5 percent of the highest aggregate balance or value of offshore assets during the prior eight years. The 5 or 12.5 percent penalties remained in effect for certain taxpayers.
In June 2012, the IRS added an option to the existing disclosure program that enabled some U.S. citizens and others residing abroad to catch up on their filing requirements and avoid large penalties if they owed little or no back taxes. This option took effect in September of that year. This 2012 program has drawn 12,000 disclosures since its inception.
2014 Changes to Offshore Programs
In June 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.
And with expansion of the streamlined procedures for non-willful taxpayers, the IRS will also adjusted the terms for taxpayers participating in the OVDP whose conduct may reflect willful non-compliance. The changes modify the OVDP program to make it suited for taxpayers seeking relief from potential criminal prosecution.
All told, the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties.

Thursday, June 19, 2014

IRS Lets U.S. Residents Use OVDP Streamlined Program But Increases Penalty to 50%

For the first time, the IRS will permit resident U.S. taxpayers to participate in its streamlined filing compliance program, the agency announced June 18.

The change was one of several made to the Service's offshore voluntary disclosure program, including increasing the miscellaneous offshore penalty from 27.5 percent to 50 percent

The IRS announced the streamlined program, which was designed to aid U.S. taxpayers living abroad to come into compliance with reporting obligations, in June 2012.

Eligibility was limited to nonresident taxpayers who could demonstrate a low level of compliance risk and who did not owe more than $1,500 of tax for each of the three years covered by the program. Practitioner response to the streamlined program was initially positive but they soon raised questions about the program's usefulness to taxpayers.

In addition to permitting resident U.S. taxpayers to use the streamlined program, the IRS has also eliminated the $1,500 tax threshold and the risk questionnaire. Taxpayers must certify that previous compliance failures were not willful.

Under the revised program, all penalties will be waived for nonresident U.S. taxpayers and resident taxpayers will be subject only to a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.

OVDP Changes

The most significant change to the OVDP was an increase in offshore penalties from 27.5 percent to 50 percent. According to the IRS news release, the increased penalty applies "if, before the taxpayer's OVDP pre-clearance request is submitted, it becomes public that [the taxpayer's] financial institution" is under investigation by the IRS or Justice Department.

Other changes to OVDP announced by the IRS include requiring more information from applicants, submitting account statements and offshore penalty payment when the OVDP application is filed, permitting taxpayers to submit electronically, and eliminating the existing reduced penalty percentage for non-willful taxpayers.