OUR THOUGHTS ON:

IRS Announces Changes to the Offshore Voluntary Disclosure Program

International

By Mark Cobetto

UPDATE on November 12, 2015:  The IRS recently announced increasing participation in Offshore Compliance Programs and urged U.S. taxpayers with undisclosed offshore accounts to strongly consider coming into full compliance with the federal tax law.  Read the full update here.

On June 18, 2014, the Internal Revenue Service (IRS) announced significant changes to its 2012 Offshore Voluntary Disclosure Program (OVDP).  The 2012 OVDP was the successor to two prior temporary programs that were launched in 2009 and 2011.  The modifications to the 2012 OVDP provide new options to help taxpayers come into compliance.  Some of the more noteworthy changes include the following.

  • The new program requires additional information from taxpayers applying to the program.
  • The penalty for undisclosed offshore accounts is increased from 27.5 percent to 50 percent if, before the taxpayer's OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account is under investigation by the IRS or the Department of Justice.
  • The streamlined filing procedures have been expanded to include a wider group of taxpayers, including certain US residents.  The original streamlined procedures were only available to nonresidents.  Also, the $1,500 tax liability limitation and the risk questionnaire have been eliminated.
  • The existing reduced penalties for certain non-willful delinquent taxpayers have been eliminated in light of the expansion of the streamlined procedures.
  • Guidance concerning the filing of delinquent Report of Foreign Bank and Financial Accounts (“FBARs”) has been replaced and superseded.  This guidance was previously provided in FAQ 17 of the 2012 OVDP.
  • Guidance concerning the filing of certain delinquent international information returns (e.g., Form 5471, Form 5472, Form 926, etc.) has been replaced and superseded.  This guidance was previously provided in FAQ 18 of the 2012 OVDP.

The modified OVDP provisions and expanded streamlined procedures come into effect on July 1, 2014.  For more information about changes to the OVDP, please contact a member of the SD Global Tax team for assistance.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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