Breaking News: Major Changes to the Offshore Voluntary Disclosure Program

Today, the IRS announced changes to the 2012 Offshore Voluntary Disclosure Program (OVDP). Internal Revenue Service Commissioner John Koskinen explained in a statement that the changes will “allow more taxpayers to participate” in the program. The changes that were announced today are two-fold and affect both taxpayers that are considered to be willfully failing to disclose foreign accounts and those who have done so without having their actions rise to the “willful” level. 

Willful Non-Compliance

Taxpayers that are deemed to have been willful in their non-compliance of reporting foreign accounts weren’t so lucky following today’s announcement. Under the new terms of the OVDP, taxpayers that participate who were “willfully” non-compliant face a 50% penalty (based on the highest balance in the account(s) at issue) if it becomes public that their foreign financial institution is under investigation by the IRS or Department of Justice. This nearly doubles the previous “one-size-fits-all” penalty of 27.5%.

Non-Willful Taxpayers

The IRS and Commissioner Koskinen himself had hinted recently that the terms of the OVDP would be changing in an attempt to increase the participation in the program among taxpayers who by mistake or without any willful wrongdoing, fell out of compliance with the foreign bank account reporting requirements.

For individuals whose conduct does not rise to the level of willful non-compliance, the penalty under the OVDP has been reduced to only 5% of the balance of the foreign account(s) at issue. This is a huge decrease from the terms of the 2012 OVDP program that required taxpayers to pay a 27.5 percent penalty of the highest balance of the foreign accounts. And even better news for eligible Americans living outside of the United States: the penalties would be waived.

Several other changes were made regarding the qualification requirements for the OVDP, including eliminating certain caps on the amount of tax owed that limited many taxpayers’ ability to participate. Further, the IRS has done away with a required personal questionnaire that needed to be completed prior to acceptance into the program.

Commissioner Koskinen said that the changes will “help focus this program on people seeking certainty and relief from criminal prosecution”. In exchange for such certainty, taxpayers will need to provide much more information up-front than was previously required. Further, all statements for the accounts at issue will need to be submitted at the time of application. As a consolation, the IRS will now accept voluminous documentation electronically.

The Same Message in the End.

Though the IRS has made the OVDP more available for taxpayers that may want to participate, they have a strong message for everyone that is listening: participate or when we do find you, go directly to jail, do not pass Go and do not collect $200.  “We want everyone to know that we are continuing our efforts to track down people still out there who are hiding assets overseas. More information on these accounts is coming in every day,” explained Commissioner Koskinen.

Each day, foreign banks are signing on to the international FATCA agreement and are pledging to being turning over lists of American account holders to the IRS beginning on July 1st. If you have an overseas account that hasn’t been reported to the IRS, your days to opt-in to the program and avoid criminal prosecution are numbered. Only a U.S. tax attorney with experience in walking clients through the steps of the OVDP will be able to provide you the absolute best guidance and support.

At the Tax Law Offices of David W. Klasing, our number one priority is keeping you out of jail and keeping as much money in your pocket as possible. We are on top of all of the recent changes to the programs at the IRS and are highly experienced in representing clients that range from participating in the OVDP to those who are the target of a full blown criminal investigation by the IRS.  Contact us to get started getting back on track today.