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The Offshore Voluntary Program (OVDP) Is Closing!

If you visit the IRS’ website under the international taxpayer section, you will find the title of this article, The Offshore Voluntary Disclosure Program Is Closing! The IRS announced earlier this week that after nine years of providing amnesty to US taxpayers through its on-again, off-again OVDP, it will finally close the most recent version of the OVDP on September 28, 2018.

The OVDP has driven revenues for the IRS to the tune of $11.1 billion in back taxes, interest and penalties from more than 50,000 taxpayers. And yes, that’s billion with a ‘B’!

The 2012 OVDP, the most recent version of the program modified in 2014, has allowed individuals and businesses to voluntarily come forward to report their foreign assets under an agreement to avoid substantial civil penalties and the potential risk of criminal prosecution. The program requires taxpayers to disclose foreign information going back eight years and sets forth a labyrinth of calculations for determining the reduced penalties to be assessed under the program. Penalties under the OVDI are favorable to those that would be assessed otherwise.

Taxpayers Who May Want to Participate in the OVDP

  1. Taxpayers with financial accounts in foreign countries that exceed $10,000 at any time during the year. The accounts may be bank accounts, brokerage accounts or other. They are required to be reported at their maximum balance on an annual basis. The consequences for willful failure to report the account may result in a penalty as high as $100,000, or 50% of the balances.
  2. Taxpayers with foreign financial assets that exceed certain thresholds. Form 8938 is used to report certain foreign financial accounts, foreign securities and certain interests in foreign businesses and is often overlooked. The author notes, that many immigrants have retained mutual fund type investments in foreign countries or inherited these funds from family members and have unknowingly fallen into this trap of not filing Form 8938. Penalties range from $10,000 to $50,000 per return.
  3. Taxpayers with interests in foreign trusts. A US taxpayer that establishes a foreign trust, transfers money to a foreign trust or receives distributions from a foreign trust may be required to file Form 3520. Penalties range from $10,000 to 35% of the amount reportable for not filing.
  4. Taxpayers that have ownership in foreign businesses. There is a wide net of information required to be reported by US shareholders of foreign businesses. Some information may pertain to officers and directors as well. Information required to be disclosed may include amounts of cash or property transferred to the foreign business, related party transactions, and full foreign financial statement disclosure. Penalties begin at $10,000 per form.

Some minimum penalties for failure to file certain foreign forms increase to $25,000 in 2018.

The IRS will continue to offer several similar programs including: the IRS-Criminal Investigation Voluntary Disclosure Program, the Streamlined Filing Compliance Procedures, the Delinquent International Information Submission Procedures and the Delinquent FBAR Submission Procedures.

Author: Michelle Rizzo, CPA, MBA | mrizzo@withum.com


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