IRS Announces End to Offshore Voluntary Disclosure Program
Update: Further to the post below, we have posted an outline of the penalties taxpayers may face after the below September deadline.
Yesterday (Wednesday, March 14th, 2018) the IRS announced that it is ramping down the Offshore Voluntary Disclosure Program (OVDP) and that the program will end on September 28th of this year.
This is significant news for a variety of reasons. The Voluntary Disclosure Program, in its various versions, has been in place since 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.
When the initial program began in 2009, the IRS estimated there were over 6 million taxpayers with foreign assets that were not compliant with their US tax obligations. Since 2009 there have been only 56,000 taxpayers coming forward under these programs. While this is an insignificant number when compared to the total number of non-compliant taxpayers, the programs have brought in over $11 billion in back taxes, interest and penalties.
Offshore tax violations will continue to be a top priority for the IRS. With the international foreign account disclosure initiatives under FATCA, the cooperation of foreign governments, whistleblower leads, civil examinations, passport renewals and various other enhanced intelligence procedures it is likely that a number of the 6 million non-compliant taxpayers will be found.
If you are one of the still non-compliant taxpayers, time is running out for you to come forward and benefit from OVDP. Now is the time to act as it is unlikely the IRS will be all that understanding when dealing with offshore non-compliance in the future.
Fortunately, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, will remain open—at least for the time being.
The full IRS notice is set forth below.
IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now
WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.
The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.
The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.
The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”
Streamlined Procedures and Other Options
A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.
The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets. Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:
- IRS-Criminal Investigation Voluntary Disclosure Program;
- Streamlined Filing Compliance Procedures;
- Delinquent FBAR submission procedures; and
- Delinquent international information return submission procedures.
Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.
If you have any questions, please do not hesitate to call me on +44 207 357 8220.