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IRS: Take advantage of Voluntary Disclosure Programs (OVDP)

October 16, 2015, WASHINGTON, The IRS has long been strongly urging taxpayers with undisclosed foreign financial accounts become tax compliant through Offshore Compliance Programs (OVDP).

Since 2009, more than 54,000 taxpayers have participated in OVDP and become tax compliant.

The OVDP have resulted in collecting over $8 Billion in unpaid taxes, penalties and interest by the IRS.

By entering these offshore disclosure programs, taxpayers with undisclosed offshore accounts, have received a discounted penalty, and avoided any potential criminal prosecution.

The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion, said IRS Commissioner John Koskinen. People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.

Available option the IRS is referring to here.

Offshore Voluntary Disclosure Program (OVDP)

In January 2012, the IRS initiated a new offshore voluntary disclosure program (OVDP), which was continuation of the program introduced in 2012 with modified terms and referred to as the 2014 OVDP.

The modifications are effective July 1, 2014 and this may come to an end at any time in the future. Check here.

Streamlined Filing Compliance Procedures

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct.  The streamlined procedures are designed to provide to taxpayers in such situations :

  1. a streamlined procedure for filing amended or delinquent returns.
  2. terms for resolving their tax and penalty obligations.

The non-willfulness is determined based on facts and circumstances of each taxpayer. It is crucial to discuss the underlying facts with a tax attorney experienced in this particular tax law before selecting this option. These procedures will be available for an indefinite period until otherwise announced.

Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS.

Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS. This is unlike the OVDP which ends in a closure by singing the IRS form 906.

Streamlined Foreign Offshore Procedures

Eligible taxpayers residing overseas submit:

Last six years’ Report of Foreign Bank and Financial Accounts (FBAR, FinCen form 114) here, and,

Streamlined Domestic Offshore Procedures

Eligible taxpayers residing in the US submit:

Last six years’ Report of Foreign Bank and Financial Accounts (FBAR, FinCen form 114) here, and,

Delinquent FBAR Submission Procedures

Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures may file delinquent or amended tax returns to report and pay additional tax, and:

should file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late.  This option may be a minefield for the novice and taxpayers contemplating it advised to consult a tax attorney experienced in this particular area. check here

Foreign Account Tax compliance Act (FATCA)

The Foreign Account Tax Compliance Act (FATCA) is an important U.S. effort to fight tax evasion by U.S. taxpayers holding financial offshore accounts. Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS.

In addition, FATCA requires foreign financial institutions (FFI) to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Otherwise, certain payments to those banks will be subject to 30% withholding, that may be a harsh penalty imposed by the US.  So far, there are about 100 countries that have signed some type of intergovernmental agreements (IGAs) with the US.

There are approximately 90,000 banks in the world that may be reporting the above-mentioned accounts to the US. Some of these banks are not even located in countries (China and Russia are two examples) that have signed an agreement with the US.

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and foreign jurisdictions, automatic third-party account reporting began this year (Canada and Britain, being the first two), making it less likely that offshore financial accounts will go unnoticed by the IRS.

There are approximately 100 countries that have signed some type of IGAs with the US.

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers.

Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations. Check here

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