The clock continues to tick down for taxpayers hoping to take advantage of the Offshore Voluntary Disclosure Program (OVDP). The Internal Revenue Service (IRS) will close the program on September 28: that gives taxpayers just a few more weeks to apply.
The IRS launched the OVDP in 2009 to encourage compliance with foreign asset reporting. Structured as a tax amnesty program, it allowed U.S. taxpayers to come forward and avoid criminal prosecution for not reporting foreign accounts. That program drew to a close on October 15, 2009. About 15,000 taxpayers took advantage of the program.
Additional filing requirements were written into the Foreign Account Tax Compliance Act, more commonly called FATCA. Failure to comply with FATCA or file an FBAR can result in civil penalties, criminal penalties or both. In response to FATCA, in 2011, the IRS announced a new amnesty program to take the place of the 2009 program. But since amnesty is such an ugly word, the IRS called it “a special voluntary disclosure initiative.” The official title was the 2011 Offshore Voluntary Disclosure Initiative (OVDI).
That year, the number of taxpayer disclosures peaked, when about 18,000 taxpayers came forward. By early 2012, the IRS claimed it had collected $4.4 billion under both programs.
In 2014, the IRS modified the program yet again. At the time of the relaunch, the IRS made it clear that there would be no set deadline for taxpayers to apply for the program. However, the IRS website warned: “[T]he terms of this program could change at any time. For example, the IRS may increase penalties or limit eligibility in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any time.”
That time finally came. In March of 2018, the IRS announced the program would end on September 28, 2018. The IRS claims that since the launch of the program, taxpayers with undisclosed offshore accounts have paid a total of $11.1 billion in back taxes, interest, and penalties. Acting IRS Commissioner David Kautter said about the decision, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program. 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.”
Remember: Simply having assets offshore isn’t a crime, but failing to report them may be. (For more on legitimate reasons to go offshore, click here.)
So who needs to worry? Under current law, U.S. taxpayers must report certain offshore assets. Each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file a Report of Foreign Bank and Financial Accounts (more commonly, FBAR) if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income. Some exceptions apply (click here for more).
Taxpayers who have not complied still have a few options to play catch-up. According to the IRS, despite the closure of ODVP, the Streamlined Filing Compliance Procedures (SFCP) will remain in place for taxpayers who might not have been aware of their filing obligations. So far, under that program, about 65,000 additional taxpayers have come into compliance.
Additionally, delinquent FBAR procedures and the delinquent international information return procedures will remain available for eligible taxpayers after September 28, 2018. The delinquent FBAR procedures are available to taxpayers who do not need to use either the OVDP or the SFCP to file late or amended tax returns to report and pay additional tax, but who have not filed timely FBARs; taxpayers under a civil examination or a criminal investigation by the IRS, or who have been contacted by the IRS about the delinquent FBARs are not eligible for the program. The delinquent international information return procedures are available to taxpayers who have not filed one or more required international information returns (such as a form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) and have reasonable cause for not doing so; as before, taxpayers under a civil examination or a criminal investigation by the IRS, or who have been contacted by the IRS about late or missing returns are not eligible for the program.
If those options aren’t sufficient, you may wish to consider the OVDP. To get in under the wire for the OVDP, complete offshore voluntary disclosures must be received or postmarked by September 28, 2018. Partial, incomplete, or placeholder submissions will not be sufficient.
As for those folks who haven’t yet come forward – and aren’t planning to do so? They’re not off the hook. The IRS says that it will continue to hold taxpayers with undisclosed offshore accounts accountable after the program closes.