Posts Tagged ‘OVDP’
As an extension and follow-up to the 2012 Offshore Voluntary Disclosure Program, the IRS offers taxpayers reduced penalties with income from offshore accounts. The program offers significant benefits for taxpayers to disclose foreign accounts and avoid the risk of an audit and possible criminal prosecution.
In Part 2 of her video series, Melinda Fellner Bramwit explains the current program options for an Asset-Based Penalty or an Income-Based Penalty. Enrolling into the program admits an intentional violation of a legal duty and the first step is to submit an application for preliminary acceptance by sending a fax to the IRS. Most taxpayers will hear back within 60 days and be accepted into the program unless they are under an audit or criminal investigation. The next step is to send a letter to the Criminal Investigation Department with an attached list of assets being reported. Typical turnaround time is 60-90 days for preliminary acceptance and the beginning of the document production phase.
Melinda details the process more closely in the video below.
As stated in our previous post on June 19, 2014, there are several options available to the taxpayer in the United States and abroad to come forward and report US income and file the appropriate informational returns such as FBARs, Forms 3520 and others. For a taxpayer who decides to enter the Offshore Voluntary Disclosure Program (“OVDP”), there is currently an asset-based penalty of 27.5% of the highest aggregate balance of the assets in the applicable eight-year period, as well as an income-based penalty imposed on the unreported income. The 27.5% rate becomes 50% in some circumstances where the taxpayer has holdings in certain enumerated foreign financial institutions, which are listed on the IRS page here. For some of these OVDP participants, their facts may dictate that they will want to “opt-out” of the OVDP program to undergo a regular IRS audit examining their returns and judging their overall level of willfulness (defined as an intentional violation of a known legal duty). In some circumstances, such an audit can produce a penalty lower than the OVDP rate. Taxpayers in this opt-out audit situation should know that they are not bound by the audit results; they maintain the same appeal rights in the OVDP audit as they would in a regular IRS audit. Of course, an affected taxpayer should discuss this option with a reliable professional first.
It has been more than two years since the IRS launched the third official offshore voluntary disclosure program (“2012 OVDP”.) In its current form, 2012 OVDP has no set closing date. It is meant to bring U.S. taxpayers into compliance by offering them a fitted approach to filing informational returns and amending their tax returns for unreported offshore income without criminal proceedings.
The price tag? An asset based penalty in the amount of 27.5% of the highest aggregate balance in non-compliant accounts and an income based penalty in the amount of the underpaid tax on the unreported income, plus 20% of that tax plus interest.
For some time now, the IRS has been focusing on offshore income and offshore assets. Since 2009, the IRS has had three different offshore voluntary disclosure initiatives, designed to offer amnesty to non-compliant U.S. taxpayers who would like to come forward to straighten out the federal income tax situation and their informational filing situation (commonly FBARs).
The Treasury Department has announced that paper Foreign Bank Account Reports (“FBARs”) are no longer acceptable.
We previously wrote a blog post on the program the IRS launched in September of 2012 for certain taxpayers with offshore income who might qualify for a program which is an alternative to the Offshore Voluntary Disclosure Program. On February 27, 2013, the IRS issued an informative publication giving guidance on issues taxpayers considering entering the program for non-resident, non-filers should consider.
Of course, any potentially affected taxpayer should consult with their tax professional to see if their case fits within the narrow exceptions.
IRS Issues More Guidance on Streamlined Procedure for Non-Resident, Non-Filer U.S. Taxpayers, Possible Alternative to 2012 OVDP
In June, we wrote about the IRS announcement of a new program available in addition to the 2012 Offshore Voluntary Disclosure Program, which would be available in limited circumstances to certain taxpayers meeting IRS criteria. The IRS has now formally announced and outlined a procedure available for non-resident U.S. taxpayers who: (i) have resided outside of the U.S. since January 1, 2009; and (ii) have not filed a U.S. tax return during the same period. In order to qualify for the new procedure, the subject taxpayers must also present a low-compliance risk (defined as less than $1500 of tax due for the appropriate years and an absence of high risk factors, such as current audit or investigation or previous FBAR penalties).
In our last post regarding Offshore Voluntary Disclosure Program (“OVDP”), we wrote about the Internal Revenue Service’s new efforts to help U.S. Citizens living abroad, including dual citizens and those with foreign retirement plans, understand their U.S. reporting requirements. We also noted that notwithstanding that notice, the Service had not released any formal guidance in the area. Since that post, the Service has issued guidance for the new OVDP in the form of a question and answer publication (“2012 Q and A”) similar to the one issued for the 2011 Offshore Voluntary Disclosure Initiative. The main differences in the 2012 Q and A from 2011 are as follows:
The IRS has been accepting information from taxpayers who participated in the 2009 Offshore Voluntary Disclosure Program (“2009 OVDP”) to support a reduction in the 20% penalty they paid with their submissions or their closing statements (Form 906) if the facts of their case satisfy the 5% penalty outlined in the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”). This reduced 5% penalty (5% of the highest aggregate balance of the taxpayer’s offshore accounts for the program years) was not available in the 2009 OVDP.
Tune in to International Television, Inc. (ITV) on Thursday, March 29, 2012, at 3:30 PM, where Norris McLaughlin & Marcus tax partner Melinda Fellner Bramwit will discuss offshore income issues, as well as the IRS Offshore Voluntary Disclosure Program, in an interview with Renee Lobo.
ITV is available on Cablevision channel 244, Time Warner channel 563 and RCN Channel 476.