Posts Tagged ‘OVDP’
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.
In April and August of 2011, we published alerts on the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”) offering eligible taxpayers a uniform, streamlined and predictable process permitting them to come into compliance with United States income tax laws concerning offshore accounts and offshore entities. The 2011 OVDI followed the IRS 2009 Offshore Voluntary Disclosure Program (“2009 OVDP”) and provided a detailed form of guidance in a question and answer publication (“2011 Q and A”). Fast forward to 2012, where, on January 9, the IRS announced its third initiative in this arena, the 2012 OVDP. To read the rest of the alert, click here (PDF).
Many U.S. taxpayers plan to “opt-out” of the IRS offshore disclosure programs, but what does “opt-out” mean? How can a taxpayer “opt-out”?
In its question and answer publication on the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”), the IRS formally introduced the concept of “opt-out” (Question and Answer 51). Q&A 51 states that if the offshore penalty (or as many taxpayers know it, the 25% Slap Penalty of 25% of the taxpayer’s highest off-shore account balances, in the aggregate, for the OVDI years) is unacceptable to the taxpayer, the taxpayer must indicate, in writing, that they have elected to “opt-out” and formally withdraw from participation in the OVDI (or the 2009 Offshore Voluntary Disclosure Program “OVDP”). Q&A 51 continues to state that the procedures for this “opt-out” will be set forth in a separate guide entitled “Opt-out and Removal Guide for 2009 OVDP and 2011 OVDI” posted to the IRS website.
To date, there is no such posting. At this point, there is no guidance on how to effectuate this “opt-out.” The lack of guidance from the IRS here is curious considering the fact that so many taxpayers are relying on the opt-out so that they can demonstrate the absence of willfulness in their filings and undergo a garden-variety IRS audit. Being able to eliminate “willfulness” is crucial to those taxpayers who want to come clean to the IRS and avoid criminal penalties and/or prosecution.
We are monitoring the posting of this IRS guide as are many practitioners. Consult your tax advisor for updates.
The IRS recently announced that it has reopened its offshore voluntary disclosure program “to help people hiding offshore accounts get current with their taxes…following strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.” The announcement stated that the “third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.”
The specific provisions of the offshore voluntary disclosure program (“OVDP”) will be released by the IRS within a month. On its website, the IRS will update its Frequently Asked Questions about offshore accounts and provide specific details about the new program.
IRS Commissioner Doug Shulman released a few details about the OVDP, including the three-level penalty structure based on the highest foreign bank account/foreign asset value for the eight years prior to the disclosure times 5% (limited situations), 12.5% (smaller accounts), and 27.5% (for most accounts); and the need to file back tax returns for eight years and pay accuracy-related and/or delinquency penalties. The 27.5% penalty rate is up from the 20% and 25% rates used for the 2009 and 2011 programs, respectively. There is no specific deadline for submissions.
If you are considering applying for the reopened OVDP, contact your tax advisor as soon as possible to discuss whether participating in the OVDP makes sense based on your particular circumstances.