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2018 Update IRS Amnesty Program

Maryland Tax Attorney Explains 2018 Updates to Offshore Voluntary Disclosure Program

In June 2014 the Internal Revenue Service announced important updates to its Offshore Voluntary Disclosure Program (OVDP). These modifications include expanding the streamlined filing process for non-will violators looking to bring their foreign accounts into compliance and implementing key program changes for willful violators seeking to participate in the OVDP. According to the IRS, the 2014 OVDP changes are designed to significantly increase the number of U.S. taxpayers voluntarily coming forward to disclose foreign accounts and assets that they had previously failed to report. IRS Commissioner John Koskinen explained in his Statement: “Our goal is to build on the success the IRS has already had in reducing offshore tax evasion through the OVDP.”

Development of the Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program was first introduced by the IRS in 2009. This program gave taxpayers the chance to avoid criminal prosecution by voluntarily coming forward to report previously undisclosed offshore accounts. The program also offered participants reduced fines in the form of a single “miscellaneous offshore penalty.” Under the 2009 OVDP, the miscellaneous offshore penalty was generally calculated at 20 percent of the highest aggregate value of the individual’s unreported foreign accounts from 2003-2008.

In 2011 the IRS developed the Offshore Voluntary Disclosure Initiative. While the 2011 initiative elevated the miscellaneous offshore penalty to 25 percent, it also provided for certain taxpayers to be eligible for reduced penalties (five or 12.5 percent) in very narrow circumstances. Due to the strong interest and success of the 2009 and 2011 programs, the IRS launched a third Offshore Voluntary Disclosure Program in 2012. This tax amnesty program, which did not set forth any end date for participation, increased the miscellaneous offshore penalty to 27.5 percent.

Overview of 2018 OVDP Changes

The 2018 OVDP makes several key changes to the 2016OVDP. These revisions expand the streamlined filing compliance process to cover a broader range of taxpayers who failed to disclose their offshore accounts and assets but were not willfully evading their tax obligations.

The 2018 modifications to the streamlined process include:

  • Expanding eligibility criteria to cover a larger population of U.S. taxpayers living abroad and allowing certain taxpayers residing in the United States the opportunity to participate in the streamlined process;
  • Removing the previous $1,500 cap on unpaid tax liabilities per year;
  • Eliminating the risk questionnaire applicants had been required to complete in order to participate in the streamlined program;
  • Adding an additional requirement - taxpayers must now certify that their failure to report foreign accounts and assets was not “willful” in nature;
  • Waiving all penalties for non-willful violations for eligible taxpayers residing outside of the U.S.; and
  • Limiting the miscellaneous offshore penalty for non-willful violators residing in the U.S. to 5 percent of the offshore assets that were not properly disclosed to the IRS.

The 2014 OVDP also set forth several important changes for taxpayers who acted willfully to hide their offshore accounts and assets from the IRS. Under the 2014 OVDP, willful violators seeking to take advantage of the IRS tax amnesty program will now have to fulfill additional terms and conditions in order to participate in the program. These terms and conditions include:

  • Providing additional information to the IRS at the time of OVDP application;
  • Submitting all account statements to the IRS;
  • Paying the offshore penalty to the IRS at the time of OVDP application;
  • Paying an increased penalty (50 percent rather than 27.5 percent) should it become public that the IRS or DOJ has initiated an investigation of the bank where the taxpayer’s accounts are held prior to the time the taxpayer submits a pre-clearance request to the IRS.

Taxpayers Need to Take Quick Action

Taxpayers who have failed to properly report their offshore accounts should take action now to bring their accounts into full compliance with the law. Increased investigative efforts by the IRS and the DOJ combined with the implementation of the Foreign Account Tax Compliance Act (FATCA) means that taxpayers with undisclosed offshore accounts are under greater scrutiny than ever. Contact US International Tax Advisors today to discuss your unique situation.


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