New 2014 Offshore Voluntary Disclosure Program: The Good, the Bad, and the Ugly

The Internal Revenue Service announced on June 18, 2014 significant modifications to the Offshore Voluntary Disclosure Program (OVDP) effective on July 1, 2014. The new modified 2014 OVDP FAQs are now available on the IRS’s website. The underlying theme in all of the changes to the 2014 OVDP is that it is mainly used for taxpayers who willfully failed to report their foreign assets and want to escape criminal prosecution. This article addresses some of the significant changes to the 2014 OVDP.

The 2014 Offshore Voluntary Disclosure Program Modified

Highlights of the changes to the 2014 Offshore Voluntary Disclosure Program OVDP include:

1. Requiring additional information from taxpayers applying to the program. Practice Note: Effective, July 1, 2014, changes were made to the documents used to enter into the OVDP including the pre-clearance request, Offshore Voluntary Disclosure Letter, attachment, and other documents.
2. The IRS eliminated the 2012 OVDP reduced penalty percentages for certain non-willful taxpayers because it expanded the streamlined procedures. Practice Note: Under the 2012 OVDP, certain taxpayers could obtain reduced penalties. Those provisions are now eliminated and replaced by the expansion of the streamlined procedures for non-willful taxpayers.
3. The IRS now requires taxpayers to submit all account statements, which may be voluminous. As a tradeoff, the IRS is allowing taxpayers to submit account statements electronically.
4. Taxpayers must now pay the offshore penalty at the time of the OVDP application.
5. The change that will most significantly affect most taxpayers is that the IRS increased the offshore penalty from 27.5% to 50% if taxpayers submit their pre-clearance request after it becomes public that a financial institution where the taxpayer holds the account, or another party facilitating the taxpayer’s offshore arrangement, is under investigation by the IRS or Department of justice.

Modifications to the OVDP Frequently Asked Questions

Under the 2014 OVDP, the following FAQs that were relevant to the 2012 OVDP were modified:

1. FAQ 7.2 was changed to increase the offshore penalty to 50%.
2. FAQ 17 concerning filing delinquent FBARs has been replaced and superseded.
3. FAQ 18 concerning filing delinquent international informational returns has been replaced and superseded.
4. FAQs 52 and 53 has been eliminated due to the expansion of the streamlined procedures.
5. FAQs 31 to 41 were modified for clarity and consistency purposes.
6. FAQ 23 was modified to require additional information for pre-clearance by Criminal Investigations.
7. FAQ 7 has been modified to require that the offshore penalty be paid at the time of the OVDP submission.
8. FAQ 25 has been modified to require all account statements be submitted on CD or DVD.
9. The following FAQs were deleted: 16, 17, 18, 19, 51.1, 51.2, 52, and 53.

Full details of the changes to both the streamlined procedures and OVDP can be found on IRS.gov.

Columbus Tax Attorney | Ohio Tax Lawyer

Contact Porter Law Office, LLC

Columbus tax lawyer Matthew R. Porter at Porter Law Office, LLC assists taxpayers with offshore issues including FBAR compliance, undisclosed foreign accounts, and the OVDP. The modifications and the new 2014 OVDP may affect your case in a significant way. Contact Columbus tax attorney Matthew Porter today for a free consultation to discus your case.