Offshore Voluntary Disclosure Program (OVDP)

Columbus, Ohio Tax Lawyer

Under the Offshore Voluntary Disclosure Program (“OVDP), the Internal Revenue Service (“IRS”) provides taxpayers the opportunity to come forward and report income from offshore accounts while minimizing their risk of criminal prosecution. Under the civil settlement structure of the OVDP, taxpayers pay an offshore penalty instead of a variety of other penalties relating to their undisclosed foreign accounts.

The IRS has stated that it will not recommend criminal prosecution to the Department of Justice if a taxpayer makes a truthful, timely, and complete voluntary disclosure under the OVDP.

This article provides the basic framework of the IRS’s Offshore Voluntary Disclosure Program.

The 2014 Offshore Voluntary Disclosure Program

As the U.S. continues to enter into Intergovernmental Agreements (“IGAs”) with more and more countries, the IRS’s offshore enforcement activities will continue to rise. You should consult with an experienced tax attorney to determine whether you need to make an offshore voluntary disclosure.

On June 18, 2014, the IRS announced major changes to its offshore voluntary compliance programs, including the OVDP. The IRS expanded the streamlined procedures and modified the OVDP. The IRS Commissioner, John A. Koskinen announced by press release that the changes were made to provide additional flexibility to those taxpayers who were not willfully hiding offshore assets. The most significant change in the 2014 OVDP is that account holders at certain banks are now subject to a 50 percent offshore penalty, instead of the 27.5 percent, if they came in under the OVDP after August 4, 2014.

The Basics of the Offshore Voluntary Disclosure Program

If you meet the criteria to participate in the OVDP, you must first request acceptance into the program. Acceptance requires coordination with the IRS Criminal Investigation Lead Development Center. IRS Criminal Investigation will notify you whether you whether your voluntary disclosure has been preliminarily accepted.

Once accepted by IRS Criminal Investigation, you must submit a submit the voluntary disclosure package to the IRS. The OVDP package includes amended tax returns, Report of Foreign Bank and Financial Accounts (“FBAR”) Forms, Forms 8938 (if applicable), and information about your offshore accounts. In addition, you must submit full payment of the tax, interest, and certain penalty amounts. 

Opting Out of the OVDP

If you have entered into the OVDP but disagree with the application of the offshore penalty, you may elect to “opt out” of the program. See FAQ 51. An opt out is an irrevocable election to have the case handled under the IRS’s standard audit process. Upon review of the facts and circumstances of the case, the IRS will determine the appropriate penalties.

Reporting Requirements for Foreign Financial Assets

Under the Foreign Account Tax Compliance Act (“FATCA”) enacted in 2010, specified individuals (U.S. citizens, residents and certain non-resident aliens) are required to report foreign financial assets to the IRS. See I.R.C. § 6038D. The FATCA rules generally apply to U.S. taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding $50,000. See Notice 2011-55 for additional threshold requirements. If you are required to report a foreign financial asset, you must file Form 8938, Statement of Specified Foreign Financial Assets with your tax return. 

Practice Pointer: The reporting requirement for Form 8938 is separate from the reporting requirement for the FBAR, FinCEN Form 114, Report of Foreign Bank and Financial Accounts (formerly TD F 90-22.1). Individuals must file each form if they meet the relevant reporting requirements. Each form also contains its own penalty requirements. Prior to filing, you should review the IRS’s comparison of Form 3938 and FBAR requirements.

Tax Attorney

Offshore Voluntary Disclosure Program Representation

Porter Law Office, LLC is a boutique tax controversy law firm that assists taxpayers with tax compliance before the IRS. If you have an undisclosed foreign account, you need to know your options under the IRS’s Offshore Voluntary Disclosure Program. If you have reported taxable income from the foreign account, but recently learned you should have been filing FBAR forms, you should discuss your case with an experienced tax lawyer. Contact Columbus, Ohio tax attorney Matthew R. Porter, J.D., LL.M. today for a free consultation to discuss your foreign account reporting requirements and eligibility under the OVDP.

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Helpful Offshore Voluntary Disclosure Program Resources