IRS Announces Last Chance for Taxpayers with Undisclosed Foreign Assets to Enter the Offshore Voluntary Disclosure Program
On March 13, 2018, the United States Internal Revenue Service issued News Release 2018-52 announcing that it will begin to ramp down the Offshore Voluntary Disclosure Program (OVDP) and close the program on September 28, 2018. Taxpayers therefore have a limited timeframe in which to prepare and submit their materials if they wish to take advantage of the OVDP.
Individual US taxpayers have an annual obligation to report and pay income tax on income from all sources and to disclose certain foreign financial assets and accounts to the IRS and to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Taxpayers face significant monetary penalties and potential criminal charges if they fail to disclose interests in foreign financial assets and accounts.
To encourage compliance with these reporting obligations, the IRS launched the OVDP as an amnesty program in 2009. The OVDP has enabled noncompliant US taxpayers to voluntarily resolve past tax and reporting noncompliance by correcting past reporting errors or failures, disclosing and paying all tax due in respect of such assets, and paying a reduced monetary tax penalty. In exchange for completing the program, taxpayers are provided with reduced civil monetary penalties and protection from criminal prosecution by the Department of Justice (DOJ) related to the tax noncompliance.
Over the years, the IRS developed a series of additional programs and procedures for noncompliant taxpayers. For example, (i) the Streamlined Filing Compliance Procedures (Streamlined Program) is a separate voluntary program for individual taxpayers whose failure to report foreign financial assets and accounts was not due to willful conduct, (ii) the Delinquent International Information Return Submission Procedures (Delinquent Procedures) is available for taxpayers who do not need to use the OVDP or the Streamlined Program, and (iii) the Internal Revenue Manual also contains procedures for taxpayers to disclose and remedy past tax noncompliance. Both the Streamlined Program and the Delinquent Procedures will continue after September 2018.
The appropriate program to use depends upon each taxpayer’s particular facts and circumstances. The OVDP is the only IRS program that provides protection against criminal prosecution for international noncompliance combined with a favorable penalty structure, however. So, individuals concerned that their international tax or reporting noncompliance may have resulted from willful conduct should consult with legal counsel as soon as possible to determine whether the OVDP is the appropriate way to resolve issues associated with past tax noncompliance.
To meet the September 28, 2018 program deadline, taxpayers must submit a substantial amount of information to the IRS, and a complete submission will require filing amended tax returns and informational returns (for as many as eight years), as well as full payment of the amount due. Preparation of these materials often takes several months, and prompt action may therefore be required.
If you have any questions about any of the topics discussed in this Advisory or general US tax or reporting requirements for foreign financial assets and accounts, please contact your Arnold & Porter attorney or firm contacts in the Tax and White Collar Defense groups.
© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.