Offshore Voluntary Disclosure Program

The Internal Revenue Service (IRS) created the Offshore Voluntary Disclosure Program (OVDP) to encourage US taxpayers to disclose foreign accounts and income that were subject to reporting but were not previously reported to the IRS.  The OVDP offers amnesty, at a price, for US taxpayers who willfully did not disclose their foreign accounts or income to the IRS.  As with the Steamlined Foreign Offshore Procedures (SFOP) and Steamlined Domestic Offshore Procedures (SDOP), a US taxpayer cannot already be under examination by the IRS and enter the OVDP.

 

The OVDP requires US taxpayers entering the program to amend, or file for the first time, their past eight years of tax returns and six years of FBARs and report all of the previously unreported foreign accounts and income.  In return for disclosing the accounts and filing the returns and FBARs, the IRS agrees to waive the usual FBAR penalties and instead assess a single penalty called the offshore penalty which for the OVDPs is 27.5 percent of the highest years’ aggregate value during the period covered by the OVDP.  In addition to the offshore penalty, the US taxpayer is still liable for any unpaid taxes, interest or penalties related to the unreported income.  While this is a hefty penalty, the offshore penalty is much less than the full FBAR willful failure to file penalty.

 

In addition to the reduced civil penalty, the OVDP incentivizes disclosure by providing protection from potential criminal prosecution.  Only the OVDP and not the SDOP provides protection from criminal prosecution.  

 

After determining that the OVDP is the correct program, the US taxpayer’s next step is entering the OVDP and completing a voluntary disclosure.  There are four basic steps to successfully completing a voluntary disclosure under the OVDP: (1) a preclearance request; (2) preliminary acceptance into the OVDP; (3) submission of the complete voluntary disclosure; and (4) execution of a closing agreement with the IRS.

 

Flott & Co. PC has experience advising clients with the OVDP process and successfully navigating the program.  The IRS has stated that the OVDP will close, just like the streamlined disclosure program, but has given no date.  As such, it is important to US persons with undisclosed foreign accounts or income to resolve their tax matters sooner rather than later. To learn more, visit our affiliated blog: www.doingbusinessacrossborders.com