Last Chance for Amnesty Regarding Undisclosed Offshore Bank Accounts
If you have undisclosed foreign bank accounts and have been considering making a voluntary disclosure under one of the existing offshore disclosure amnesty programs, you may want to come forward now as the door will soon be shut, and maybe forever. The IRS recently announced its plans to close the 2014 Offshore Voluntary Disclosure Program (“OVDP”) on September 28, 2018.
This particular amnesty program allows U.S. taxpayers (i.e., U.S. citizens and green card holders) to come forward and disclose previously-unreported foreign financial accounts without fear of criminal prosecution in exchange for paying back income taxes for eight years and a one-time penalty. Since the OVDP’s initial launch in 2009, the IRS reports that approximately 56,000 taxpayers have come forward to voluntarily report foreign financial accounts under the OVDP, paying over $11 billion in back taxes, interest, and penalties. It is also important to note that participation in the OVDP is not limited to the so-called “innocent but ignorant” crowd whose noncompliance can be attributed to a simple misunderstanding of the law or other “non-willful” conduct. This program is also open to the more sophisticated account holder whose noncompliance was intentional, willful, and more egregious and involves unreported foreign financial accounts in far greater magnitude and asset values. The only requirement is that you come forward before you are under audit or otherwise on the IRS’ radar and disclose all of your foreign financial accounts.
Although the one-time penalty under the OVDP is quite steep – 27.5% (or 50% if the financial institution is “black-listed”) of the highest aggregate balance of the taxpayer’s foreign financial accounts during the last eight years – it is still a bargain when you consider the alternative if the taxpayer is outed before he/she enters the OVDP. Without the protection afforded by the OVDP, you could possibly go to jail if convicted of criminal tax charges. In addition, if your non-compliance is discovered before you enter the OVDP you could face a stiff civil penalty equal to the greater of $100,000 or 50% of the foreign account balance for the failure to report a single foreign account on an FBAR. Regarding the failure to report the income from the undisclosed foreign account, you could be subject to the civil fraud penalty, which is 75% of the portion of the underpayment which is attributable to fraud. Finally, since this amnesty program requires the taxpayer to go back only eight years to correct previously-unreported foreign source income, the OVDP essentially “closes” prior tax years for which the 3-year statute of limitations on assessment may otherwise never expire due to unreported foreign income and/or assets in these prior tax years.
Although the OVDP is coming to an end, a related, sister program will remain available to certain “non-willful” taxpayers who wish to voluntarily resolve their prior non-compliance regarding the reporting of their foreign financial accounts. This separate amnesty program which will not be closed for the time being like the OVDP is known as the Streamlined Foreign Offshore Procedures (“Streamlined Procedures”) and is less expensive and burdensome than the OVDP. The one-time penalty under the Streamlined Procedures is only 5% (based on a look-back period of six years) and only three years of back taxes have to be paid. The Streamlined Procedures are even more favorable for nonresidents of the U.S., as they are not required to pay the one-time 5% penalty. However, to participate in this program one must certify (and the IRS must agree based on the facts) that his/her non-compliance was non-willful (i.e., due to negligence, inadvertence, mistake, or a good faith misunderstanding of the law). Although the Streamlined Procedures are not currently scheduled for extinction like the OVDP, the IRS’ decision to shut down the OVDP in September 2018 should serve as a warning that the favorable Streamlined Procedures are not likely to remain in place forever.
If you have been “on the fence” for some time regarding a possible voluntary disclosure of your unreported offshore accounts, now is the time to come forward and do just that now that the IRS is ramping down the OVDP. This is especially true if your “facts” are not good in terms of demonstrating that your non-compliance was “non-willful’ (i.e. not intentional). After all, the OVDP is the only amnesty program which offers true, absolute amnesty without regard to your level of willfulness or culpability. Even if you believe you can satisfy the subjective “non-willful” standard and qualify for the Streamlined Procedures, you should seriously consider a voluntary disclosure under the Streamlined Procedures now as this program could be shut down like the OVDP at any time. Give us a call and we will be happy to discuss the specific details and requirements of the soon-to-be-terminated OVDP as well as the continuing Streamlined Procedures.