Offshore Voluntary Disclosure Program (OVDP) is Over
The Internal Revenue Service (IRS) announced on March 13, 2018 (IR-2018-52) that it will be closing the 2014 Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. This is an important announcement for U.S. taxpayers who may be delinquent with their U.S. tax and reporting obligations and are eligible to participate in the OVDP. To the IRS credit, the Service gave taxpayers a reasonable advance notice that gives potential OVDP candidates some time to take advantage of the OVDP, while it is still available.
According to the IRS announcement, since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used the 2009, 2011, 2012 or 2014 programs to come into compliance with their U.S. tax obligations. The IRS has noted that it has always intended on closing the program and emphasized that the government had given eligible taxpayers ample opportunity to come forward voluntarily. It is true that the program could have been closed any time, but previously the IRS did not indicate that it had any intention on closing it. The advancement in third-party reporting, unparalleled global transparency, growing information exchange between the IRS and tax authorities of other jurisdictions, as well as the increased awareness by U.S. taxpayers of their offshore tax and reporting obligations has led the IRS to the decision to close the program. For example, the Canada Revenue Agency (CRA) has already transmitted to the IRS information on over half a million U.S. persons who hold bank accounts with Canadian financial institutions under the Model I Intergovernmental Agreement (IGA).
The IRS has issued Frequently Asked Questions and Answers section on its website, which can be found at https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers. This FAQ section offers insight into the IRS rationale for closing the program.
In its notice, the IRS stated that it will use alternative tools to combat offshore tax avoidance, including continued education of taxpayers, Whistleblower leads (those “good Samaritans”), civil examination, and criminal prosecution. According to the IRS announcement, since the program’s inception in 2009, the IRS Criminal Investigations unit has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
September 28th, 2018 – Final Deadline!
Streamlined Filing Compliance Procedures
The good news is that the IRS will continue the Streamlined Filing Compliance Procedures for taxpayers who have non-willful conduct and meet certain other requirements (such as the non-residency test). According to the IRS announcement, that program has helped around 65,000 taxpayers come into compliance. However, everything good comes to an end eventually. The IRS has stated in the announcement that the Streamlined Filing Compliance Procedures would end at some point as well.
Any U.S. persons with undisclosed foreign bank accounts and assets and with delinquent tax filing obligations should seriously consider coming into compliance now, while the Streamlined Filing Compliance Procedures can protect them from hefty penalties and possible criminal prosecution. Waiting is no longer an option!
Quiet Disclosures are Bad
The IRS announcement noted that some taxpayers still simply file amended returns, reporting income from previously undisclosed foreign financial assets, without making a voluntary disclosure under one of the IRS amnesty programs. This process is known as quiet disclosure. The IRS specifically stated back in 2014 that taxpayers who make quiet disclosures may be subject to examination. In addition, such taxpayers may be found to have a willful conduct in non-compliance with applicable U.S. tax filing and reporting obligations. In the announcement, the IRS cautioned taxpayers making quiet disclosures and stated that such disclosures will be reviewed by the IRS and are subject to civil or criminal penalties.
With the implementation of Foreign Account Tax Compliance Act (FATCA) along with the IRS and U.S. Department of Justice focus on offshore enforcement, the IRS will continue to offer various options to address the failure to comply with U.S. tax and information return obligations with respect to foreign financial assets, including:
- IRS-Criminal Investigation Voluntary Disclosure Program (it is not clear from the IRS announcement whether this is OVDP, but likely it is the case and as such it would only be offered until September 28, 2018);
- Streamlined Filing Compliance Procedures;
- Delinquent FBAR Submission Procedures; and
- Delinquent International Information Return Submission Procedures.
The IRS will be issuing additional guidance after September 28, 2018.
But Can We Still Do It?
The IRS gives taxpayers till September 28, 2018 to come into compliance under the OVDP. Specifically, the IRS specified that entrance into the OVDP would still be allowed, provided the complete submission is received by the IRS or postmarked by September 28, 2018. Considering pre-clearance and the time required to prepare the whole submission and the 2017 tax season well under way, this deadline may be especially tough to meet. So, timing is of the essence.
Any taxpayers with undisclosed foreign bank accounts and assets and with any possibility of criminal prosecution (in case of willful conduct in non-compliance) should contact their U.S. tax advisor or an attorney (for attorney-client privilege) to determine the best possible steps and whether OVDP is the proper forum to become tax-compliant. If so, the affected taxpayers should work fast on preparing and filing their OVDP submission as soon as possible. Even non-willful taxpayers who are “hiding” should take advantage of the Streamlined Filing Compliance Procedures, while they still can.