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Offshore Voluntary Disclosure Program (OVDP) explained!

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Author(s): Alexey Manasuev
The following article by Alexey Manasuev,  first appeared in AdvocateDaily.com,  October 4, 2017.
Date: October 2017

By law, every U.S. citizen and U.S. resident is required to file certain financial disclosures and U.S. income tax returns (provided certain requirements are met), regardless of their place of residence. On a more fundamental principle, all U.S. citizens residing outside of the United States are expected to comply with U.S. law, including tax law, no matter how complex that law is or how frequently the law or regulations change. And they do change a lot and often.

With the new technological capabilities, enhanced transparency, and ever-increasing collaboration of foreign financial institutions with the U.S. Internal Revenue Service (“IRS”), locating and tracking of delinquent U.S. taxpayers outside of the United States is no longer a serious challenge. Moreover, since the enactment of Foreign Account Tax Compliance Act (“FATCA”) in 2010, most U.S. counterparts signed Model I or Model II Intergovernmental Agreements (“IGAs”) with the United States and enacted domestic legislation consistent with the IGAs.

In case of Canada, for example, under currently effective Model I IGA, Canadian financial institutions (a term broadly defined) are required to report beneficial ownership of certain accounts to the Canada Revenue Agency (“CRA”) that in turn transmits that information to the IRS. That in turn, makes it almost impossible to stay off of the IRS’s far-reaching radar. In short, ignorance is not bliss when it comes to tax laws and the consequences of being non-compliant may be severe. In some cases, civil penalties, quite substantial at that, are just the beginning of what may end up for delinquent taxpayers in potential criminal prosecution in a worst-case scenario. And, the clock is ticking… and, time is running out for taking a proactive approach and protecting one’s interests.

Delinquent taxpayers often ask why should they come into compliance now, after all, the IRS has not been able to “find” them all those years. The answer is simple: coming into compliance voluntarily and pro-actively, under one of the IRS amnesty programs, allows delinquent taxpayers avoid substantial civil penalties and generally eliminate the risk of criminal prosecution with respect to the matters covered under the applicable amnesty program. Importantly, once in compliance, the taxpayers can stop worrying that one day, the IRS may get to them. If that happens, the delinquent taxpayer loses all protection that in many cases may be otherwise available under one of the amnesty programs ….

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