In 2009, the Internal Revenue Service (IRS) opened up the Offshore Voluntary Disclosure Program – commonly abbreviated OVDP – as a means of encouraging willful violators who run the risk of criminal prosecution to safely come clean with their overseas assets. This was successful in bringing tens of thousands of taxpayers into compliance but the program has since ended. If you were hoping to take advantage of the OVDP, there are still ways of engaging in offshore disclosures by consulting with an experienced tax attorney.
The offshore voluntary disclosure program ended on September 28, 2018, largely because there were fewer people taking advantage of the program and there were more who started to take part in streamlined filing. Any of these programs could end at any time but the IRS decided to stop the offshore disclosure program which provided the protection to willful taxpayers from criminal prosecution. A heightened awareness means more taxpayers with international accounts are likely to report them as required.
This program allowed individuals who may have criminal exposure to file eight years of tax returns and FBARs. The IRS would then assess one international offshore penalty of 27.5% based upon the highest foreign account balance in one of the years of the disclosure, in addition to paying the tax and interest on the unreported income. As a result, that taxpayer would not be criminally charged for noncompliance during those eight years.
Similar to the current voluntary disclosure program that has been in place since this program ended, it required the taxpayer to submit a pre-clearance to the IRS. Ideally, their criminal division would confirm that there was no active criminal investigation. At that point, the taxpayer submits all of the amended tax returns, bank statements, and foreign account statements for audit with the IRS.
This program was aimed at any taxpayer who had undisclosed offshore accounts or assets that met the IRS’s requirements under IRM Section 22.214.171.124, which codified the IRS’s approach to let anyone who made criminal errors disclose those actions voluntarily. Those who were already under an active civil or criminal examination were not eligible for this program.
With the end of the Offshore Voluntary Disclosure Program, there is no longer an automatic protection against criminal liability. However, you can still disclose using the Streamlined Foreign Offshore Procedures (for U.S. taxpayers residing outside of the country) or the Streamlined Domestic Offshore Procedures (for those living in the U.S.) if you had non-willful intentions. You may also file delinquent FBARs if the IRS has not already notified you about noncompliance.
There are a number of important factors that you must determine before deciding on which program to utilize. Contact Pontius Tax Law for guidance.