The tax attorneys at Nardone Law Group (“NLG”) routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program. As NLG’s clients, Ohio taxpayers, and other NLG blog-readers have come to expect, we want to provide an update on the recent changes the IRS made to its Offshore Voluntary Disclosure Program, and the newly expanded IRS Streamlined Filing Compliance Procedures. As we always advise our clients and inform taxpayers at large, whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances. This guidance is even more important now given the latest changes to the Offshore Voluntary Disclosure Program and the expansion of the Streamlined Filing Compliance Procedures.
This article provides a brief overview of the significant changes to the Offshore Voluntary Disclosure Program, the expansion of the Streamlined Filing Compliance Procedures, and how NLG works with each taxpayer to determine the best option to achieve federal tax compliance for that taxpayer’s specific facts and circumstances. As a beginning point for better understanding and appreciating the IRS’ recent changes to the Offshore Voluntary Disclosure Program, it would be helpful to review our prior article regarding Offshore Voluntary Disclosure Program Penalties and Opting Out. As you can see, NLG works with each taxpayer to determine whether the entering Offshore Voluntary Disclosure Program or whether opting out and undergoing a regular examination is the best option to become compliant. But, given these recent updates and expansions, NLG is now more often evaluating the Streamlined Filing Compliance Procedures as potentially being the preferred option for each taxpayer.
Recent Updates to the Offshore Voluntary Disclosure Program
Now that you have this important background, the following updates to the 2012 Offshore Voluntary Disclosure Program will, appropriately, seem much more significant:
1. Now, a 50% offshore penalty applies if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.
NLG Comment: At first glance, taxpayers may think that this change is fairly benign. But, to the contrary, this is a major change given that the governments of approximately 78 foreign countries have already agreed or are finalizing negotiations with the U.S. government to share information regarding U.S. taxpayers owning accounts, assets, or entities in those countries. This information sharing will invariably lead to more overarching investigations of large foreign financial institutions and resulting criminal charges, similar to those we highlighted in our article titled IRS Crackdown: Credit Suisse Pleads Guilty to Conspiracy to Aid U.S. Taxpayers in Filing False Tax Returns and Forms with the IRS. For those taxpayers with undisclosed offshore holdings whose banks may become subject to a U.S. government investigation, their cost for coming back into U.S. tax compliance just increased significantly. Thus, it is important for noncompliant taxpayers to come forward before their foreign financial institutions fall under IRS or U.S. Justice Department scrutiny.
2. For taxpayers who do not need to enter the Offshore Voluntary Disclosure Program or utilize the Streamlined Filing Compliance Procedures, and simply have delinquent FinCEN Forms 114 (formerly Form TD F 90-22.1) Report of Foreign Bank and Financial Accounts (“FBAR”) or foreign information returns (such as Form 8938 Statement of Specified Foreign Financial Assets), there are new:
a. Delinquent FBAR Submission Procedures; and
b. Delinquent International Information Return Submission Procedures.
3. There are no longer reduced 12.5% or 5% offshore penalties under the Offshore Voluntary Disclosure Program because of the expansion of the Streamlined Filing Compliance Procedures.
4. The IRS is compelling taxpayers to provide additional information and documentation to enter the Offshore Voluntary Disclosure Program, and has modified the required offshore voluntary disclosure letter and attachment.
5. A taxpayer must now pay the offshore penalty at the time the taxpayer makes an Offshore Voluntary Disclosure Program Submission.
Expanded Streamlined Filing Compliance Procedures
Previously, only non-resident U.S. taxpayers who had failed to file required returns and reports could qualify for the Streamlined Filing Compliance Procedures. But, the Streamlined Filing Compliance Procedures are now available to:
- A larger contingent of U.S. taxpayers residing offshore; and
- For the first time, U.S. taxpayers residing in the United States.
The IRS has now eliminated the requirements that a taxpayer have $1,500 or less of unpaid tax per year and submit a risk questionnaire to qualify, but is requiring that taxpayers certify that prior noncompliance was not due to willful conduct. Importantly, qualifying U.S. taxpayers living outside the country, all penalties will be waived. Finally, with respect to resident U.S. taxpayers, the penalty will be only 5 percent of the highest aggregate balance of the foreign financial assets causing the tax compliance issue over the relevant period. Thus, the expanded Streamlined Filing Compliance Procedures can be a very helpful tool for certain taxpayers seeking to become compliant with U.S. tax reporting and payment obligations related to their foreign accounts, assets, or entities.
As you can see, it is important to have an experienced tax attorney evaluate your case to decide whether the Offshore Voluntary Disclosure Program, opting out and undergoing a regular civil examination, or the Streamlined Filing Compliance Procedures is best for you. Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program. If you have an undisclosed foreign account, asset, or entity, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.