In efforts to increase offshore tax compliance, the IRS just made brand new changes to its current offshore disclosure programs.
The streamlined procedures have been expanded to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts. This is a very good thing because now more people can use the procedures than could have before.
The original streamlined procedures announced in 2012 were available only to non-resident, non-filers. Taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire.
The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States. The changes include:
• Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
• Eliminating the required risk questionnaire;
• Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.
For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.
• Requiring additional information from taxpayers applying to the program;
Offshore Voluntary Disclosure Program (OVDP) Modified: The changes announced today also make important modifications to the OVDP. The changes include:
• Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
• Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application;
• Enabling taxpayers to submit voluminous records electronically rather than on paper;
• Increasing the offshore penalty percentage (from 27.5% to 50%) if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice.
I will add more in a later post. You can find the news release here. Please contact the Wilson Tax Law Group if you have questions about offshore bank account disclosures or FBAR matters under the July 1, 2014 or transitional procedures. We have handled numerous offshore cases.
Update: The IRS has published FAQ's for the Transition Rules drawing a clear line as to who can qualify for the pre-July 1, 2014 penalty rates.
Q: What if I made a request for OVDP pre-clearance before July 1, 2014, but not a full voluntary disclosure?
A: A taxpayer will not be considered to be currently participating in OVDP for purposes of receiving transitional treatment unless, as of July 1, 2014, he has mailed to IRS Criminal Investigation his voluntary disclosure letter and attachments as described in OVDP FAQ 24. Thus, a taxpayer who makes an offshore voluntary disclosure as outlined in FAQ 24 on or after July 1, 2014 will not be eligible for transitional treatment under OVDP, even though he may have made a request for OVDP pre-clearance before July 1, 2014.
These transitional FAQs can be found here.
The FAQ for the effective-July 1, 2014 OVDP can be found here.