The IRS’s Offshore Voluntary Disclosure Program (OVDP) has, since its inception in 2009, seen more than 45,000 taxpayers come into compliance regarding their previously undisclosed offshore accounts and assets, paying about $6.5 billion in back taxes, interest and penalties. Originally a program of limited availability offered first in 2009 and then in 2011, in 2012 the IRS made the OVDP a permanent fixture, an ongoing program without a filing deadline. Since its latest incarnation began, however, the IRS has made clear that they have the right to alter the details of the OVDP at their discretion, changing the procedures and particulars of participation, including the penalty taxpayers pay (currently 27.5%).
Earlier this month, IRS Commissioner John Koskinen outlined changes the IRS will be making to the OVDP. These particular revisions arise in response to criticism that the OVDP’s one-size-fits-all structure, wherein with only a few exceptions all participating taxpayers pay the same stiff penalties, is not fair to taxpayers whose evasion was non-willful.
The IRS previously offered streamlined procedures for some taxpayers. The changes announced this month will offer those procedures to a wider pool of taxpayers. Originally the streamlined procedures were only available for taxpayers living abroad. These procedures are now available for taxpayers residing in the U.S. Previously there was a cutoff point for eligibility. If a taxpayer otherwise qualified but had more than $1500 in unpaid taxes per year, they could not participate. This restriction has been removed. The bottom line is if a taxpayer is eligible for the streamlined OVDP, the penalty is reduced to 5% for taxpayers residing in the U.S. and for those residing abroad the penalty will be waived entirely.
This comes with additional changes to the broader OVDP. The previously existing reduced penalty rate has been eliminated in light of the enhanced availability of the streamlined procedures. The IRS will now accept electronic transmission of voluminous financial records. Most importantly, however, is the following: if before the taxpayer files their per-clearance request (the first step in participating in the OVDP) the financial institution where the taxpayer holds accounts comes under investigation by the IRS or the Department of Justice, the penalty will be raised from 27.5% to 50%. With laws like FATCA giving the U.S. increased ability to investigate foreign financial institutions, the window may be closing for certain taxpayers to take full advantage of the OVDP.
Horowitz Law Offices has represented numerous taxpayers in the IRS’s OVDP since its inception. You are welcome to contact us at (312) 787-5533 or email@example.com