End of the Offshore Voluntary Disclosure Program – What does this really mean?

Offshore Voluntary Disclosure Program or OVDP is made primarily for those people who did know that they were actually needed to be reporting the foreign assets or income, and did not; that is those people who acted like this intentionally.

Eligibility

• You made investments of the legal source funds in your undisclosed assets; that is no funds derived from some kind of criminal activity
• You haven’t made any submission pursuant to the streamlined procedure
• You aren’t under criminal investigation or civil examination by the IRS

On 13 March 2018, the IRS announced that the Offshore Voluntary Disclosure Program would be ending on 28 September 2018, and any submissions that are not entirely completed by the due date would be out rightly rejected from this program. It means that someone who started but not completely complied with his or her documentation requirements by the due date would not be actually able to take an advantage of this program and would rather be needed to use rules of standard voluntary disclosure submission, which aren’t quite friendly. Being a refresher, the Offshore Voluntary Disclosure Program rules need the taxpayers to just comply with the below procedures:

• You need to confirm that you aren’t under examination or audit for any problem.
• Check the advisers and foreign financial institutions against the blacklist of IRS that is available on the IRS site. In case they’re on this list then you might be subject to 50 percent penalty.
• You also need to make sure to acquire the OVDP Letter, Pre-Clearance Letter, and Required Attachments fully completed before 28 September that is a deadline.
• Provide complete copies of previous eight years’ worth of the tax returns.
• Give the amended tax returns for last eight years which include complete international informational reports and unreported foreign financial income including but are not just limited to the Forms 3520-A, 5471, 3520, 8865, 8621, 926, and 8938.
• Give the delinquent or amended FinCEN Forms 114 and Foreign Bank Account Report (FBAR) for previous eight years.
• Give complete copies of the foreign financial statements for the previous eight years.
• Fill the form of IRS OVDP Penalty Calculation.

OVDP Program 

There are different penalty provisions that are attached with the FBAR and the tax due on an unreported income. As the program initiated in the year 2009, the penalty provisions have progressively been quite punitive. This program is geared towards the taxpayers who knowingly or intentionally failed to hide or report income. What about the taxpayers who failed to report their income or even were suggested by the tax preparer that was not right? So what do the taxpayers do as well as how does an end of the OVDP program affect them?

For the taxpayers who are delinquent or even those we may classify as the “bad actors,” an end of the OVDP program can be a very serious issue. Though, for the remaining taxpayers who actually did not knowingly fail to report their income for a reason, there’s still a secure way back into the compliance. This is called the Streamlined Filing Compliance Program or SFCP, and this is quite forgiving. And, this is not even ending in the coming September. The program is actually broken into 2 main parts that is first one for those people who are living in the U.S. and second one is for those people who are living outside the U.S.A. during the time period of noncompliance. The major difference between these two is the provisions of penalty, with the taxpayers living in the U.S. who are facing a 27.5 percent of penalty on the high balance of their foreign accounts versus 5 percent for those living offshore. 

Hence, whilst the OVDP is going to end there’s still one process left for coming clean as well as getting caught up to the date in case you are noncompliant. Depending on the situation, any one of the programs might be a good viable solution in order to correct the previous filing errors, but this is very crucial to discuss the options with some tax professional. Please contact your tax expert for more details and discuss which of the options, in case any, will be suitable for your condition.