By Eli S. Noff, Partner and Mary Lundstedt
On March 13, 2018, the IRS issued news release, IR-2018-52, announcing that the Offshore Voluntary Disclosure Program (OVDP) will close on September 28, 2018. The OVDP’s objective has enabled willful US taxpayers with undisclosed foreign assets to become compliant with US tax laws, while simultaneously avoiding substantial statutory civil penalties and virtually eliminating their risk of criminal prosecution. Now, willful US taxpayers with undisclosed foreign financial assets have just over 6 months to use the program.
The news release quotes Acting IRS Commissioner David Kautter as stating, “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Versions of the program date back to 2009, and the IRS reports that, since the initial launch, over 56,000 taxpayers have voluntarily complied. The IRS calculates that the program has generated a total of $11.1 billion in back taxes, penalties and interest.
The IRS states that “the planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.” Significantly, the end of the program also likely stems from an increased IRS confidence in its ability to unveil the identities of those who have undisclosed foreign assets. Besides the wealth of information available from a number of sources, including tax treaties, the Foreign Account Tax Compliance Act (FATCA), the Foreign Financial Asset Reporting (IRC §6038D), and whistleblower submissions, the IRS assembled its elite international tax enforcement unit in 2017– dedicated to working and developing significant international tax cases.
The news release provides the following from Don Fort, Chief, IRS Criminal Investigation, “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.” Fort continued, saying, “Stopping offshore tax noncompliance remains a top priority of the IRS.”
While the OVDP is ending, the Streamlined Filing Compliance Procedures program is currently still available to qualifying taxpayers; however, the IRS cautions that it may end this program just as it ended OVDP.
According to the news release, the IRS considers that “the implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets.” Noting that “the circumstances of taxpayers with foreign financial assets vary widely,” the IRS stated that it will continue to provide the following options for non-compliant taxpayers with respect to those assets:
1. IRS-Criminal Investigation Voluntary Disclosure Program;
2. Streamlined Filing Compliance Procedures;
3. Delinquent FBAR submission procedures; and
4. Delinquent international information return submission procedures.
Remember, a 6-month window remains to submit an offshore voluntary disclosure. Without a voluntary disclosure, willful taxpayers run the increasing risk of IRS detection, substantial penalties (including fraud and foreign information return penalties), and criminal prosecution.