Update on the 2014 IRS Offshore Voluntary Disclosure Program

Per the OVDP FAQ, the 2014 Off Shore Voluntary Disclosure Program closed effective September 28, 2018. The program had been successful in the past, but there had been a significant decline in the number of taxpayers participating in the OVDP as well as an increase in awareness of the IRS offshore tax and reporting obligations. The IRS had previously stated publicly that the 2014 OVDP would close at some time. Taxpayers have had the opportunity to participate in OVDP since 2009.

Even while the OVDP closed, offshore tax compliance and evasion remain top priorities for the IRS. The IRS enforces offshore compliance with tax and FBAR requirements using information received 1) under the Foreign Account Tax Compliance Act (FATCA), which is a network of intergovernmental agreements between the U.S. and partner jurisdictions, 2) from automatic third-party account reporting, and 3) by way of other data-rich sources such as the Department of Justice’s Swiss Bank Program and various John Doe Summonses. The IRS analyzes information resources using enhanced data analytics to continue to focus on offshore tax compliance.

How Can Taxpayers Remedy Significant Offshore Noncompliance After September 28, 2018?

Taxpayers will continue to have existing avenues to disclose offshore noncompliance after September 28, 2018.  Additional information on how to make disclosures after September 28, 2018 will be promulgated by the IRS.

The Offshore Voluntary Disclosure Programs of 2012 and 2014 were designed for taxpayers with exposure to potential criminal liability or substantial civil penalties as a result of a willful failure to report foreign financial assets and pay all tax due in respect of those assets. They provided taxpayers with such exposure potential protection from criminal liability and terms for resolving their civil tax and penalty obligations. Taxpayers with unfiled returns or unreported income who had no exposure to criminal liability or substantial civil penalties due to willful noncompliance could come into compliance using one of the following methods: 1) the Streamlined Filing Compliance Procedures (SFCP), 2) the delinquent FBAR submission procedures, or 3) the delinquent international information return submission procedures.

Streamlined Filing Compliance Procedures

The Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. Taxpayers who have offshore compliance issues and meet all of the qualifications of the Streamlined Filing Compliance Procedures should continue to consider using these procedures while they are available.  One of the major points of the Streamlined Filing Compliance Procedures is that only taxpayers that can certify under penalties of perjury that their conduct was non-willful may use the Streamlined Filing Compliance Procedures. See a more detailed information regarding the Streamlined Filing Compliance Procedures.

Once a taxpayer makes a submission under the Streamlined Filing Compliance Procedures, the taxpayer may not make a voluntary disclosure to Criminal Investigation. Similarly, a taxpayer who makes a voluntary disclosure to Criminal Investigation would not be eligible to submit a disclosure under the Streamlined Filing Compliance Procedures.

Should I Participate in a Quiet Disclosure?

According to the IRS, all quiet disclosures will be reviewed and will be subject to civil or criminal penalties as determined under existing law. If the IRS initiates an audit of foreign compliance before the taxpayer submits a disclosure to the IRS, the penalties can be significant if the IRS determines that a taxpayer’s non-compliance is a result of a willful failure to comply with all of the taxpayer’s reporting obligations, including foreign obligations.

Voluntary Disclosure after the Closure of the OVDP

Voluntary disclosure is a long-standing method accepted by the IRS to provide taxpayers with potential criminal exposure a means to come into compliance with the law and potentially avoid criminal prosecution. See I.R.M. 9.5.11.9. On the other hand, taxpayers who did not commit any tax or tax-related crimes and do not need the voluntary disclosure practice to seek protection from potential criminal prosecution can continue to correct past mistakes using other procedures outlined and sanctioned by the IRS. When returns are examined, examiners will follow existing law and guidance governing audits of the issues.

Proper penalty consideration is important in the case of a voluntary disclosure, and a timely voluntary disclosure may mitigate someone’s exposure to civil penalties. As such, civil penalty mitigation occurs by focusing on a specific disclosure period and the application of the IRS auditor/examiner discretion based on all relevant facts and circumstances, including prompt and full cooperation as outlined in I.R.M. 9.5.11.9.4, during the civil examination of a voluntary disclosure.

If you have questions about the IRS Offshore Voluntary Disclosure Program, your offshore reporting obligations, or the streamlined filing compliance procedures, contact a tax attorney at Disparte Tax Law today.