The Internal Revenue Service (IRS) recently announced that it is ending its Offshore Voluntary Disclosure Program (OVDP). The program will officially end on September 28, 2018, which means time is of the essence for taxpayers.

“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “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.”

IRS Offshore Voluntary Disclosure Program

The OVDP allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns. While the penalties are relatively large, they are generally smaller than what they would be if the taxpayer got caught without coming forward. In addition, the IRS does not recommend criminal prosecution if the taxpayer cooperates. The IRS conducts an audit, and, at the end of the process, a closing letter is issued, which means the IRS will not re-open the case

According to the IRS, taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number has steadily declined through the years, falling to only 600 disclosures in 2017. The agency also highlights that the OVDP was never intended to be a permanent program. According to the IRS, “[t]he 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.”

In announcing the end of the OVDP, the IRS also made it clear that stopping offshore tax noncompliance and evasion remain top agency priorities. For instance, it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution. “Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations,” the IRS noted.

IRS Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to an automatic IRS audit; however, they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Accordingly, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. 

Essentially, the Streamlined Filing Compliance Procedures generally result in a smaller penalty than the OVDP program. However, there is no guarantee that the IRS will not recommend criminal prosecution. Additionally, there is no closing agreement with the IRS, which means IRS could make changes within the statute of limitations

Message for Taxpayers

Complete offshore voluntary disclosures conforming to the requirements of OVDP must be received or postmarked by September 28, 2018. In order to qualify for the program, they may not be partial, incomplete, or placeholder submissions. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns should consult with their tax professional and experienced counsel.

If you have questions about the Offshore Voluntary Disclosure Program, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jeffrey Pittard,or the Scarinci Hollenbeck attorney with whom you work at 201-806-3364.