Monday, November 9, 2015

Disclosing Foreign Accounts -- Disclosing Foreign Accounts -The OVDP | Bethesda Tax Lawyer

The IRS created four programs to resolve your undisclosed foreign accounts and entities for individuals.  These programs are the Offshore Voluntary Disclosure (OVDP); Streamlined Filing Compliance Offshore Procedures for foreign or domestic US Tax residents (SFOP and SDOP, respectively); Delinquent FBAR Submission Procedures; and the Delinquent Internation Informational Return Submission Procedures.  This post will focus on the requirements for the OVDP.  My posts in the upcoming weeks will discuss the other programs.

OVDP

Eligibility for OVDP

The IRS has the following requirements to enter the OVDP:

1) The funds of the undisclosed foreign accounts and entities must be from legal sources.   

2) The OVDP is available only to address a taxpayer’s personal liability. 

3) Individuals who facilitated the tax noncompliance of others are not eligible to participate in OVDP.

4) A taxpayer must cooperate with the IRS in determining his/her correct tax liability;


5) The taxpayer needs to make good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. (An IRS payment plan is permitted if you are unable to pay the balance due at the time the OVDP submission.); and


6) The taxpayer is not under an IRS civil audit/examination or criminal investigation. (The IRS permits a taxpayer to submit a preclearance request to determine whether he is under investigation by the IRS and eligible for the OVDP.)

Willfulness

The OVDP does not require a taxpayer to certify that he was non-willful in his tax non-compliance, failure to file FBARs and information returns.  The other programs all require a certification that the failure to file said forms was non-willful. 

Submission Requirements

To satisfy the requirements of the OVDP, the taxpayer will have to submit an OVDP letter and attachments; eight years of corrected income tax returns, FBARs, and any unfiled informational returns; a check to pay the taxes, penalties and interest; and a separate check to pay the offshore penalty.  There may be additional documents depending on the size of the accounts/assets. 

OVDP Penalties 

There are two penalty regimes under the OVDP: 

1) 50% - A 50% offshore penalty applies if either the taxpayer's foreign financial institution or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.  The 50% penalty applies to all assets including those that are at different institutions, and the 50% penalty applies even if the asset has been moved to a different bank or brokerage.

The list of foreign banks and facilitators subject to the 50% penalty can be found here


2) 27.5% - The 27.5% penalty applies to all other taxpayers.  

The 27.5% and 50% penalties applies to the year with the highest aggregate balance off all accounts during the eight year OVDP period.  

3) In addition to the OVDP penalty, there is a 20% penalty and interest on past due balances. 

Dealing with offshore accounts can be a complicated matter, and not selecting the correct disclosure method could have significant long-term repercussions on penalties.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

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