Previously, the IRS had two programs, Offshore Voluntary Disclosure Program (2009) and Offshore Voluntary Disclosure Initiative (2011), which have been discontinued. In their place, the IRS has implemented a new program “affectionately” known as Son of OVDP, but is still known as OVDP.
The main difference to the new OVDP is that there is no deadline. The stipulation is that the IRS demands full cooperation, because if you get caught concealing foreign assets while you are in the program, all bets are off. Also, you need to act quickly, as the IRS has the option to end or adjust OVDP at its discretion, which could mean a change in guidelines or an increase in penalties.
There are three steps to OVDP:
Step 1: The taxpayer must submit a pre-clearance request to Criminal Investigations on Form 14457. The latest version of the form was released in March 2019.
Step 2: After pre-clearance, the taxpayer is subject to a six-year voluntary disclosure program.
Step 3: Penalty framework. The taxpayer will pay a 75 percent fraud penalty for the highest tax deficiency
So, that is the low-down for taxpayers who were in willful violation of FBAR. Now, let us take a look at the programs for non-willful violations.
Streamlined Programs allow you to come into the program if you have made a non-willful violation. Remember, this is a very fact-sensitive determination, and you likely should seek tax counsel’s advice on whether your circumstances would allow you to qualify.
The benefit of these programs is that you can walk away with only paying a 5 percent penalty after making full disclosures. However, you should really approach this with caution because there are no guarantees and an audit may accompany to verify that the disclosures are full and complete.
The requirements for this program are:
Before we delve into the non-willful compliance programs, we should take a look at how the IRS defines non-wilful. For streamlined programs, the IRS defines non-willful as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirement of the law.” You are going to have to prove your case to the IRS (under threat of perjury and punishment) that your actions were not intentional.
Here are some questions that the IRS will hard want answers to:
The IRS is also going to want to know about your tax preparer and what information you may or may not have given them:
As you have probably deduced, it is pretty difficult to prove non-willfulness to the IRS, but you can certainly try. Let me say this … whether or not you decide to retain our firm to assist you … you would be doing yourself a great disservice to try to face this on your own. As it has been stated before, the IRS is serious about going after these offshore accounts and wringing as much tax revenue (including penalties) out of them as possible. Make one dubious or incomplete answer to any of these (and other) questions, and you could seriously sabotage your chances at passing the non-willful tests and any hope of getting into one of the streamlined programs.
The main differences between SFOP and SDOP is that in SDOP, the taxpayer qualifies as a resident taxpayer; in SFOP, you are classified as a non-resident U.S. taxpayer. Secondly, for SFOP, all penalties are waived; the taxpayer only needs to file original or amended returns, pay taxes and interest due over a three-year period, and file delinquent or amended FBARs for the most recent six years.
For SDOP, the taxpayer must have filed original returns, amended returns and paid taxes and interest due over a three-year period and a 5 percent miscellaneous penalty on the highest account balances of the taxpayer’s offshore assets (using a six-year look back period and the year-end balances).
The first step that must be taken for both SFOP and SDOP is to file Forms 14654 (domestic) and 14653 (overseas). These are certification forms and are extremely complex. That is why we cannot stress strongly enough that you should have an expert in tax law help you complete this, and other resolution program forms.
Forms needed: 14653 (certification form)
Additional Requirements: The taxpayer was outside of the U.S. for at least 330 full days for one of the streamline years. Temporary presence of the taxpayer in the U.S. or maintenance of a dwelling in the U.S. by an individual necessarily means that the taxpayer’s “abode” is in the U.S. (non-residency requirements). Taxpayers who are green card holders or not U.S. citizens,meet the non-residency requirement if they did not meet the “substantial presence” test for any of the past three years for which the U.S. tax return date has passed.
In addition to completing and submitting the required forms and paying all taxes and penalties, the you must:
Once you are have met the eligibility for SFOP, the process is as follows:
Forms needed: Form 14654 (certification form)
Additional Steps: You must file amended tax returns and file all required informational returns (for example: 3520, 3520-A, 5471, 5472, 8938, 926, and 8621)
You must also file any delinquent FBARs for any of the last six years missing a filing.
In addition to completing and submitting the required forms and paying all taxes and penalties, then you must:
Once you are have met the eligibility for SDOP, the process is as follows:
As we have mentioned, one major difference between SFOP and SDOP is that SDOP incurs a 5 percent miscellaneous penalty on the highest aggregate balance or value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered FBAR period. The following are assets that are included in the penalty assessment.
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