The precise procedures under the Offshore Voluntary Disclosure process are murky at best. They resemble loading a revolver and handing it to someone with an itchy trigger finger. As other countries and their foreign financial institution buckle to the pressures of FATCA, the value of self-disclosure is beginning to lose its luster to the federal investigators. The lack of precise protocols and standards can only be an indication of the fact that the Offshore Voluntary Disclosure rocess will have a short life as foreign compliance escalates and the Streamlined programs are taken advantage of those whose conduct was non-willful. Under the current regulations, what is in it for the taxpayer according to the IRS:
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Streamlined Voluntary Disclosure for Non-Residents
Eligibility: In order for non-residents U.S. taxpayers to be eligible to participate in the Streamlined Voluntary Disclosure for Non-Residents program they must:
Streamlined Offshore Voluntary Disclosure Penalties
A Summary of the Streamlined Offshore Voluntary Disclosure Penalties
The Title 26 miscellaneous offshore penalty is equal to 5 percent of 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 tax return period and the covered FBAR period. For this purpose, the highest aggregate balance or value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.
Streamlined Voluntary Disclosure Eligibility
Streamlined Voluntary Disclosure Eligibility Requirements
In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Domestic Offshore Procedures described in this section must:
IRS Streamlined OVDI – Part Two
All tax returns submitted under the IRS streamlined OVDI procedures must have a valid Taxpayer Identification Number (TIN). Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the IRS streamlined ODVI procedures if accompanied by a complete ITIN application.
Streamlined Offshore Voluntary Disclosure Program – Part One
On September 1, 2012, the IRS first offered the streamlined offshore voluntary disclosure program to bring non-resident taxpayers back into compliance. [1] The key factor of the streamlined offshore voluntary disclosure program is that failure to file must not have been willful. As the program proved popular, the IRS has made major changes to the program to make it available to a broader base of taxpayers. First, the taxpayer has to certify that their failure to report foreign financial assets and pay all the tax due did not result from willful conduct on their part. If the failure to file was not willful, the program provides a streamlined process for filing amended or delinquent returns, and terms for resolving the tax penalty obligation. At this point, the program is in place for an indefinite time.
Streamlined OVDP – Penalties for Not Participating
The Departments of Justice and Treasury have joined forces to crack down on the failure to report foreign accounts and income. They are utilizing the Internal Revenue Service, FinCEN, and the United States Attorney General’s office in a collaborative effort to target individuals, banks, foreign financial institutions, and countries who don’t comply with FATCA and the U.S. tax laws. As their effort has proved profitable with $6.5 billion dollars of collected revenue, more assets have been allocated to allow Justice and Treasury to expand upon their success. In addition, FATCA and other new laws with enhanced penalties have come into play giving the noncompliant taxpayer, financial institution or country greater incentive to come forward before they become the target of an investigation which very well could lead to criminal prosecution or greater civil penalties. Each delinquent filing or noncompliance is considered separately under the law, and carries its own repercussions. There are several consequences for not participating in streamlined OVDP that taxpayers need to be aware of. Here are the highlights.
Offshore Voluntary Disclosure Introduction – Part Two
The IRS used much of the information it accumulated under the 2009 OVDP to continue investigations into individuals and financial institutions that facilitated the non-compliance with U.S. tax laws. With the investigations ongoing, many tax practitioners pressed the IRS on behalf of concerned non-complaint clients to continue the voluntary disclosure program. In February of 2011 the IRS responded. It announced the 2011 Offshore Voluntary Disclosure Initiative (OVDI.) The program lasted from February 2011 until September 9, 2011. The terms of the 2011 OVDI differed from that of the 2009 OVDP. Participants in the 2011 program paid a 25% miscellaneous offshore penalty on the highest aggregate value of the unreported offshore accounts from 2003 until 2010. In addition, depending on the severity of their noncompliance, they were also exposed to a 5% or 12.5% penalty. The IRS was able to close 70% of the voluntary disclosed cases that year which resulted in 15,000 additional disclosures the collection of $1.6 billion dollars in back taxes, penalties, and interest.
Offshore Voluntary Disclosure Introduction – Part One
The Department of Treasury and the Department of Justice have a new mandate – stop offshore tax cheating and bring in billions of dollars of additional tax revenue from non-disclosed foreign accounts. The Internal Revenue Services’ Offshore Voluntary Tax Disclosure Program is designed to encourage non-compliant taxpayers to come clean and bring their tax liabilities current. The IRS began this initiative in 2009 with the Offshore Voluntary Disclosure Program. The Service has now sponsored three voluntary programs. The IRS reports that the efforts have yielded $6.5 billion in back taxes and brought 45,000 tax payers back into the law abiding fold.[1] It is estimated that this represents only a fraction of funds held offshore by U.S. citizens and other required U.S. income tax filers. [2]