IRS Announces a New Offshore Voluntary Disclosure Program
On January 9, 2012, the Internal Revenue Service announced that it reopened the Offshore Voluntary Disclosure Program (OVDP) following the closure of the 2011 and 2009 programs. The IRS collected more than $4.4 billion from 33,000 taxpayers in the previous two disclosure programs. The program is intended for taxpayers who have previously failed to disclose foreign financial accounts (i.e., bank accounts, securities, etc.) or income generated from these accounts. Taxpayers who voluntarily come forward and report their previously undisclosed foreign accounts and income will be excused from criminal prosecution.
The 2012 offshore program is similar to the 2011 program in many ways, but has a few key differences:
- There is no set deadline for taxpayers to apply.
- The 2012 program will continue indefinitely, however, the terms of the program can change at any time going forward. For example, the IRS may increase penalties, or decide to end the program entirely at any point.
- Taxpayers in the highest penalty category are subject to a penalty of 27.5% of the highest aggregate balance in foreign bank accounts or value of foreign assets during the years 2003 to 2010. This is up from 25% in the 2011 program.
- Some taxpayers will be eligible for a 5% or 12.5% penalty, depending on the account balance and facts behind the accounts.
Like the 2011 program, the new program requires taxpayers who come forward to disclose the last eight tax years of information with respect to their foreign financial accounts and assets. Taxpayers will still be required to file original and/or amended returns, including information returns, such as the Report of Foreign Bank and Financial Accounts (FBAR). Payment for back-taxes, interest and penalties for up to eight years is required.
Taxpayers who hold foreign financial accounts and who have not previously filed returns or disclosed accounts should consider whether the new voluntary disclosure program is right for them or whether other methods can be utilized to come into compliance. The IRS will be issuing further guidance. If you would like more information on the new voluntary disclosure program please contact Liting Mitchell, Senior Tax Manager at Berntson Porter at 425-289-7625 or email@example.com.