Deadline Nears for Offshore Voluntary Disclosure Program

The IRS, on June 18, 2014, rolled out an expanded and modified version of the Offshore Voluntary Disclosure Program, originally introduced in January 2012.

The disclosure program has now been expanded to encompass a larger number of U.S. taxpayers with undisclosed foreign (non-U.S.) financial accounts and/or other specified foreign assets, and has modified the penalty regime.

Under the modified program, the penalty for undisclosed accounts with foreign financial institutions, currently under investigation with the IRS, will increase from 27.5 percent of the maximum value of the account, to 50 percent of the maximum value, as measured during the compliance period. However, there is a transition period during which the lower penalty amount can be retained, if action is taken. If a taxpayer has an undisclosed account with a foreign financial institution, which is currently under investigation with the IRS, the account holder has until August 4, 2014, to submit an application to participate in the Offshore Voluntary Disclosure Program and avoid the increased 22.5 percent penalty.

About Offshore Voluntary Disclosure

The U.S., via the IRS, requires that U.S. citizens, permanent residents and other tax residents report specific information on their foreign financial accounts on an annual basis (subject to certain rules and limitations). The IRS has made a significant push to encourage compliance with this reporting requirement over the past decade. A penalty of $10,000 per account, per year for non-willful failure to file, and $100,000 or 50 percent of the total account balance (whichever is greater) per account, per year for willful failure to file was established to motivate individual and business compliance.

Additionally, several voluntary programs were initiated to allow individuals to become compliant under a reduced penalty regime.

On January 9, 2012, the IRS launched the most recent program to give individuals that qualify the chance to disclose their offshore accounts. As noted above, this program was modified and expanded in June of 2014. While individuals who participate in the disclosure program will likely be subject to a penalty, the penalty is a small price to pay to avoid the substantial foreign bank account reporting penalties and potential criminal prosecution by the IRS. Keep in mind that under the new FATCA legislation that is now in effect (July of 2014), the IRS will be receiving expanded reporting information about U.S. account holders' foreign accounts, so the risk of discovery will be greater than ever before.

Contact your Eide Bailly service provider to learn more about the Offshore Voluntary Disclosure Program. You can also join us for an upcoming Offshore Voluntary Disclosure webinar on August 20, from Noon-1 p.m. CST or visit our website for more information.