Taxpayers Who Have Failed to Report Foreign Financial Assets Should Consider Acting Before September 28, 2018

Stopping offshore tax noncompliance and evasion have been and will remain top priorities of the IRS. However, one tool is expiring this fall – the Offshore Voluntary Disclosure Program (OVDP). The program will no longer be available to taxpayers after September 28, 2018.

The OVDP has been available since 2009 and has been successful. Yet, according to the IRS, there has been a significant decline in the number of taxpayers participating as well as an increase in awareness of offshore tax and reporting obligations.

The IRS enforces offshore compliance with tax and FBAR requirements using information received under the Foreign Account Tax Compliance Act (FATCA), the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting, and other sources such as the Department of Justice’s Swiss Bank Program and various John Doe Summonses. The IRS leverages information resources using enhanced data analytics to continue to make it more difficult to evade tax by hiding offshore.

Action to Take Prior to September 28, 2018

Taxpayers interested in utilizing the OVDP before it expires must submit complete disclosures conforming to the requirements of the OVDP which must be received or postmarked by September 28, 2018. Partial or placeholder submissions will not be accepted. 

Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating the Offshore Voluntary Disclosure Program and should consult with their professional or legal advisers.

Tip: Once a taxpayer makes a submission under the OVDP to Criminal Investigation, the taxpayer is not eligible to use the Streamlined Filing Compliance Procedures. Likewise, a taxpayer who makes a submission under the Streamlined Filing Compliance Procedures, may not make a voluntary disclosure (OVDP) to Criminal Investigation.

Taxpayers who simply file amended returns reporting income from previously undisclosed foreign financial assets without making a voluntary disclosure will be reviewed and subject to civil or criminal penalties.

Options After September 28, 2018

Taxpayers will continue to have existing avenues to disclose offshore noncompliance after September 28, 2018, but details have not been released.

Regardless, the Streamlined Filing Compliance Procedures will remain available after the OVDP closes. The IRS encourages taxpayers who have offshore compliance issues and meet all of the qualifications of the Streamlined Filing Compliance Procedures to use these procedures while they are available.  Only taxpayers that can certify under penalties of perjury that their conduct was non-willful may use the Streamlined Filing Compliance Procedures.

The delinquent FBAR procedures and the delinquent international information return procedures will remain available for eligible taxpayers after September 28, 2018. Both procedures are for taxpayers that have information reporting failures but no tax noncompliance.

Make sure you consult a tax expert to ensure you are not leaving any money on the table. For more information or questions contact us.

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.