The Internal Revenue Service is going back to the well one more time as it released the Offshore Voluntary Disclosure Program (OVDP) for a third time in as many years. For Uncle Sam, this program has been very successful in raising approximately $4.4 Billion.
Little has changed from the previous Offshore Voluntary Disclosure Program published earlier in our blog. The IRS intends for this program to function similarly by offering an opportunity for taxpayers to report offshore accounts and get current with their taxes.
The benefit of this program is the IRS has established no end date to “OVDP version 3”. The IRS has issued one large caveat to the third installment of the OVDP by stating the program can be changed or ended entirely at any point.
Obviously, the incentive is to come forward as soon as possible because those who do will not face the substantial penalties for fraud and foreign information returns along with the increased likelihood of criminal prosecution.
To put this in perspective, the current OVDP leaves taxpayers with a 27.5 percent penalty on the highest balance of the foreign asset, not to mention all the back taxes and interest for all years the assets were unreported. Accuracy-related and/or delinquent penalties will be tacked on for those back years, as well.
For taxpayers with unreported foreign assets under $75,000 for all years covered (2003 – 2010), a reduced penalty of 12.5 percent on the highest balance of the foreign asset during that time period may be assessed instead of the 27.5 percent noted above. Compliance with the OVDP will result in substantial penalties and one can only imagine the magnitude of enforcement if the IRS were to uncover these assets prior to a voluntary disclosure.
For those who are interested in learning more about making an Offshore Voluntary Disclosure, please see guidance issued by the IRS below:
The genesis of the OVDP and other foreign asset disclosure forms arise in conjunction with the Foreign Account Tax Compliance Act (FATCA) as part of the Hiring Incentives to Restore Employment (HIRE) Act. Not only do these new forms and programs implore the taxpayer to disclose foreign assets, but the IRS will soon require foreign financial institutions to report information held by U.S. taxpayers. The IRS has already increased the filing requirements for the 2011 tax year. Be sure to check our upcoming posts for more information on these new disclosure forms.