IRS plans to end offshore voluntary disclosure program

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The Internal Revenue Service said Tuesday it plans to close the 2014 Offshore Voluntary Disclosure Program on Sept. 28, 2018 and will start winding it down before that date.

By letting taxpayers know about its plans ahead of time, the IRS hopes to give any U.S. taxpayers with undisclosed foreign financial assets enough time to take advantage of the OVDP before it ends in September.

“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter in a statement. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

Since the IRS first launched the original OVDP in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. They collectively paid a total of $11.1 billion in back taxes, interest and penalties to the IRS. The end of the current program reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations, according to the IRS.

The number of taxpayer disclosures under the OVDP peaked in 2011, when approximately 18,000 people came forward to tell the IRS about their foreign assets. The number steadily declined through the years, declining to just 600 disclosures last year.

The current OVDP started in 2014 and is a modified version of the OVDP that began in 2012, which followed voluntary programs from 2011 and 2009. The programs have allowed U.S. taxpayers to voluntarily resolve their past noncompliance pertaining to unreported foreign financial assets and failure to file foreign information returns.

The IRS said it would continue to use tools besides voluntary disclosure to discourage offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution. Since 2009, the IRS’s Criminal Investigation unit has indicted 1,545 taxpayers for criminal violations related to international activities. Of those, 671 taxpayers were indicted on international criminal tax violations.

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said IRS Criminal Investigation chief Don Fort in a statement. “Stopping offshore tax noncompliance remains a top priority of the IRS.”

A separate program, known as the Streamlined Filing Compliance Procedures, for taxpayers who might have been unaware of their tax filing obligations, has helped approximately 65,000 other taxpayers come into compliance. The IRS said the Streamlined Filing Compliance Procedures would stay in place and be available to eligible taxpayers. As with the OVDP, the IRS said it may also end the Streamlined Filing Compliance Procedures at some point.

“The IRS has seen a steady decline of participants into the program and is in possession of a wealth of information from banks, prior disclosures, criminal investigations and prosecutions of defendants who became cooperators, among other things,” commented Barbara Kaplan, a shareholder and co-chair of the Global Tax Practice in the New York office of the law firm Greenberg Traurig who has counseled hundreds of individual taxpayers on complying with the OVDP. “Those with continuing criminal tax exposure, should act now to come into compliance before this program is discontinued.”

The implementation of the Foreign Account Tax Compliance Act, also known as FATCA, has also raised awareness of U.S. tax and information reporting obligations about undisclosed foreign financial assets.

“The enactment of FATCA also provides IRS with continuing data from annual bank reporting from abroad,” said Kaplan. “With this information available to be mined, the utility of having the offshore voluntary disclosure program has waned. If a taxpayer does not come forward before the deadline, which requires a full submission by that date and not just a place-holder, the terms of the voluntary disclosure program will not be available. Other opportunities to come into compliance will remain in place for now, including the streamlined filing procedures and the delinquent return filing program for FBARs and other information returns. The standard voluntary disclosure program as set forth in the Internal Revenue Manual will also remain in effect. And the IRS announcement, which includes new FAQs on the termination of the program, suggests some other substitute may be forthcoming at the end of the current program.”

Complete details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found here.

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Tax evasion International taxes Tax avoidance IRS