November 17, 2017
The Offshore Voluntary Disclosure Program (OVDP) is a great opportunity from the IRS that allows businesses and individuals to report any undisclosed foreign financial account information, income, or certain foreign financial assets and become compliant under a reduced penalty regime. Although the program currently has no end date, there has been discussion by the IRS that the program will be terminated and will only be available for a limited time, perhaps only another six to 12 months.
Who can take advantage of the OVDP?
U.S. citizens, U.S. green card holders, or U.S. tax residents who have owned or controlled a foreign financial account or certain foreign financial assets with an account balance of $10,000 or more in any year since 2008 can benefit from the OVDP for failing to report these accounts, or assets, and any income-related to them.
While individuals who participate in the disclosure program will likely be subject to a penalty, the penalty related to the disclosure may be a small price to pay to avoid the more substantial foreign bank account reporting penalties and the increased risk of potential criminal prosecution by the IRS for not disclosing.
There are some important things you must first consider, before participating in the OVDP.
Was your action “willful?”
Typically, the OVDP is for people/companies who willfully neglected to report their foreign accounts and/or offshore income to the IRS. There are other less strict options available for those who are considered non-willful. We can help with the analysis of your specific situation. Once we have analyzed your information, you may qualify for an expanded part of the OVDP called Streamlined Filling Compliance Procedures. This will assure a much smaller penalty (5 percent) and foreign residents may not have to pay any penalty at all.
Can foreign tax credits be utilized?
If you reside in a country outside the U.S. and pay taxes in that country, you may not have any U.S. tax liability. People in these circumstances typically qualify for what is known as a foreign tax credit, which is, as it sounds, credit for tax you have paid in a foreign country. This credit may be applied towards any tax liability you may have in the U.S.
What if you decide not to report?
Noncompliance is a dangerous game. Sure, you may never be found out, but that's pretty unlikely due to the U.S. FATCA filing requirements for many foreign financial institutions with U.S. clients. The IRS has been cracking down on offshore accounts over the last decade. Noncompliance penalties are steep—$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. Plus, if these accounts were willfully hidden, then criminal investigation is also likely. Frankly, failing to disclose is just not worth the risk, particularly with the more sophisticated tracking procedures now being used
Ready to start the OVDP?
If you think you may qualify for the OVDP, contact an Eide Bailly international tax professional before making any disclosures. Our team of experienced professionals can help you identify the potential benefits and affects, calculate the penalties, and review the process and requirements of the OVDP with you. It's important to have a full understanding of the OVDP and know what your options are before beginning the process, as simple mistakes can be costly.