Category: Accounting / Financial
The Internal Revenue Service (IRS) has announced that Offshore Voluntary Disclosure Program (OVDP) is coming to a close. The program, which has been around in its current form since 2014, will officially end on September 28, 2018. That gives taxpayers a little over six months to come forward with previously undisclosed foreign financial assets.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “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.”
Under current law, U.S. taxpayers have an obligation to report certain offshore assets. Each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file a Report of Foreign Bank and Financial Accounts (more commonly, FBAR) if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income. Some exceptions apply (click herefor more).
Additional filing requirements were written into the Foreign Account Tax Compliance Act (more commonly called “FATCA”) which was signed into law in March of 2010. Failure to comply with FATCA or file an FBAR can result in civil penalties, criminal penalties or both: the list of potential penalties that may apply is distressingly long.
Many taxpayers were not aware of their filing requirements. In order to encourage compliance, the IRS launched a tax amnesty program which allowed U.S. taxpayers to avoid criminal prosecution for not reporting foreign accounts in 2009. That program drew to a close on October 15, 2009. About 15,000 taxpayers took advantage of the program.
Following FATCA, in 2011, the IRS announced a new amnesty program to take its place. But since amnesty is such an ugly word, the IRS called it “a special voluntary disclosure initiative.” The official title was the 2011 Offshore Voluntary Disclosure Initiative (OVDI). By early 2012, the IRS claimed it had collected $4.4 billion under both programs with the number of taxpayers coming forward peaking in 2011 at 18,000.
Since that time, the numbers of taxpayers coming forward has declined, falling to only 600 disclosures in 2017. In contrast, a record high 1,163,229 FBARs were filed in 2015, up more than 8% from the prior year, as more taxpayers complied with annual requirements to disclose. From 2010 to 2015, FBAR filings grew, on average, by 17% per year.