What is the Offshore Voluntary Disclosure Program?Offshore Account Update
Posted in on March 31, 2017
Individuals who own offshore bank accounts or who have signature authority over offshore bank accounts have certain reporting requirements. When an individual with any kind of offshore accounts is required to file disclosure forms and fails to do so, civil and criminal penalties could be imposed as a result of this failure. The Offshore Voluntary Disclosure Program (OVDP) was designed to allow accountholders to come forward and admit to past failures to submit required disclosures while avoiding criminal penalties and limiting civil fines.
Using OVDP to resolve tax problems with undeclared offshore accounts can be beneficial, but is not an option for every accountholder and may not be the right choice for you. Before you decide to make a voluntary disclosure, you should talk with Virginia international tax lawyers to explore all your options and understand the consequences of OVDP.
What is OVDP?
OVDP was started to provide incentive for U.S. taxpayers to voluntarily report their own offshore accounts that were previously undeclared. To participate in OVDP, you must report all of your foreign assets including any income that you did not declare on any prior tax returns. You also must submit amended returns, provide information on financial institutions where you had your money, pay back taxes, and pay the appropriate OVDP penalty. Although this penalty can be substantial, it is generally smaller than the penalty you'd likely face if your undeclared accounts were discovered through methods other than voluntary disclosure.
The IRS has had multiple disclosures initiatives in recent years, with various and modifications. These include the 2009 OVDP, the 2011 OVDI, the 2012 OVDP, and the 2014 continuation and modification of the 2012 OVDP. The IRS indicates that all of these initiatives “have enabled the IRS to centralize the civil processing of offshore voluntary disclosures and to resolve a very large number of cases without examination.”
OVDP has become a widely used program for taxpayers in light of a crackdown in recent years on offshore accounts.
The Foreign Account Tax Compliance Act (FATCA), which was introduced in 2010, implemented new reporting requirements and obligations for both individuals and financial institutions, increasing the chances that previously undeclared offshore accounts would be discovered by the IRS.
Taxing authorities in the U.S. also began aggressively investigating offshore banks and/or making amnesty deals with banks under the Swiss Bank Program in recent years. The Swiss Bank Program provides amnesty for banks that pay fines and share accountholder information. Taxing authorities can use this information to pursue investigations and obtain penalties from individuals.
Rather than waiting until they were being pursued by the IRS as new laws and new enforcement efforts resulted in more offshore accounts being found, individuals could come forward under OVDP to voluntarily report their accounts. High profile cases in which offshore accountholders who failed to report their accounts and faced penalties greater than their account value also helped to encourage OVDP participation.
While there are many reasons to make voluntary disclosures, it is important to understand what penalties could arise due to disclosure, and to ensure you are eligible for the program and follow the required steps to get benefits. You should talk with tax lawyer Kevin Thorn to get help understanding OVDP and its alternatives and to make the most informed choice on what you should do about your undeclared offshore funds.Share This Post