The New and Improved IRS Offshore Amnesty Program

For some time, U. S. taxpayers were penalized with penalties for having offshore or international accounts. While usually seen as a way of evading taxes, there are in fact legitimate reasons for having offshore accounts. For those who held such accounts and didn’t declare them, the IRS would come down strongly, imposing penalties and even sometimes make an arrest.

In 2012, the IRS launched an Offshore Voluntary Disclosure Program (OVDP). This program gave taxpayers the chance to disclose their offshore accounts in exchange for lower penalties. However, this program had its shortcomings. While it was intended to target non-resident non-filers, United States residents with legitimate accounts would also appear on the IRS radar. The opt-out program was risky and not well received.

The good news is the IRS has revamped its Offshore Amnesty Program, which makes it easier for taxpayers to declare their foreign assets and comply with the rules. The IRS expanded and streamlined the process for U.S. taxpayers to their foreign held assets.

“This opens a new pathway for people with offshore assets to come into tax compliance,” said IRS Commissioner John Koskinen. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”

The United States Department of Justice is now taking the misuse of foreign accounts and assets much more seriously. They will also begin investigating offshore financial institutions which may have assisted United States taxpayers in evading tax payments. The Foreign Account Tax Compliance Act (FATCA) went into effect on July 1^st, 2014. Any offshore financial institutions with accounts held by United States citizens will be reported to the IRS. The ability to hide accounts is no longer possible.

The 2012 program not only applied to non-resident non-filers, but submissions were also subject to different degrees of review based on taxes owed and the taxpayer response to a “risk” questionnaire. This revamp however, will be available to certain resident United States taxpayers, and brings with it the following changes:

• Eliminating a requirement the taxpayer have $1,500 or less of unpaid tax per year;
• Eliminating the risk questionnaire;
• Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

Eligible non-resident United States taxpayers will have their penalties waived, and eligible resident United States taxpayers will have to pay only a miscellaneous offshore penalty, equal to 5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of the offshore financial assets that caused the tax issue.

The Offshore Voluntary Disclosure Program (OVDP) itself has also undergone the following changes:

• Requiring additional information from taxpayers applying to the program;
• Eliminating the reduced penalty percentage for certain non-willful taxpayers as part of the expansion of  more streamlined procedures;
• Requiring taxpayers to send account statements and pay the offshore penalty with the OVDP application;
• Enabling taxpayers to send records electronically rather than on paper;
• Increasing the offshore penalty from 27.5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} to 50{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b}) if it is determined that the financial institution where the taxpayer holds an account is under investigation by the IRS or Department of Justice.

While the IRS is giving the taxpayer more options to voluntarily disclose the details of offshore accounts, the offshore penalty has almost doubled to 50{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} from the previous 27.5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b}.

There are there are now more options, however, it is still possible for past offences to be detected. You can either quietly disclose your assets in an attempt to comply with tax rules or choose the safer voluntary disclosure route. The new and improved program should have the overall result of less penalties. You will be better off proactively revealing your foreign assets up front. The alternative is is to risk becoming a target for huge penalties or possible criminal prosecution.

So if you’ve been considering disclosing your foreign assets and accounts, now is definitely the best time!