As of September 28, 2018, the Internal Revenue Service (IRS) is ending the Offshore Voluntary Disclosure Program (OVDP). By law, all US citizens and residents are required to report foreign financial accounts to the IRS, if the total value of all their foreign accounts is over $10,000 at any time in the tax year. However, many people were failing to report these amounts. To help them avoid serious repercussions, the IRS offered a temporary voluntary disclosure program. If you volunteered the information to the IRS, the agency waived some penalties and criminal charges. Here’s what you need to know about this program and its final days:
History of the OVDP
The OVDP launched in 2009 as part of the Foreign Account Tax Compliance Act (FATCA), and it was designed to help taxpayers get back into compliance with the IRS’s offshore reporting rules. Since the implementation of this program, over 56,000 taxpayers have come into agreement, and they have paid about $11.1 billion in back taxes, interest, and penalties. The IRS announced its decision to end the program in March 2018.
Why the Program Is Ending
The IRS is ending the program because it has been successful at raising awareness of the offshore reporting requirements. In the first few years, thousands of people came forward every year. Starting in 2011, a peak number of 18,000 taxpayers made disclosures, but that number has been falling ever since. In 2017, only 600 taxpayers made voluntary disclosures of offshore accounts. Additionally, the IRS did not receive any complaints or comments after announcing its plans to discontinue the program.
How the IRS Can Get Information on Offshore Accounts
Sometimes, people assume that the IRS will never find out that they have money offshore with a financial institution. They risk penalties or even criminal charges by failing to report their accounts. It is not a safe practice. You should always strive to be as compliant with the IRS guidelines as possible.
Keep in mind that third-party reporting has improved through the years, and as a result, the IRS often hears about these accounts from other entities. The agency also uses leads from whistleblowers to identify people who may be avoiding taxes or committing tax evasion. Since 2009, The IRS Criminal Investigation has indicted 1,545 taxpayers related to international activities.
If you have an offshore account that you have not disclosed to the IRS, you need to take advantage of this program before it’s too late. Although the IRS plans to maintain a pathway for taxpayers to voluntarily disclose their past actions, that program is not in place yet, and there’s no guarantee that it will offer the same protections as the OVDP.
The Streamlined Filing Compliance Procedure
In some cases, you may be able to report foreign financial assets through the Streamlined Filing Compliance Procedure. However, whereas the OVDP applies to all taxpayers including individuals, estate, and businesses, this program only applies to individuals and the estates of individuals. To date, the streamlined procedure has helped about 65,000 people get into compliance, but the IRS may be ending this program soon as well.
What to Do If You Have Unreported Foreign Accounts
The Department of Justice and the IRS are serious about ensuring compliance with these laws. If you had funds in foreign accounts including bank accounts, brokerage accounts, mutual funds, trusts, and any other foreign accounts and those funds equaled $10,000 or more in total at any point, you should have reported that information to the IRS. As long as you didn’t willfully withhold the info, you can still qualify for the voluntary disclosure program. To get help dealing with the IRS, request a free consultation today. Get guidance to figure out the best steps forward.
You can read more about this announcement from the IRS website.