Few things unite the American people like a distaste for paying taxes. And while the United States tax code has a plethora of exemptions, loopholes, and tax credits to help individuals and businesses bear their tax burden, sometimes people go too far in trying to avoid taxation. One area where violations frequently occur is moving money offshore. For taxpayers who have intentionally committed past acts that could expose them to civil or criminal liability, the United States government has created the Offshore Voluntary Disclosure Program to help limit that liability. If you believe you may benefit from this program, it is best to talk with an experienced international tax lawyer before moving forward.
What is the Offshore Voluntary Disclosure Program?
The Offshore Voluntary Disclosure Program (OVDP) was designed for taxpayers who in the past had intentionally failed to report foreign financial assets and consequently failed to pay the taxes they owed on those assets. The OVDP is intended to shield those taxpayers who come forward and voluntarily report their past transgressions from criminal liability, and put a plan in place for them to repay the taxes and penalties they owe. As long as the taxpayer is truthful with the IRS, responds to their requests in a timely fashion, and complies with all of the OVDP requirements, the IRS won’t recommend a criminal prosecution to the Department of Justice.
What penalties does the OVDP carry?
In general, taxpayers taking advantage of the OVDP are required to pay any failure-to-file and failure-to-pay penalties, and may be subject to a 20% accuracy penalty as well. Additionally, in exchange for not being prosecuted criminally, taxpayers are required to pay a penalty of 27.5% of the highest value their foreign assets achieved. If the financial institution housing the assets has already been publically identified as being under investigation by the IRS or cooperating with an IRS investigation, that penalty jumps to 50%.
It’s also important to know that the IRS has a similar program for taxpayers who unintentionally committed violations that could expose them to liability. Under what is known as the Streamlined Compliance Filing Procedures, taxpayers whose violation was unintentional will pay a penalty of 5% or less, and in some cases might pay no penalty at all.
When should I submit a disclosure?
The current OVDP doesn’t have an expiration date, but it could end at any time. The original OVDP was created for 2009, and was so popular that it was repeated in 2011. The program’s success led the IRS to create the current OVDP in 2012 to last indefinitely, and they updated it in 2014. The program’s success and popularity are good indications that it will continue, but President Trump has made it very clear that tax reform is one of his current top priorities. It is therefore entirely possible that the OVDP could be ending in the near future.
Because the future of the OVDP is uncertain, taxpayers with potential liabilities for previous failures to pay taxes on offshore assets should consider taking advantage of the program as soon as possible. However, because the OVDP involves willingly telling the government about potentially criminal legal violations, it is important to have the assistance of an experienced tax attorney when considering making disclosures to the program. Our firm has been handling tax cases in California for decades, and our attorneys are available to represent you. If you have questions about the OVDP and would like to speak with an attorney, please contact us today to schedule a consultation.
Posted in: International Tax