Effective September 28, 2018, The Internal Revenue Service (IRS) will terminate the Offshore Voluntary Disclosure Program (OVDP). Since 2009, when it was originally launched, the OVDP has allowed tens of thousands of U.S. taxpayers to voluntarily report their undisclosed offshore financial assets and bring them into IRS compliance, avoiding hefty costs, penalties, and criminal prosecution. If you are a foreign national doing business in the U.S. or plan to start a corporation in the United States, you should know that if you become a resident for U.S. tax purposes, you are required by law to pay tax on your worldwide income.
If you are a taxpayer living in California or another U.S. state and you are in delinquent compliance with the requirements for offshore bank accounts, there’s still some time left to act and take advantage of this amnesty program. Here’s all you need to know about the announced closing of OVDP.
Why is the IRS closing the OVDP?
After updating the program for several consecutive years (the latest version was launched in 2014), the IRS has announced the closure of the Offshore Voluntary Disclosure Program on March 13, 2018. The IRS has previously stated that OVDP would end at some point in the future. Now that time has come.
Through what may be the most successful program in the IRS history and also through related enforcement activities, the IRS has collected billions of dollars in tax and penalties. Over the years, there has been a rise in awareness among taxpayers of offshore tax obligations and filing requirements so the number of taxpayers coming forward has declined drastically. These factors, coupled with an increase in third-party information reporting from foreign financial institutions, have been essential for the IRS to announce the closure of OVDP.
Can I still apply for the OVDP?
The IRS has let taxpayers know about its plans so that they can have enough time to seize the opportunity to declare their foreign bank accounts and resolve their tax liabilities. The IRS urged U.S. citizens and resident aliens throughout California and other states to come forward and apply for the OVDP before the program terminates.
If you haven’t reported your income from all sources outside of the U.S. to the IRS by now, you can still pay your tax due and minimize the chance of criminal prosecution and penalties. Now is the time to protect yourself from criminal liability and resolve your tax and penalty obligations!
Is there a deadline for making a submission to OVDP?
All taxpayers with foreign income have to submit complete disclosure by the program’s closing date, that is, by September 28, 2018. This means that you have to provide the IRS with a number of documents, including all relevant financial statements from foreign sources for the eight-year voluntary disclosure period.
To enroll in the OVDP, you must first make a pre-clearance submission and get an approval from the Criminal Investigation Division. They will provide you with the amount of taxes, penalties, interest due under the OVDP submission. If you are unable to pay the whole amount, you can try to propose a payment arrangement to the IRS, along with other completed forms. All that by September 28, 2018, so hurry up!
If you delay or miss the deadline or the IRS initiates a criminal investigation against you, you will lose your last chance to participate in the OVDP. Bear in mind that any “placeholder”, incomplete or partial submissions will not be accepted and cannot be cured after September 28, 2018.
Are there any alternatives to the OVDP available?
For eligible taxpayers residing in California or anywhere in the United States who were unaware of their filing obligations, the Streamlined Filing Compliance Procedures are still available. It is a similar but different version of OVDP.
Other voluntary disclosure programs, like the Delinquent International Information Return Submission Procedures and the Delinquent FBAR Procedures, continue to be open for the time being.
For some taxpayers, the OVDP is the most appropriate program to mitigate their exposure to tax consequences, while for others there may be simpler and more cost-effective solutions to their tax issues. To rule out alternative approaches and determine whether the OVDP is the right decision for you, before making this serious commitment, talk to a knowledgeable international tax attorney in California. They will help you navigate the perplexing aspects of the program and all tax issues in relation to your foreign assets.