In a continued effort to combat offshore income tax evasion, the IRS announced in a recent press release that it has made significant changes to its offshore voluntary compliance programs. The changes provide new options designed to help taxpayers residing both in the U.S. and overseas meet their income tax requirements more easily. According to the IRS the changes are expected to, “provide thousands of people a new avenue to come into compliance with their U.S. tax obligations.”

The current Offshore Voluntary Disclosure Program (OVDP) began in 2012. It had already been modified to encourage greater compliance with previous programs that were launched in 2009 and 2011. The IRS considers the programs a success, and reports that “since the launch of the first program, more than 45,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.”

IRS Commissioner John Koskinen, believes the latest round of changes to the OVDP, will encourage even greater compliance and will benefit from growing awareness of the offshore obligations as well as the implementation of the Foreign Account Tax Compliance Act (FATCA). “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.”

According to the press release, the changes include expansion of the streamlined filing OVDP compliance procedures, and significant modifications to the overall Offshore Voluntary Disclosure Program.

Whereas the original streamlined program was available to non-resident non-filers and was subject to varying degrees of review based on the information provided, the expanded streamlined procedures are available to more taxpayers including, for the first time, those living in the United States. The changes include:

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

In addition, several important modifications to the OVDP were announced, including:

  • Requiring additional information from taxpayers applying to the program;
  • Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
  • Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application;
  • Enabling taxpayers to submit voluminous records electronically rather than on paper;
  • Increasing the offshore penalty percentage (from 27.5% to 50%) if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice.

The IRS has provided a webpage with full details of the streamlined procedures and new options available under the modified OVDP.

Understanding and complying with the new OVDP procedures can be quite complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our International Tax Specialists, or call us at 1-800-239-1474.