Earlier this year, the IRS announced additional changes to its offshore compliance and disclosure programs designed to encourage wider participation from taxpayers. Specifically, modifications were made to both the Offshore Voluntary Disclosure Program (OVDP) and the Expanded Streamlined Procedures. The modifications were designed to provide additional options to taxpayers whose failure to comply was non-willful in nature. To help clients, prospects and others understand the modifications and their impact on taxpayers, JLK Rosenberger has provided a summary of the changes to each program below.
Expanded Streamlined Procedures
The changes to the streamlined program provide the opportunity for both taxpayers living outside the U.S., and for the first time select taxpayers residing inside the U.S, to come into compliance. Under the prior regulations, the streamlined procedures were available only to non-resident, non-filers outside of U.S. Key changes to the procedures include:
- Elimination of the requirement that taxpayers have $1,500 or less of unpaid tax per year to participate.
- Elimination of the risk questionnaire requirement
- New requirement that taxpayers certify previous compliance failures were due to non-willful conduct.
In addition, the changes also permit all non-compliance penalties for individuals living outside the U.S. be waived. For individuals living inside the U.S. using this program, there will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets involved in the compliance issue.
Offshore Voluntary Disclosure Program Modifications
Several changes were made to the 2012 OVDP to ease taxpayer’s participation. The primary modifications include:
- Taxpayers may now submit records electronically rather than requiring paper versions of records.
- Changes the requirement that taxpayers submit all account statements and pay the offshore penalty at time of program application.
- Eliminates the existing and reduced penalty percentage for specific non-willful taxpayers in light of enhanced streamlined procedures.
- 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.
Taxpayers are only allowed to participate in the one of the disclosure programs, but may not apply to participate in both. As such, it is important to note that once a taxpayer makes a submission under the Streamlined Foreign Offshore Procedures they are no longer eligible to participate in the OVDP. In addition, a taxpayer that makes a submission under the OVDP is no longer eligible to participate in the Streamlined Foreign Offshore Procedures program.
The changes to both programs present a unique opportunity for taxpayers. Determining which program is right for your situation can be complex and requires the assistance of a professional advisor. For additional information on the streamlined offshore disclosure program, contact JLK Rosenberger at 949-860-9902, or click here to contact us.