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IRS Makes Changes to its Offshore Voluntary Disclosure Program

08.02.14

The Internal Revenue Service (IRS) recently announced major changes to its voluntary disclosure programs. Effective July 1, 2014, the changes have significant impact for taxpayers who have undisclosed foreign financial accounts. The changes affect the (OVDP) as well as the "streamlined" compliance procedures announced in 2012. While some changes are intended to streamline the compliance process for US taxpayers whose failure to disclose their offshore assets was non-willful, modifications to the OVDP will increase penalties for some taxpayers.

New streamline procedures include:

  • Expansion of the streamlined filing compliance procedures allow more taxpayers to participate in the program.
  • All required documents and records can now be submitted to the IRS electronically.
  • If the taxpayers live outside of the US and qualify, there are no penalties. If they live in the US and qualify, the maximum penalty is 5%.

Changes to the OVDP include:

  • The offshore penalty is increased from 27.5% to 50% in the following cases:
    • If it becomes public that a financial institution where the taxpayer holds an account, or another party facilitating the taxpayers offshore arrangement, is under investigation by cooperating with the IRS or Department of Justice in connection with US accounts; or
    • Such institution or the account facilitator has been identified in a court-approved John Doe summons.
  • The offshore penalty needs to be paid at the time of OVDP submission.
  • Additional information needs to be provided when applying to the program.