Changes to IRS Offshore Disclosure Program

The IRS has announced important changes to its 2012 Offshore Voluntary Disclosure Program (OVDP). Under the OVDP, taxpayers who did not file a Report of Foreign Bank and Financial Accounts (FBAR, reported on FinCEN Form 114) or report income from foreign assets may come forward before the IRS identifies them and mitigate (but not eliminate) the risk of criminal prosecution.  Taxpayers accepted into the OVDP are generally subject to a penalty of 27.5% of the highest aggregate value of foreign income-producing assets owned during the disclosure period (the most recent eight tax years for which the due date has passed) and a penalty of 20% of the unpaid taxes on foreign income during the period.  Taxpayers may “opt out” of the OVDP penalty structure and remain subject to full examination and all statutory penalties, which for some taxpayers could be less than the OVDP penalties. Effective July 1, 2014, a streamlined procedure and lower 5% penalty are available to certain taxpayers whose conduct was non-willful. Beginning on August 4, 2014, however, a 50% offshore penalty may apply if a taxpayer used an institution or facilitator that has been identified as being under investigation. Unlike similar initiatives in 2009 and 2011, the 2012 OVDP, with the 2014 modifications, has no set application deadline.  However, the IRS could change or eliminate the program at any time.  Program details are available on the IRS website (www.irs.gov) and in its “Frequently Asked Questions and Answers”.  See 2012 Offshore Voluntary Disclosure Program.  Taxpayers considering a voluntary disclosure should seek advice from a tax attorney.

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