Client Resources

IRS Streamlines Offshore Voluntary Disclosure Program and Filing Procedures

Date Posted: December 13, 2017

The IRS recently unveiled significant changes to its Offshore Voluntary Disclosure Program (OVDP). The changes, which include an expansion of the streamlined filing compliance procedures announced in 2012, are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful. The changes relax the penalty structure for non-willful behavior but also increase it for account holders at certain financial institutions.

The streamlined procedures are expanded to include the following:

  • Eligibility will no longer be denied based on the amount of U.S. tax involved, the country in which an account is held, or the presence of more complicated business and personal structures
  • Taxpayers who are eligible will need to certify that prior noncompliance was non-willful
  • For eligible nonresident U.S. taxpayers all penalties will be waived. For U.S. residents, a 5% penalty on certain unreported foreign financial assets will apply
  • There is no preclearance process, no protection against criminal prosecution, and no cap on the offshore penalties if the IRS decides to assess willfulness-based penalties

Highlights of the modifications include:

  • Participating taxpayers must now provide more detailed information earlier in the process, including descriptions of the means for accessing offshore funds and the money trail
  • Elimination of the reduced penalty options previously allowed under OVDP
  • Payment and statements of the offshore penalty is due at the time of the OVDP submission
  • The offshore penalty will rise for certain taxpayers from 27.5% to 50% for account holders whose financial institutions are named in any public disclosure reflecting that the bank is under investigation by, or is cooperating with, the Department of Justice. Once triggered, the 50% penalty will be imposed on all of the taxpayers’ undisclosed assets, including assets otherwise not subject to this provision