What Actually Is The Offshore Voluntary Disclosure Program?

The offshore voluntary disclosure program is a program designed for people who fail to properly report the existence of foreign bank accounts. Under the Foreign Account Tax Compliance Act (FATCA), all U.S. persons are required to report the existence of any foreign bank account containing more than $10,000 of funds. Compliance with the program was historically very low, and in light of Swiss banking authorities’ releasing names of U.S. persons having Swiss bank accounts back in 2008, the treasury department initiated the Offshore Voluntary Disclosure Program(OVDP) for taxpayers to come forward voluntarily. If you are approved for the program, you can make the financial disclosures without the risk of criminal prosecution. You will also pay much less severe penalties with a voluntary disclosure.

The traditional program is closing in September. A separate program, called the streamline filing compliance program, will remain in effect and will allow taxpayers who were non-willful actors to disclose their foreign accounts and pay much smaller penalties than without the disclosure.

Why Should I Make A Voluntary Disclosure?

There are two main reasons you should make a voluntary disclosure of your foreign bank accounts. The first reason is that if your account is discovered without being disclosed, the Department of Treasury can choose to prosecute you criminally for failure to disclose the account and the related income. Voluntary disclosure of the account prevents this criminal prosecution if you are approved for either the OVDP or streamline filing compliance. The second reason is that the penalties associated with failure to disclose the foreign accounts are astronomical. If the account was in existence for more than five years, it is possible that the penalties may outlay the actual account balance. We see more than a 100% penalty in various situations.

Under the OVDP, the maximum penalty will be 27.5% and under the streamline filing compliance program, if you can show that the failure to disclosure was non-willful, the penalty can be as low as five percent.

What Is The Objective Of This Program?

The objective of the filing compliance program from the government’s standpoint is to bring people back into compliance. It is impossible for the government to prosecute everyone with foreign accounts. Only about 1,600 people have been prosecuted since 2009, because the government lacks the resources to prosecute everyone. So, the government opened up this program to bring people back into compliance, while at the same time collecting revenue through the penalties charged. One of the main reasons the traditional OVDP is ending is because participation has decreased substantially. Only about 600 disclosures were made in 2017, compared to more than 70,000 under the new streamline compliance program.

Who Is Eligible To Make A Voluntary Disclosure Under This Program?

Any U.S. person is eligible to make a voluntary disclosure, as long as you are not currently under audit with the IRS. Otherwise, anyone is free to make a voluntary disclosure.

Are Entities Such As Corporations, Partnerships And Trusts Eligible To Make Voluntary Disclosures?

Only U.S. individuals and U.S. estates qualify for the voluntary disclosure program. However, individuals who own corporations for trusts can make a voluntary disclosure and they can report the existence of the foreign accounts that are under the corporation’s name.

What Are Some Civil Penalties That Might Apply If I Do Not Participate In The Offshore Voluntary Disclosure Program And The IRS Examines Me?

The civil penalties for failing to disclose the foreign account can be very severe. For example, the creator of Beanie Babies had a $5 million foreign account and after a long battle with the IRS, which included criminal charges, was ordered to pay a $53 million penalty for failing to disclose the $5 million.

What Criminal Charges Can I Face If I Don’t Participate In The Offshore Voluntary Disclosure Program?

Roughly 1,600 individuals have been indicted on tax crimes for failing to report offshore voluntary accounts. The sentences vary anywhere between one year of probation to as many as seven years incarcerated. It can be a very serious issue if you fail to disclose foreign accounts.

For more information on Offshore Voluntary Disclosure Program, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 321-3369 today.

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