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IRS Eases Offshore Compliance Programs

July 10, 2014

It has now become easier for taxpayers with offshore accounts to get back into tax compliance by using the IRS’ Offshore Voluntary Disclosure Program (OVDP). In an effort to encourage more and more taxpayers to disclose their hidden income and assets overseas and/or in the U.S., the IRS has eased the process of gaining back compliance.

The changes made in the OVDP include:

Streamlined Procedures Expanded

The expanded streamlined procedures are designed for U.S. taxpayers who did not intentionally hide their assets overseas. The original streamlined procedures were only available to non-resident, non-filers. The expanded streamlined procedures, however, are available to U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States as well.

Other changes include:

  • Eliminating the requirement that the taxpayer have $1,500 or less of unpaid taxes per year
  • Eliminating the required risk questionnaire
  • Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct
  • For eligible U.S. taxpayers residing outside the United States, all penalties will be waived.
  • For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue

Modifications to the OVDP

The IRS has also made some important changes to the existing OVDP. These changes include:

  • No more requests for additional information from taxpayers applying for the program
  • Elimination of the existing reduced penalty percentage for certain non-willful taxpayers
  • Elimination of the requirement that taxpayers submit all account statements and pay the offshore penalty at the time of the OVDP application
  • Enabling taxpayers to submit voluminous records electronically rather than on paper
  • 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
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