Streamlined Foreign Offshore Procedure and Changes in OVDP for delinquent US taxpayers
On June 26, 2012, the IRS announced new streamlined filing compliance procedures for non-resident U.S. taxpayers to go into effect on September 1, 2012. These procedures were being implemented in recognition that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), FinCEN Form 114, but have recently become aware of their filing obligations and now seek to come into compliance with the law.
On June 18, 2014, the IRS has announced changes that will expand the streamlined procedures, now called "Streamlined Foreign Offshore Procedures".
The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP). The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful.
Streamlined Foreign Offshore Procedure
The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States. The changes include:
- Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax 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.
Offshore Voluntary Disclosure Program (OVDP) Modified
The changes announced today also make important modifications to the OVDP. The changes include:
- Requiring additional information from taxpayers applying to the program;
- Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
- Requiring taxpayers to 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.
Full details of the changes to both the streamlined procedures and OVDP can be found on IRS.gov.