Written on behalf of Feigenbaum Consulting
Earlier this year, the Internal Revenue Service (IRS) announced that it would begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and the program would be fully closed by September 28, 2018.
The Offshore Voluntary Disclosure Program
The OVDP initially launched in 2009, with a second program offered in 2011, and then 2012. The current program launched in 2014.
These voluntary disclosure programs have enabled American taxpayers to voluntarily resolve their past non-compliance (i.e. failure to report foreign financial assets and failure to file foreign information returns).
Since 2009, more than 56,000 taxpayers have used one of the programs to voluntarily comply with their tax obligations. Overall, taxpayers have paid a total of $11.1 billion in back taxes, penalties, and interest.
The number of taxpayer disclosures under the various programs peaked in 2011, when approximately 18,000 taxpayers came forward. Since then, that number declined, and only 600 disclosures were made in 2017.
The end of the current OVDP dovetails with advances made in third-party reporting, including the introduction of FATCA, and an increased awareness of offshore tax and reporting obligations by taxpayers.
Similar voluntary disclosure programs exist in Canada for Canadian taxpayers, as we’ve previously blogged about.
What You Need to Know in Advance of the Pending Deadline
U.S citizens with overseas or cross-border bank accounts must report them to both the IRS and to Treasury.
Depending on your circumstances, you may be required to file a Form 8938 (Statement of Specified Foreign Assets) with the IRS.
- Single taxpayers residing outside of the U.S. must submit this form where the total value of their foreign financial assets (including those in Canada and elsewhere) is more than $200,000 ($400,000 for spouses filing jointly) on the last day of the relevant tax year) OR if it exceeds $300,000 ($600,000 for spouses filing jointly) at any time during the relevant tax year.
- Single taxpayers residing within the U.S. must submit this form where the total value of their foreign financial assets (including those in Canada and elsewhere) exceeds $50,000 ($100,000 for spouses filing jointly) on the last day of the tax year, OR if it exceeds $75,000 ($150,000 for couples filing jointly) at any time during the relevant tax year.
Taxpayers who fail to make these disclosures may face a penalty of up to $10,000. Taxpayers who continue to withhold this information even after the IRS notifies them of a failure to disclose may face a maximum penalty of $60,000 plus additional criminal penalties.
Since 2009, IRS Criminal Investigation has indicted 1,545 U.S. taxpayers on criminal violations related to their international activities (671 of those taxpayers were indicted on international criminal tax violations).
If you have you have a financial interest in or signature authority over a foreign financial account above a certain amount (including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account), you have until April 15 of each tax year to submit a Report of Foreign Bank and Financial Accounts (FBAR) to the Treasury’s Financial Crimes Enforcement Network.
Taxpayers who fail to file by that deadline will receive an automatic extension to October 15 of the same tax year.
An FBAR must be submitted where the aggregate value of all foreign accounts is more than $10,000 at any time in a relevant tax year.
Taxpayers who knowingly fail to meet this reporting requirement may be charged a penalty of either $100,000 of 50% of the balance in the account. In certain circumstances, they could also face criminal penalties.
Other Options for U.S. Taxpayers with Undisclosed Foreign Assets
Other options are available for taxpayers with foreign assets who wish to become compliant. The IRS also has several other compliance programs in place, including the Streamlined Filing Compliance Procedures (through which approximately 65,000 taxpayers have become compliant). There is currently no indication that the IRS will stop the Streamlined Filing Compliance Procedure.
We will continue to provide information about programs available to taxpayers who wish to make disclosure after the fact. If you have questions about your obligations under U.S. or Canadian tax law, contact Mark Feigenbaum. We provide our clients with custom solutions to their personal or corporate tax needs. Our unparalleled knowledge of US and Canadian tax makes us leaders in this field. We offer services to clients on both sides of the border. Contact us to learn more about how we can help, or call us at (905) 695-1269 or toll free at (877) 275-4792p.