OVDP (Offshore Voluntary Disclosure Program): The Offshore Voluntary Disclosure Program was launched back in 2009 by the IRS. Back in 2009, it was referred to as the Offshore Voluntary Disclosure Initiative or OVDI). A few years later OVDI was changed to Offshore Voluntary Disclosure Program. The idea behind the OVDP ‘program,’ was that in 2008, the IRS began aggressively enforcing foreign accounts compliance. The U.S. forced several Foreign Financial Institutions (FFIs) into deferred prosecution agreements to avoid suffering an even worse fate at the hands of the U.S. Government. OVDP brought many noncompliance international US Person taxpayers into offshore tax compliance with the IRS. In 2018, OVDP ended, and the traditional VDP was expanded to include domestic and offshore (VDP is the Voluntary Disclosure Program)
What is OVDP (Offshore Voluntary Disclosure Program)
Applying to the Offshore Voluntary Disclosure Program has become more complicated.
Before 2009, there was (and still is) the traditional Voluntary Disclosure Program (VDP). During the time of the Offshore Voluntary Disclosure Program, the VDP was primarily limited to domestic related issues, such as employment tax, sales tax, and general tax fraud. With the closing of Offshore Voluntary Disclosure in 2018, came the expansion of the traditional voluntary disclosure program. The expansion worked to integrate the spirit of OVDP into the traditional voluntary disclosure program.
On matters involving offshore voluntary disclosure, the submission process resembles the submission process as it was under the Offshore Voluntary Disclosure Program, but with several new updates.
We will summarize the major changes for you:
No Longer a Separate Offshore Program
The revised and updated voluntary disclosure program combines both the domestic and offshore into one program. Under either the Offshore Voluntary Disclosure or Streamlined procedure, a person (which includes more than just “individuals”) may submit domestic and foreign income in a single submission.
The Preclearance Letter is Now an IRS Form (Rev. Form 14457)
Under the previous Offshore Voluntary Disclosure Program, a person could submit to the program without submitting a preclearance letter first. In some instances, this was a good strategy. But, with the updated procedures, a preclearance letter is submitted — and on a standardized Form 14457— the Form was revised in 3/2019.
Less Tax Returns Are Necessary to be Filed or Amended
Unlike OVDP in which 8-years of tax returns were required to be filed, under the revised program only 6-years of amended (or original) tax returns are required.
Less FBARs are Filed or Amended as well
To coincide with the FBAR Statute of Limitations — which is 6-years — the new updated OVDP only requires 6-years of FBARs instead of 8-years.
Possible Waiver of International Information Return Penalties
Under the revised program, the IRS may take mercy on issues involving information returns. Especially in light of the gargantuan sized penalties that may accompany the non-filing of IRS forms 3520 and 5471, this is a welcome change. (of course, the key word is may). Depending on the specific facts and circumstances surrounding the submission, the IRS may determine that no penalty applies for international information returns. It all depends on the specific facts of the applicant (overall, this will be a good-thing for taxpayers).
Revised Penalty Computation For FBAR
Under the OVDP Offshore Voluntary Disclosure Program, there was a single-penalty issued for the assets and accounts. It was typically 27.5%, unless there was a bad bank involved, in which the entire penalty could jump up to 50% With the revised procedures, FBAR penalties will simply follow the IRM. The IRM is the Internal Revenue Manual. The FBAR penalty under the new OVDP Voluntary Disclosure is a baseline of 50% minimum value of $100,000 — whichever is greater, but the penalties may be mitigated.
Revised Penalties on Taxes Due Computation
The new offshore voluntary disclosure program procedures revised the penalties on taxes due as well. Under the prior version of the offshore program, the IRS penalty on taxes was 20% per year, on taxes due. Under the updated version of OVDP Voluntary Disclosure, there is a single 75% penalty on the highest year taxes due, BUT, the taxpayer can seek to try to reduce the penalty.
No Formal Opt-Out Procedure (Yet)
This is the part of the revised procedures that may make some applicants who prefer strict structure, a bit more squeamish. Under the prior OVDP, the penalty was either 27.5% or 50% (if a bad bank was involved). Once the penalty was paid and the 906 signed, that was essentially the end of it. Under the new version of the program, the IRS may be able to audit the taxpayer, but there is no formal “opt-out.” This may be a benefit to taxpayers who may want to fight the penalty, without formally opting-out.
*These rules are subject to change —
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