OVDP | Reporting Foreign Bank Accounts – Tax Lawyers
- 1 IRS and Willful
- 2 OVDP and FATCA – An Introduction
- 3 Why Enter the OVDP Program?
- 4 What Type of Accounts Qualify Under OVDP?
- 5 What are the Requirements of OVDP?
- 6 The Key points to OVDP are as follows:
- 7 OVDP Pre-Clearance Letter
- 8 IRS Criminal Investigation Unit Evaluation
- 9 Initial OVDP Application Submission
- 10 What is Included in the Full OVDP Submission?
- 11 What Are the Fees/Penalties under the OVDP Program?
- 12 Why Should You Enter the OVDP Program?
- 13 FLAT-FEE & FULL-SERVICE
- 14 Be Aware – Fraud Warning!
With the new changes and updates to the current international tax laws, it is nearly impossible for U.S. Taxpayers to keep their foreign accounts undetected.
In recent years, the international enforcement of foreign bank account disclosure has become a major priority for the IRS. The IRS has generated billions upon billions of dollars of revenue from recovering penalties and offshore voluntary disclosure submissions of US taxpayers.
With the IRS really cracking down on the failure to report and/or disclose foreign bank accounts in accordance with FATCA (Foreign Account Tax Compliance Act) and FBAR and 8938 filing requirements, if you (or someone you know) was Willful/Intentional in failing to comply with Foreign Bank Account Reporting Requirements and/or Offshore Income and Asset Reporting Requirements they should highly consider entering OVDP (Offshore Voluntary Disclosure Program) before is too late.
IRS and Willful
While the IRS is not pinpoint an exact definition of willful, the following circumstances are examples of cases we’ve handled (successfully) for clients who avoided criminal prosecution and even bigger penalties by entering OVDP:
- Taxpayer has accounts in a foreign country which total $250,000. Taxpayers aware of the taxpayer should have reported the accounts on his 8938 and FBAR but did not want the IRS to know the accounts since he was earning interest on the money in a country that does not charge tax on interest income – this is willful.
- Taxpayer is a dual US and Brazilian citizen who is currently working in a foreign country and has been for the last few years. When the taxpayer went to open the account in the foreign country he didn’t identify himself as a US citizen because he did not want to have to deal with US tax related issues on his earnings and/or report to the US how much money he has overseas – this is willful.
- Taxpayer opened a foreign holding Corporation of which is the full owner in order to open bank accounts under the foreign entity name. We did this in order to avoid detection by the United States of his foreign money – this is willful.
These are just three of the hundreds of different examples of scenarios in which individuals and businesses are being caught having willfully opened and/or maintain foreign accounts which were unreported and undisclosed in the United States. If you were willful and failing to report or disclose for accounts you should highly consider entering the OVDP to both try and avoid criminal prosecution as well as reduce your penalties, which is not reduced could reach 100% of the account balance of value.
OVDP and FATCA – An Introduction
The main reason for this sudden interest in international tax law is because theInternal Revenue Service (IRS) has recovered billions of dollars from taxpayers who did not comply with international tax law filing requirements. In other words, as a US taxpayer (US citizens, Legal Permanent Residents, and Foreign Nationals otherwise subject to US tax) you are required to report and disclose your offshore assets, financial accounts – as well as report your foreign income on an FBAR, Schedule B, and 8938 Form.
The failure to properly report foreign income and overseas assets and accounts can result in staggeringly high penalties, which the Internal Revenue Service likes to enforce. If you find yourself in this impossible situation, what are your options?
The most common option for individuals and businesses that have offshore and foreign accounts which have gone unreported is to enter the OVDP (Offshore Voluntary Disclosure Program). OVDP is the International Tax Law Program for U.S. Taxpayers (including Legal Permanent Residents and Expats) seeking IRS tax law compliance.
The main reason why people enter the OVDP program is because by doing so they avoid criminal prosecution of their international tax crimes (knowingly or willfully failing to report offshore assets and foreign income, no matter how small, is considered tax evasion and/or tax fraud and can subject a person to criminal prosecution).
Why Enter the OVDP Program?
The Offshore Voluntary Disclosure Program is pretty much open to any US taxpayer who has offshore and foreign accounts and had not reported them to the Internal Revenue Service. There are some requirements, with the main one being that the person who is applying under this amnesty program is not under IRS audit or investigation. The reason is simple: this is avoluntary program and if you are only entering because you are under IRS investigation, then technically you are not voluntarily entering the program – instead, you are doing so under duress.
What Type of Accounts Qualify Under OVDP?
Any account that would have to be included on either an FBAR or 8938 form as well as additional income generating assets such as rental properties. It should be noted that the requirements are different for the modified streamlined program, in which the taxpayer penalties are limited to only assets that are actually listed on either an FBAR or 8938 form; thus the value of a rental property would not be calculated into the penalty amount.
An OVDP submission involves the failure of a taxpayer(s) to report foreign and overseas accounts at Foreign Financial Institutions such as: Foreign Bank Accounts, Foreign Financial Accounts, Foreign Retirement Accounts, Foreign Trading Accounts, Foreign Insurance, and Foreign Income, including 8938s, FBAR, Schedule B, 5741, 3520, and more.
What are the Requirements of OVDP?
The goal of OVDP is to bring individuals and businesses with unreported foreign and overseas accounts and income into U.S. Tax law compliance. While the requirements might seem somewhat overwhelming, if you select an international tax attorney who is experienced in handling these types of submissions, it can be a fairly simple routine — even in this sophisticated area of law.
The Result: A stress-free compliance plan program that works for you, your family, and your business to bring you into compliance!
The Key points to OVDP are as follows:
OVDP Pre-Clearance Letter
First, the OVDP Applicant submits a request to enter the OVDP Program (Pre-Clearance). The OVDP pre-clearance letter is rather simple and straightforward. Essentially, the taxpayer is asking Internal Revenue Service’s criminal investigation unit whether they qualify for submission. In other words, a taxpayer does not want to divulge all of his/her information to the IRS until that taxpayers aware that they qualify.
For the most part, Pre-Clearance is standard procedure and unless the taxpayer is under a criminal investigation by the Internal Revenue Service or other government authority, they should qualify for the program.
IRS Criminal Investigation Unit Evaluation
The IRS Criminal Investigation Unit determines if the applicant is “cleared” for entrance into the OVDP program. Generally, the process should not take more than 30 days. At around 30-day mark, if the applicant has been successfully approved then the attorney or applicant (if the applicant directly submitted to the program) will receive a letter from the Internal Revenue Service confirming the applicant’s entry into the program and requesting that the initial OVDP application is submitted within 45 days of the date of the letter.
The next phase (45-day letter submission) is not the full submission, but rather it is a summary of the information the taxpayer is going to submit under the program, and includes more specific information about the bank accounts, account numbers, and other identifying information.
Initial OVDP Application Submission
After the Internal Revenue Service receives the applicant’s OVDP letter and attachments, the Internal Revenue Service will review the information. If it is sufficient, then the IRS will send a second letter requesting that the taxpayer submit the full, comprehensive Offshore Voluntary Disclosure Program Application. The next phase of the OVDP is much more intensive and requires the preparation and submission of several documents to the Internal Revenue Service for their review and approval.
What is Included in the Full OVDP Submission?
Thereafter, the Applicant will submit a comprehensive OVDP application, which includes eight (8) years of Amended Tax Return filings and 8 Years of FBAR (Foreign Bank and Account Reporting Statements). Under this program, the Internal Revenue Service wants to know of all the income that was generated under these accounts that were not properly reported previously. The way the taxpayer accomplishes this is by amending tax returns for eight years.
Generally, if the taxpayer has not previously reported his accounts then there are common forms which were probably excluded from the prior year’s tax returns and include 8938 forms (More recently), schedule B forms, 3520 Forms, 5471 Forms, as well as FBARs (Foreign Bank and Financial Account Reports).
The taxpayer is required to amended tax returns for eight (8) years and pay the outstanding tax liability for those eight years – as well as include another 20% penalty on that amount. For example: if the taxpayer owed $20,000 in taxes last eight years then they would also have to include in check the amount of $4000 the cover the 20% penalty on the $20,000 in outstanding taxes.
What Are the Fees/Penalties under the OVDP Program?
In accordance with OVDP filing requirements, The Applicant will then be required to pay the outstanding tax, plus 20% penalty on the outstanding tax – in addition to a 27.5% (or 50% if any of the foreign accounts are held at an IRS “Bad Bank”) on the highest years “annual aggregate total” of unreported accounts.
For OVDP the annual aggregate total is determined by adding the “maximum value” of each account for each year in the last 8 years. To determine what the maximum value is, the taxpayer will add up the highest balances of all their accounts for each year. So if you want to take tax year 2014 as an example, is the taxpayer had seven bank accounts overseas, than for that year the taxpayer would look into each account, locate the highest balance for each account, and total up the value determine the maximum value for tax year 2012.
Then, the taxpayer does the same thing for each of the other years the false into the compliance., Selects the highest year’s value, and multiplies it by either 27.5% possibly 50% if any of the money was being held in what the IRS considers to be one of the “bad banks.”
Where a person is completing the penalty portion of the application, the two most important things are to breath, and can remember that by entering the program the applicant is avoiding CRIMINAL PROSECUTION!
When it comes to the Streamlined Program, the penalty is limited to 5% on the highest “year-end” balance for the last 6-years. The reason is that if the person was non-willful, they should not be overly-penalized if there was an artificial increase in the value of the bank accounts – such as from the sale of a home during the tax year.
- Click Here for Golding & Golding’s (2015) OVDP Update.
Why Should You Enter the OVDP Program?
It’s simple: if you qualify to enter the IRS OVDP Program, then you can significantly reduce your outstanding tax penalties and usually avoid criminal prosecution.
- Under the new FATCA laws (Foreign Account Tax Compliance Act), hundreds of foreign financial institutions (FFIs) are reporting foreign income, assets, bank and financial accounts belonging to U.S. citizens, Legal Permanent Residents, and Non-Residents who live in the U.S. or maintain a U.S. address. Once the IRS gets wind of this information and audits you, you aredisqualified from entering either the OVDP or Modified Streamlined Programs.
Moreover, many of these FFI’s are starting to freeze and even forfeit the money in these accounts if the account owner cannot prove compliance with FBAR filing, FATCA and OVDP (if applicable).
- Click Here for a List of Frequently Asked Questions.
FLAT-FEE & FULL-SERVICE
Our experienced International Tax Lawyers and Enrolled Agents (Highest Tax Credential issued by the IRS) have represented numerous individuals and businesses in over 30 countries with OVDP. Unlike other firms, our Attorneys handle the entire OVDP Application process and Streamlined Program application process in-house on a flat-fee arrangement from start-to-finish, including preparing applicant tax returns. We do not “pawn” you off to an Associate or accountant – usually with little to no experience in International Tax Law and OVDP.
Be Aware – Fraud Warning!
In the last few years, we have been contacted by numerous individuals letting us know that they were “sold” by inexperienced attorneys and CPAs with no real International Tax experience (CPAs may have Accounting or Auditing experience, but not necessarily any ‘Tax’ experience) who “scared” them into entering the program before they felt ready to do so. Unfortunately, these unscrupulous attorneys use scare tactics and “low introductory fees” to bait taxpayers, which results in the OVDP Applicants suffering serious tax issues and complications with the IRS.
Our flat fee, in-house arrangement allows our clients to concentrate on getting themselves and their families OVDP compliant, while allowing our firm to stand by our clients in every phase of process, each step of the way!
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)