OVDP vs Streamlined

OVDP vs Streamlined

OVDP vs Streamlined 

Taxpayers who have foreign accounts, assets, investments, and income but fail to report this information to the US government on the requisite international information reporting forms may become subject to IRS fines and penalties. To avoid or minimize penalties, Taxpayers may qualify for various offshore tax amnesty programs. While there are many different types of amnesty programs a taxpayer may be eligible, two of the most common programs are the Streamlined Filing Compliance Procedures (Streamlined Domestic and Streamlined Foreign) and the IRS Voluntary Disclosure Program (VDP). Previously, there was a specific offshoot of the Voluntary Disclosure Program for taxpayers who only had offshore issues, which was referred to as OVDP (Offshore Voluntary Disclosure Program), but in 2018, the OVDP program merged back into the traditional VDP program — though many tax practitioners may still refer to the offshore submissions for the Voluntary Disclosure Program as OVDP. While there are many differences between these two programs, let’s focus on the five key factors that distinguish OVDP from Streamlined.

Willful vs Non-Willful

The key distinction between OVDP and the Streamlined Procedures is that to qualify for the Streamlined Procedures and the reduced penalty, the taxpayer must qualify as non-willful. If the taxpayer does not qualify as non-willful then they are ineligible for the Streamlined Procedures and instead would submit to the Voluntary Disclosure Program.

Number of Tax Returns and Submission Parameters

As the name connotes, the Streamlined Procedures is a more ‘streamlined’ submission protocol. Whereas the Voluntary Disclosure Program requires six years of returns, six years of FBARs, along with multiple rounds of communications with the IRS agent and an interview, the Streamline Procedures typically requires three years of amended returns (subject to Section 965) and six years of FBARs — and no communication directly with the IRS Agent unless the submission is rejected or the taxpayer is under audit (both of which are rare).

Penalties on Unreported Income

Under the Streamlined Procedures, there is no penalty on unreported income. Under the Voluntary Disclosure Program, the taxpayer must pay a 75% penalty on the highest year. In addition, taxpayers may be subject to other penalties on the unreported income, especially if the taxpayer did not file a tax return in any of those six years or significantly underreported their income.

Penalties on Unreported Assets

Each program has its own set of penalties:

      • SDOP: Under the Streamlined Domestic Offshore Procedures there is a 5% penalty on the highest years unreported balances as aggregated on December 31st.

      • SFOP: Under the Streamlined Foreign Offshore Procedures, the penalty is waived, so there is no penalty at all.

      • VDP: Under the Voluntary Disclosure Program, the taxpayer pays a 50% penalty on the highest years maximum value on reported accounts.

While the Voluntary Disclosure Program penalty is high, it should be noted that if the taxpayer was audited and found to be willful then they could get penalized for multiple years at 50% instead of the Voluntary Disclosure Program which is limited to one year’s 50% penalty (there’s also a minimum penalty which is $100,000 cover but it adjusts for inflation and at times the IRS may be negotiable).

Closing Letter (906) vs Acknowledgment Letter

Under the Voluntary Disclosure Program, the taxpayer receives a closing letter, form 906, which reflects that the matter is over and closed. If the taxpayer was transparent during the voluntary disclosure process, the matter would be resolved. Under the Streamlined Procedures, the taxpayer will receive an acknowledgment letter that reflects that the matter is over, but it is not closed to the same degree that a Voluntary Disclosure Program submission disclosed, and thus the taxpayer may be audited out of future date — although audits have been rare for the Streamlined Procedures.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.