IRS Announces Closure of Offshore Voluntary Disclosure Program (OVDP)

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Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses the IRS’ recent announcement that the Offshore Voluntary Disclosure Program (OVDP) will officially end on September 28 ,2018. The program, which was initially launched in 2009, allows U.S. taxpayers to voluntarily come forward to self-report offshore accounts that were previously undeclared.

On March 13, 2018 the IRS announced that it will be ending the 2014 Offshore Voluntary Disclosure Program (OVDP) effective September 28, 2018 (IR-2018-52). By announcing the termination of this program now, the IRS explained that it is giving U.S. taxpayers with undisclosed offshore financial assets the opportunity to participate in the program before it comes to a close.

The OVDP was first created in 2009 as part of IRS efforts to combat tax evasion associated with undisclosed foreign financial assets. By offering the promise of reduced monetary penalties and the opportunity to avoid criminal prosecution, the program created an incentive for taxpayers to voluntarily come forward to alert the IRS of prior failures to comply with mandatory reporting requirements for certain foreign accounts. Although the 2009 OVDP ended in October of 2009, the IRS established additional programs, including the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the 2012 OVDP. In 2014, the IRS launched its current program, OVDP 2014, which is the program that is in effect today.

According to the IRS announcement, since the initial establishment of the OVDP in 2009, over 56,000 taxpayers have voluntarily come forward to participate in the program, paying a total of $1.1 billion in back taxes, penalties and interest. While the number of OVDP participants peaked in 2011 with 18,000 disclosures, participation steadily declined in following years with only 600 taxpayer disclosures in 2017.

The IRS explains that advances in third-party reporting combined with an increased awareness of offshore tax and reporting obligations were behind the decision to bring the OVDP to a close. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point,” acting IRS Commissioner David Kautter stated.

Don Fort, Chief of the IRS Criminal Investigation Division, further explained that the IRS will continue its efforts to combat offshore tax non-compliance: “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.”

Considering the IRS’ continued focus on uncovering individuals who are violating foreign account reporting requirements, Kevin E. Thorn, Managing Partner of Thorn Law Group, cautions taxpayers with undisclosed offshore accounts to take action now: “With only a few months left in the OVDP, taxpayers with previously undisclosed offshore accounts need to come forward to take advantage of the program. Once the OVDP closes there will be no more safe haven from criminal prosecution.”

Although the OVDP is closing, the Streamlined Filing Compliance Procedures will remain open to eligible taxpayers, the IRS states. However, in order to take advantage of the Streamlined Procedures, taxpayers must meet strict qualification requirements. Most notably, the taxpayer’s failure to report foreign assets and file required foreign information returns must have been “non-willful” in nature. “A violation will generally be deemed to be ‘non-willful’ when the failure to follow reporting rules was the result of negligence or a misunderstanding of the law,” Thorn explains. “However, even if you believe your actions were non-willful in nature, the government could decide differently and find your violation to be willful, thus you would not be eligible this process.”

Beyond the Streamlined Filing Compliance Procedures, the IRS notes that it will continue to offer other options for addressing previous failures to comply with tax and information reporting obligations for foreign financial assets, including: IRS-Criminal Investigation Voluntary Disclosure Program; delinquent FBAR submissions procedures; and delinquent international information return submission procedures.

For additional information on the subject of this release, review this in-depth article or contact Kevin E. Thorn, Managing Partner of Thorn Law Group at ket(at)thornlawgroup(dot)com.

About Thorn Law Group, PLLC

Thorn Law Group, PLLC is a law firm dedicated to helping clients resolve complex tax, criminal tax, and international tax problems.

Kevin E. Thorn
Managing Partner Thorn Law Group, PLLC

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