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Taxpayer Alert: IRS is Ending the Offshore Voluntary Disclosure Program on September 28, 2018

By Brett Murphy

The Internal Revenue Service will officially end its Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. Taxpayers that have not disclosed foreign financial assets have until that date to comply under the IRS program.

Over the past decade, the IRS has run a series of temporary programs to encourage US taxpayers to disclose foreign assets in order to protect themselves from potential criminal and civil liability. By entering the OVDP, taxpayers who had not previously properly disclosed foreign income and/or accounts could potentially limit civil penalties related to any unreported assets while establishing a set amount for non-disclosure penalties and the timing of payments.

The OVDP is intended to cover a willful failure to pay taxes on foreign income and/or to file various international reporting forms, including but not limited to:

  • Report of Foreign Bank and Financial Accounts, commonly referred to as the FBAR (FinCEN Form 114);
  • Statement of Foreign Financial Assets (Form 8938);
  • Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520);
  • Information Return of US Persons with Respect to Certain Foreign Corporations (Form 5471); and
  • Return of US Persons with Respect to Certain Foreign Partnerships (Form 8865)

Although the IRS is ending OVDP this month, the Streamlined Filing Compliance Procedures will remain in place to continue to encourage those that may not have been aware of their tax filing obligations to become compliant; however, this option is only available to individual taxpayers whose failure to report foreign assets and income was non-willful.

The IRS will also continue to run programs for delinquent FBAR submissions and delinquent international information returns. A taxpayer may be eligible for reduction of penalties under these programs if the taxpayer previously properly reported the related foreign income on prior US tax returns and paid associated taxes. Additionally, a taxpayer is only eligible if the taxpayer (1) had not filed a required FBAR or one or more required international information returns, (2) is not under civil examination or criminal investigation by the IRS, (3) has not already received communication from the IRS regarding the delinquent forms, and (4), in the case of international information returns, had reasonable cause for not filing the returns timely.