The Offshore Voluntary Disclosure Program (OVDP) is a relief program designed with taxpayers who have willfully failed to report foreign financial assets and pay taxes upon them.
In practice, OVDP is an IRS tax amnesty program. It provides taxpayers with:
- Protection from criminal liability
- Terms for resolving their civil tax and penalty obligations
At Daniel Rosefelt & Associates, LLC, Attorney & CPA, we often advise clients living in the U.S. and abroad about use of OVDP in order to avoid civil and criminal liability.
Problem-Solving Tax Lawyers
IRS enforcement actions and legislation, such as the Foreign Account Tax Compliance Act (FATCA), mean that taxpayers with foreign bank accounts face increased scrutiny. To avoid possible criminal prosecution and significant civil liabilities, the adviceof a skilled team of tax professionals is essential. Daniel Rosefelt & Associates have significant experience in resolving international tax problems, including the use of OVDP, tax installment programs and offers in compromise.
Offshore Income & Filing Information For Taxpayers With Offshore Accounts
U.S. citizens, resident aliens and certain nonresident aliens are required to report worldwide income from all sources, including foreign accounts, and pay taxes on income from those accounts at the owner’s individual rates.
There are many legitimate reasons for holding offshore accounts, including convenience, investing and to facilitate international transactions. But by law, U.S. taxpayers are not permitted to use offshore accounts, such as foreign bank and securities accounts as well as trusts, to avoid paying taxes.
In most cases, taxpayers with foreign accounts need to fill out and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts and usually requires U.S. citizens to report the country in which each account is located. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Specified Foreign Financial Assets, if the aggregate value of those assets exceeds certain thresholds that vary depending on filing status and whether the taxpayer lives abroad. Additional filing requirements apply to those with foreign trusts.
Additionally, taxpayers with foreign accounts whose aggregate value exceeds $10,000 any time during the year must file a Form 114, Report of Foreign Bank and Financial Accounts (FBAR), electronically through FinCEN’s BSA E-Filing System. Beginning in April 2016, the FBAR or FinCEN Form 114 must now be filed by the same time as the filing of your tax return (including extensions).
Penalties For Noncompliance
Failure to report the existence of offshore accounts or pay taxes on these accounts can lead to civil and criminal penalties. For failing to disclose on form 8938, the penalty may be up to $10,000, plus an additional $10,000 for each 30 days of non-filing after an IRS notice of a failure to disclose. The maximum total civil penalties is $60,000; however, criminal penalties may also apply. For the FBAR, the penalty may be up to $10,000, if the failure to file is non-willful; if willful, the penalty is $100,000 or 50 percent of account balances, whichever is greater. Criminal penalties may also apply.
Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets
The implementation of FATCA, in addition to the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with tax obligations, has raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments. Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax:
- Offshore Voluntary Disclosure Program
- Streamlined Filing Compliance Procedures
- Delinquent FBAR submission procedures
- Delinquent international information return submission procedures
Experienced legal expertise while undertaking any of these options is highly advised.
To learn more about the FBAR voluntary disclosure program, the OVDP or any other options available to you, contact Daniel Rosefelt & Associates, LLC, Attorney & CPA at (301) 656-4424 or reach out by completing our ten-second consultation form. We serve clients from around the world at our office in Bethesda, Maryland.