Last week, the IRS announced major changes to its existing amnesty programs, which were created to encourage delinquent taxpayers with offshore assets to come forward and become compliant with their US taxes. The two programs, the Streamlined Procedures and the Offshore Voluntary Disclosure Program (OVDP) were launched in 2009 and have evolved over time, but last week’s changes were the most significant to date. And for those who need to file under OVDP, the August 4, 2014 deadline is one you will want to mark on your calendar. This is the date the OVDP penalties will rise from 27.5% to 50% if your account is held in one of the 10 banks who are cooperating with or are identified in a US court filing.
OVDP is a voluntary disclosure program specifically designed for taxpayers who may be facing criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay the taxes due. OVDP is designed to provide taxpayers protection from criminal liability and terms for paying their taxes and penalties. Unlike its sister amnesty program, the Streamlined Procedures, OVDP comes with stiff penalties, since it is a program for those who purposefully hid assets from the IRS. Under the Streamlined Procedures, taxpayers who’s lack of filing was non-willful (i.e. they were unaware they had a filing obligation) can become compliant without any penalties.
Previously, the penalties under OVDP were 27.5% for each violation (and each year is a separate violation). Applications to OVDP received after August 4 will be subject to the new penalty, which is 50% of the account balance if your bank is under investigation. The current list of banks in question are:
- UBS AG
- Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
- Wegelin & Co.
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
- CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
- Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
- The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
- The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
If you are considering filing under OVDP and your account is held by one of the above banks, you’ll want to submit your pre-clearance letter before August 4 to avoid the possibility of the increased penalty. Remember, however, that you may also have needed to file FBARs (Foreign Bank Account Report) and the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation.
The Streamlined Procedures were created to help taxpayers get caught up when their delinquency wasn’t deliberate. In previous years, you had to pass a risk assessment to ensure you were low-risk, and to file under this program you had to live outside the US and have less than $1,500 in taxes due for any year you were filing. Now, that’s all changed! The IRS has removed the requirement to live outside the US, there is no risk assessment and the amount of tax you owe is irrelevant. And best of all? They are waiving all late filing and FBAR penalties. So if you need to get caught up and your lack of filing was non-willful, this is certainly your best option.
Questions about OVDP or the Streamlined Procedures?
If you have questions about which program you should file under, it’s important to speak to an expat tax professional who can advise you based on your personal situation. Contact our expert CPAs and IRS Enrolled Agents today and make sure you choose the program that is right for you.