US expats looking to get caught up on their US tax obligations may be wondering if the IRS programs to assist in tax compliance have a deadline. Especially concerned are those who are behind on foreign bank account reporting (FBAR) as the penalties can be steep. David McKeegan, President of Greenback Expat Tax Services, explains OVDP and whether or not there are extensions available.
Hi everybody, my name is David McKeegan. I’m with Greenback Expat Tax Services. Our question this week is, is there an extension on the Offshore Voluntary Disclosure Program (or OVDP)? The answer basically is yes. The pilot was launched in 2012, the Offshore Voluntary Disclosure Program that was launched in 2012 doesn’t have an end date. That one is effectively still running. If you are an expat and you are late on your taxes, it’s been a couple of years since you filed or maybe you didn’t know you were supposed to file, there are a couple of different ways you can come forward. You can use OVDP.
OVDP is similar to the 2009 and 2011 programs in that it’s designed for individuals who have under reported their foreign income. If you go through this program, it will help you avoid any criminal prosecution. Just to clarify this is for people who did not report taxable income. If you are one of the very many US expats who don’t owe any taxable income because you are either under the Foreign Earned Income Exclusion amount or you use the Foreign Tax Credit to offset what you would owe the US so you don’t actually owe anything, there are other options for you to come forward. The Streamlined Program, which is for people who would qualify as low risk, meaning that your tax viability would be less than $1,500 a year, is a pretty good option.
A lot of people are also doing what has become known as quiet disclosures. Meaning they come forward not under any program but they just file their back-taxes and it’s usually three to six years. They file their back FBAR forms usually six years. People have been getting caught up using a quiet disclosure as well. The thing to know is you are going to need to explain to the IRS why you haven’t been filing and why you haven’t been filing your FBAR forms. So far what we’ve seen is that the IRS has been very lenient on expats who have been late in filing these forms when they don’t know that they are supposed to file these forms.
Where you will run into trouble is if you filed some of these forms in the past and then you stopped filing them and then you are trying to get caught up the second time. Because the IRS will say you knew you were supposed to be filing these forms but you didn’t. If you have been filing these forms in the past please make sure you continue to do so going forward. If you haven’t filed these forms in the past, meaning your tax return and your FBAR forms, when you get caught up the best thing to do is to include an explanation saying that you didn’t realize you were meant to file.
Now that you do know that you need to file, you’ve gotten yourself all caught up and you will stay compliant going forward. If you have any questions about this, or you need any help filing your late taxes please get in touch with us and we will be more than happy to answer your questions or help you get caught up. Thank you very much.