The IRS’ six new compliance campaigns aim to crack down on noncompliance for American taxpayers – specifically expats. One of the latest campaigns will be seeking out those who are noncompliant in the aftermath of the termination of the OVDP (Offshore Voluntary Disclosure Program).
What Was the OVDP?
The OVDP was an amnesty program offered by the IRS to help expats who were willfully – or deemed willfully by the IRS – hiding money in foreign accounts to evade American taxation. While steep penalties were applied, these taxpayers could become tax compliant without fearing prosecution. The taxpayers using the OVDP were required to file tax returns for eight years and to pay associated tax and interest, the 20% non-filing penalty, an offshore penalty, and any other applicable penalties.
However, in September of 2018, the IRS terminated this program.
The IRS replaced the program with another called the Updated Voluntary Disclosure Program. While similar to the OVDP, the new program had increased penalties and no explicit guarantee that criminal charges would not apply. The shutdown of the more lenient amnesty program and the crackdown on those who used the original OVDP show that the IRS is taking significant steps to find noncompliant taxpayers and hold them accountable.
How Will Expats Be Affected by the Post OVDP Compliance Initiative?
This initiative is likely targeting expats who used the now-defunct OVDP. The IRS said that expats who used the program to become compliant and then failed to remain compliant via foreign income and asset reporting channels would be contacted through soft letters and examinations.
Since the OVDP was used by those identified as “willfully” noncompliant, their continued noncompliance is likely going to be taken very seriously by the investigating IRS agents. Use of the OVDP is dependent on continued compliance, such as payment on all penalties, interest, and fees that the IRS levied. If the taxpayer did not hold up their end of the bargain, the IRS can revoke the use of the OVDP and expose the taxpayer to much higher penalties and possibly other legal action. Once the IRS begins its examination of a taxpayer, criminal charges are definitely on the table.
If you used the OVDP to get caught up on your expat taxes, you likely received a Form 906 (Closing Agreement on Final Determination Covering Specific Matters) from the IRS. It’s certainly worth your time to look over the agreement and make sure you completed all the final actions required of you to stay in tax compliance. Those who used the OVDP also agreed to cooperate in any IRS or Treasury Department enforcement efforts, if requested, by providing information about financial institutions that helped establish or maintain an offshore arrangement. Tie up any loose ends now, before the compliance campaigns are underway and the IRS contacts you about the noncompliance.
Want to Make Sure You’re Tax Compliant?
Greenback can help review your OVDP documents and put your mind at ease. Get started with us today, and you’ll be tax compliant in no time.