The OVDP is Closing Soon: Potential Ramifications for Expats Behind on US Tax Returns

We’re a week away from the OVDP (Offshore Voluntary Disclosure Program) closure, September 28th, 2018. If you’re a taxpayer who isn’t up to date on your US tax returns, there’s no better time than now to talk to a tax practitioner about getting into compliance. The consequences expats face for noncompliance are no laughing matter, but they are avoidable.

First, let’s briefly talk about the numbers. On March 28th, 2018, the IRS provided some critical information for US taxpayers and tax practitioners to contemplate:

  • 56,000 taxpayers have used the OVDP
  • 65,000 taxpayers have used Streamlined Filing Procedures
  • 18,000 taxpayers filed under the OVDP in 2011 – the most in a single year
  • 600 Taxpayers filed under OVDP in 2017
  • 1,545 Taxpayers have been indicted on criminal violations of international activities
  • 671 Taxpayers have been indicted on criminal tax violations

Acting IRS Commissioner, David Kautter, said, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program.” In the eyes of Kautter, the program has been extremely successful, bringing back over $11.1 billion in taxes, penalties, and interest. While the IRS Commissioner’s post is alleged to be a non-political position, one could argue that the ending of OVDP does have a political correlation reflecting the current administration’s platform.

There is a new man on the job. On September 12th, 2018, the Senate confirmed President Trump’s nominee Charles Rettig as the new Commissioner of the IRS, a position to be held until 2022. Rettig has worked for over 35 years as an attorney representing clients before the IRS, clients that have participated in the OVDP and Streamlined Filing Procedures. In fact, one of Rettig’s key accomplishments was providing practitioner’s guidance in designing the OVDP, and he serves as the Vice Chair of Administration for the American Bar Association. The American Bar Association Section of Taxation has made several comments on the closure of OVDP, and the preservation of both offshore and domestic Streamlined Filing Procedures.

Rumors in the tax community about the possible closure of the Streamlined Filing Procedures are repeated year after year, but the truth is we just don’t know. Why wait? Get into compliance now. Unfortunately, civil and criminal penalties are not scare tactics that accounting firms and practitioners use to drum up business. The civil and criminal penalties associated with not filing required US tax returns and foreign financial returns (when required) are real. Our goal is to get taxpayers caught up on their US tax returns and into compliance with as much protection as possible.

Expats who are not compliant can face serious consequences, even if they were not aware of their filing requirements. Many expats justifiably feel this is unfair; nonetheless, we want to make sure that expats are aware of what’s at stake. Below is a list of civil and criminal penalties that can be imposed upon taxpayers who are noncompliant.

Civil Penalties for Noncompliance

Failure to File FBAR (Non-willful) – Up to $10,000 per violation

Failure to File FBAR (Willful) – As high as $100,000 or 50% of the total values per violation

Failure to File Form 8938 – $10,000, with an additional $10,000 each month after the IRS has notified the taxpayer, up to a max of $50,000

Failure to File Form 3520A – Greater of $10,000 or 5% of the gross value of the trust’s assets

Failure to File Form 5471 – $10,000, with an additional $10,000 each month starting 90 days after the IRS has notified the taxpayer, up to a max of $50,000

Failure to File Form 5472 – $10,000, with an additional $10,000 each month starting 90 days after the IRS has notified the taxpayer, up to a max of $50,000

Failure to File Form 8865 – $10,000, with an additional $10,000 each month starting 90 days after the IRS has notified the taxpayer, up to a max of $50,000

Failure to File Form 962 – 10% of the property transferred up to $100,000 per return if non-willful, no limit if willful

Fraud (Underpayment of Tax, Failure to File) – Up to 75% of the unpaid tax

Failure to File – 0.5% of tax, plus 0.5% each additional month, not to exceed 25%

Accuracy-Related Penalties – 20% or 40% on underpayment of tax

Criminal Penalties for Noncompliance

Tax Evasion – Prison Term up to 5 years and a fine up to $250,000

False Returns – Prison Term up to 3 years and a fine up to $250,000

Failure to File Tax Return – Prison Term up to 1 year and a fine up to $100,000

Failure to File FBARs – Prison Term up to 10 years and a fine up to $500,000

Attempts to Defraud the Government – Prison Term up to 10 years or more and a fine up to $250,000

But there’s good news: you can avoid most, if not all, of these especially if you were unaware of your filing requirements, by using the Streamlined Filing Procedures. We hope that presenting you with the facts will bring more awareness to the harsh ramifications that can jeopardize expats’ future financial security, and motivate you to take action. You can get compliant; we can make it easy.

Get Compliant on Your US Tax Returns Today

Greenback has helped over 8,750 expats become compliant. Don’t wait another minute: get started with Greenback, and you’ll be compliant in no time. Our expat expert accountants will walk you through every step along the way.

Free Guide: The 25 Things Every Expat Needs to Know About Taxes

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