There is much talk in the media about the IRS’ programs, the Streamlined Procedures and the Offshore Voluntary Disclosure Program (OVDP). OVDP seems to be the program expats know least about–and with good reason. Most expats who haven’t been filing US taxes did so innocently. They didn’t know they needed to file. But for some, OVDP may be the best option. David McKeegan, Co-Founder of Greenback, uncovers the most important things you need to know about this program.
Hi, everybody. I’m David McKeegan with Greenback Expat Tax Services. We had a question this week about the new Offshore Voluntary Disclosure Program. To clarify, it’s still the 2012 Offshore Voluntary Disclosure Program. It’s just been updated as of July 1st, 2014.
Now for those that don’t know, the Offshore Voluntary Disclosure Program is a way for people who have been failing to report their foreign financial accounts and file their taxes to come clean with the IRS and avoid criminal penalties and avoid a lot of the civil penalties as well.
A brief overview of the program is that you need to file taxes for the past eight years. You need to file all your FBAR forms for those years as well. You have to sign and complete a Offshore Voluntary Disclosure Program letter explaining your situation and why you haven’t been filing. You have to submit a check to the US Treasury for any taxes you owe including interest, penalties, all that kind of stuff. You have to complete a penalty computation worksheet showing what penalties you owe based on the aggregate highest account balances of your offshore accounts.
The way the Offshore Voluntary Disclosure Program works is you have to pay a penalty based on how much money you’ve been hiding offshore. Sounds like a lot; it is a lot. The Offshore Voluntary Disclosure Program is really the best option if you’ve been hiding money overseas, if you’ve willfully been squirreling money away offshore and you’ve been doing that to avoid paying tax on it.
If you simply didn’t know you needed to file a tax return, then the Streamlined Procedures may be the better option for you. That’s also been updated as of July 1st, 2014. The Streamlined Program, they’ve done away with a lot of the risk requirements so even if you owe over 1,500 dollars in a given year in US tax or you have a more complicated tax situation – maybe you own a foreign corporation or something like that – you’ll still be allowed to participate in the Streamlined Program now.
The other thing to know is that the penalties for the Offshore Voluntary Disclosure Program are going up if the IRS has made a deal with the bank you’ve been banking with or that bank is under investigation. The penalty can now be as high as 50% of the balance if the bank is cooperating with the IRS.
We’ll do another video about the changes to the Streamlined Program. If you don’t know that you needed to file, have a look for that video. It should be posted soon and we’ll go into depth on the new Streamlined Procedures.
If you knew you were supposed to be filing and you chose not to, the Offshore Voluntary Disclosure Program may be the better option for you, but we strongly recommend that you speak to both an accountant and an attorney to make that decision and to ensure that you get compliant going forward. If you have any questions please let us know.