Reporting Undeclared Foreign Accounts: A Look at Streamlined vs. OVDP

Offshore Account Update

Posted on July 29, 2016 |

The Offshore Voluntary Disclosure Program (OVDP) was created by the IRS in 2009 to try to convince U.S. connected individuals to voluntarily come forward and report foreign accounts which they had not declared before. Those participating in OVDP would have their penalties limited in exchange for coming forward and reporting funds, and would be provided with protection from criminal prosecution.

Since 2009, the IRS has changed the OVDP program, made modifications, and introduced alternatives such as Streamlined Filing Compliance Procedures. With different options available now to taxpayers with offshore funds, deciding on the best course of action can be complicated. Anyone who wants to resolve their issues with undeclared offshore accounts should talk with a New Jersey tax attorney to get advice on what option is the right one for them.

OVDP vs. Streamlined

Both OVDP and Streamlined Filing Compliance Procedure aim to convince taxpayers to voluntarily tell the IRS about their offshore accounts, but there are differences. One of the biggest differences in that Streamlined Filing Compliance Procedure is available only to people who are considered non-willful violators.

A non-willful violator is someone who did not intentionally make a choice not to comply with tax laws and report foreign accounts. A person who simply did now know of their obligations to the IRS would be a non-willful violator because the failure to report was not done with the intent to ignore IRS requirements or to hide money and assets from the IRS.

If you wish to take advantage of Streamlined Filing Compliance, you will need to certify your non-willfulness under penalty of perjury. The IRS will review your certification and determine if you actually were a willful violator or not.

The IRS may look at where funds came from; deposits and withdrawals to the foreign accounts; how deposits and withdrawals were made; whether tax preparers knew of the account; whether the account was moved among financial institutions; the documents provided to open the account; and a variety of other factors.

If the IRS disagrees regarding whether your actions were willful in failing to comply with tax rules, you can face very serious consequences, including a potential charge of criminal perjury. This is a downside to Streamlined Filing.

There are also other downsides to Streamlined procedures as well.  For example, while penalties for U.S. taxpayers are limited to five percent of certain offshore assets when participating in Streamlined Filing, there aren't limits on civil penalties which may be assessed in connection with not reporting income from U.S. sources.  Streamlined Filing Compliance also generally does not provide protection from criminal prosecution for violation of tax law.

OVDP, on the other hand, can provide protection criminal prosecution. This does not mean OVDP is without downsides or is always preferable to Streamlined Filing. OVDP requires taxpayers to pay as much as a 50 percent penalty on tax underpayments which occurred because of the offshore funds, if the funds are held at a financial institution which was under scrutiny by the IRS. There may also be additional penalties for failure to file taxes.

Before choosing OVDP or Streamlined filing, it is a good idea to talk with attorney Kevin Thorn to get professional legal advice about which option is right for you to resolve issues with offshore accounts.

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