2016 Update IRS Amnesty Program

New Jersey IRS Amnesty Attorney

What is the IRS Offshore Voluntary Disclosure Program?

The IRS Offshore Voluntary Disclosure Program (OVDP) was created in 2009 in an effort to encourage taxpayers to voluntarily disclose offshore foreign accounts that they failed to report in the past. Under U.S. law, it is illegal for taxpayers to use offshore accounts to avoid their tax obligations to the IRS.  

The 2009 OVDP program gave taxpayers who voluntarily came forward to report their undisclosed offshore accounts the chance to avoid criminal prosecution. The 2009 program also provided for reduced fines and penalties in the form of a single “miscellaneous offshore penalty.”  In general, this penalty was set at 20 percent of the highest aggregate value of the taxpayer’s unreported offshore accounts from 2003 to 2008.

In 2011, the IRS launched an Offshore Voluntary Disclosure Initiative which lasted until September 9 of that year.  Under the 2011 initiative, the IRS increased the general miscellaneous offshore penalty to 25 percent but also provided for a reduced penalty of five percent or 12.5 percent for certain taxpayers, based upon the gravity of their noncompliance. As a result of the success and strong interest in these two earlier programs, the IRS established a third offshore amnesty program in 2012.  The 2012 program increased the miscellaneous offshore penalty to 27.5% of the highest aggregate value of the taxpayer’ offshore assets with no set end date for taxpayer participation.   

The IRS has reported that more than 45,000 taxpayers have disclosed previously unreported offshore accounts under these three amnesty programs, making payments of approximately 6.5 billion in back taxes, interest and penalties   The New Jersey IRS amnesty attorneys at Thorn Law Group have helped hundreds of taxpayers in New York, New Jersey, and across the country successfully participate in these voluntary disclosure programs.  

What do the 2014 changes to the OVDP involve?

In June 2014, the IRS announced significant changes to the OVDP in an effort to increase the number of taxpayers voluntarily coming forward to disclose their unreported foreign accounts and assets.  These modifications include an expansion of the OVDP streamlined filing compliance process along with important changes to critical components of the program.

With respect to the streamlined filing compliance process, the IRS has expanded the eligibility criteria to cover a broader group of U.S. taxpayers who have failed to report their offshore accounts but have not acted “willfully” in doing so.   In the past, only non-resident non-filers were eligible to participate in the OVDP streamlined process.   Under the expanded program, more taxpayers who are living abroad as well as some taxpayers who are residing within the U.S. will be eligible to take advantage of the streamlined process.

In addition, the IRS has eliminated the requirement that the taxpayer have $1,500 or less in unpaid tax liability per year and the previously required risk questionnaire.  Taxpayers seeking to take advantage of the streamlined process must now certify that their failure to comply with the offshore reporting requirements was “non-willful.”  Under the revised streamlined program, all penalties will be waived for non-willful violators residing outside of the U.S. and the only penalty for non-willful violators living in the U.S. will be a miscellaneous offshore penalty of five percent of the offshore assets that were not reported.

The 2014 changes to the OVDP also impact taxpayers whose failure to report their offshore accounts may have been willful in nature and therefore do not qualify for the IRS streamlined process.  Willful violators seeking to avoid criminal prosecution will now be subject to new requirements.  These requirements include providing more information to the IRS than in the past, including submitting all account statements when making their OVDP application.  Willful violators must also pay their offshore penalty at the time of their application, and, in some cases, will be required to pay steeper penalties than required under past programs.

What action should taxpayers with unreported offshore accounts take now?

Taxpayers with undisclosed offshore accounts should discuss their situation with an experienced New Jersey IRS amnesty attorney.  Regardless of whether the failure to report an offshore account was willful or non-willful in nature, our firm works with taxpayers across the nation to resolve their tax issues and bring their foreign accounts into compliance with all U.S. laws and regulations.  

It is important to keep in mind that once it becomes public that the IRS or the Department of Justice has launched an investigation of the bank where your offshore accounts are held, the offshore penalty will increase from 27.5 percent to 50 percent.  Additionally, the provisions of the Foreign Account Tax Compliance Act (FATCA) that went into effect on July 1, 2014 will make it even more difficult for taxpayers to shield their offshore accounts from the IRS. 



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