The IRS has announced changes in two of its programs related to offshore accounts. The IRS has modified the terms of the Offshore Voluntary Disclosure Program (OVDP), which allows individuals to avoid criminal prosecution if they disclose their foreign accounts and pay a substantial penalty

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June 25, 2014
IRS Announces Newly Modified Offshore Compliance Programs
The IRS has announced changes in two of its programs related to offshore accounts. The IRS has modified the terms of
the Offshore Voluntary Disclosure Program (OVDP), which allows individuals to avoid criminal prosecution if they
disclose their foreign accounts and pay a substantial penalty. In addition, the IRS has expanded the streamlined filing
compliance process, or "streamlined procedures," which are aimed at U.S. taxpayers who have failed to disclose their
foreign accounts but who are not willfully evading their tax obligations. These programs are part of a wider effort to stop
offshore tax evasion, which includes enhanced enforcement, criminal prosecutions, and implementation of third-party
reporting via the Foreign Account Tax Compliance Act (FATCA).
Offshore Voluntary Disclosure Program
The current OVDP is the successor to two prior temporary OVDP initiatives that were launched in 2009 and 2011. In
2012, the OVDP was made permanent until further notice. The three programs have caused more than 45,000 taxpayers
to voluntarily come into compliance, paying about $6.5 billion in taxes, interest, and penalties. Under the terms of the
2012 OVDP, participants pay a penalty of 27.5 percent of the highest aggregate balance or value of offshore assets
during the prior eight years. Somewhat lower penalties apply to some taxpayers.
The 2014 modifications strengthen the OVDP program in several ways. The new program requires additional information
from taxpayers applying to the program. The existing reduced penalties for certain non-willful taxpayers have been
eliminated in light of the expansion of the streamlined procedures. Taxpayers must submit all account statements and
pay the offshore penalty at the time of the OVDP application. Taxpayers are also allowed to submit voluminous records
electronically rather than on paper. Finally, the offshore penalty is increased from 27.5 percent to 50 percent if, before
the taxpayer's OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer
holds an account is under investigation by the IRS or the Department of Justice.
Streamlined Procedures
The original streamlined procedures, which took effect in 2012, were available only to nonresident non-filers.
Submissions by taxpayers were subject to different degrees of review based on the amount of the tax due and the
taxpayer's response to a "risk" questionnaire. The taxpayer was required to have $1,500 or less of unpaid tax per year.
The streamlined procedures have been expanded to be available to a wider group of taxpayers, including certain U.S.
residents. The $1,500 tax liability limitation has been eliminated, as has the risk questionnaire. The taxpayer is now
required to certify that previous failures to comply were due to non-willful conduct. For eligible U.S. taxpayers residing
outside the U.S., all penalties will be waived. For eligible U.S. taxpayers residing in the U.S., the only penalty will be a
miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance
issue.
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