IRS offshore voluntary disclosure program closes Sept 28 the final date to avoid criminal prosecution for failure to report income

Americans with offshore accounts are being advised to apply immediately as the US Internal Revenue Service’s (IRS) Offshore Disclosure Programme (OVDP) is due to end September 28, 2019

American citizens with a foreign bank account have until September 28 to voluntarily disclose worldwide income, including interest, foreign earnings, wages, dividends and other income. The IRS’ Offshore Voluntary Disclosure Programme (OVDP) ends on 28 September, and some people are rushing to get in, as it offers some protection from severe penalties. The IRS is encouraging taxpayers who need to disclose non-compliant and unreported foreign accounts and assets to come forward before the September deadline. Qualifying taxpayers who have unreported foreign accounts can still use the OVDP to come into compliance while avoiding the risk of criminal prosecution and minimizing otherwise applicable civil penalties, but only until that date. The statute of limitations is six years. Plus, the statute of limitations never expires on tax fraud, so the IRS can pursue the citizen many years later for back taxes, interest and penalties.

For those who failed to report income, the civil liability to the IRS can include a 20% accuracy-related penalty or a 75% civil fraud penalty.

Filing a false tax return is a felony that can mean up to five years and a fine of up to $250,000.

To effect a successful voluntary disclosure, the taxpayer must provide a complete and truthful disclosure, cooperate with the IRS and pay any tax, interest, and penalties that are due. Also, the disclosure must not relate to illegal-source funds.

While the OVDP may be about to end, meanwhile,  the IRS said it has no intention of ending its efforts to combat offshore tax avoidance, “including taxpayer education, Whistle-blower leads, civil examination and criminal prosecution”.

Since 2009, it notes, it has indicted some 1,545 taxpayers on criminal violations related to international activities, of which it says 671 were indicted on international criminal tax violations.

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, who heads up criminal investigations for the IRS.

“Stopping offshore tax noncompliance remains a top priority of the IRS.”

The new rules are effective for all disclosures after that date. And the possible penalties have gone up quite significantly.

One of the biggest differences is that the IRS now says taxpayers will be required to request preclearance (which used to be optional).  The criteria for preclearance are unaffected. Therefore, a taxpayer denied preclearance under the old OVDP would probably also be denied preclearance under the new disclosure program.

The OVDP was initiated in 2009 and was designed to bring taxpayers with undisclosed foreign income, accounts and assets into US tax compliance. Taxpayers who were eligible to participate in the OVDP and made timely voluntary disclosures were provided the opportunity to receive protection from criminal referrals and to resolve their civil tax and penalty obligations on a standardized framework.

When that program terminated on September 28, 2018, there was uncertainty as to how the IRS was going to apply its general Internal Revenue Manual (“IRM”) voluntary disclosure practice going forward.

The disclosure period is now six years (previously eight years for offshore disclosures). However, IRS agents have the discretion to expand the six-year disclosure period to include all noncompliant years. In addition, taxpayers also may be allowed to expand the disclosure period to correct tax issues in years outside of their disclosure.

As with OVDP, taxpayers must file all required returns and reports for the disclosure period, and pay tax and interest on all previously unreported income

If you are aware of a U.S. citizen holding undeclared funds in foreign accounts of a substantial amount and have proof, you may be able to become an IRS whistleblower and collect a portion of what the Government recovers as a reward. Under this program the names and identities of the whistleblowers are not revealed.