A Third “Last” Chance to Disclose Income from Foreign Accounts to the IRS


In January 2012, the Internal Revenue Service (“IRS”) announced its third Offshore Voluntary Disclosure Program (“OVDP”) aimed at U.S. taxpayers who have failed to report income from foreign accounts. Under the OVDP, noncompliant taxpayers can resolve their tax liabilities that result from undisclosed foreign accounts and minimize their chances of criminal prosecution. Noncompliant taxpayers include not only those who intentionally hide assets overseas, but also those who may not have known that they had an obligation to report such income on their U.S. tax return. Generally, all U.S. taxpayers are required to report and pay tax on their worldwide incomes. The phrase “U.S. taxpayers” can include foreign nationals working or living temporarily in the United States.

The current OVDP is similar to its predecessor programs that ended in 2009 and 2011, except that the maximum penalty has increased to 27.5 percent (a 12.5 percent and 5 percent penalty is also available in limited circumstances) of the highest aggregate balance of a taxpayer’s foreign accounts during the eight full tax years prior to the tax year of the disclosure. There is no set deadline when the current OVDP will expire. The IRS has promised to provide additional guidance with respect to the current OVDP soon.

The IRS is making international tax compliance a priority. In addition to the OVDP, the Foreign Account Tax Compliance Act (“FATCA”) will soon require foreign financial institutions to report certain information about financial accounts held by U.S. taxpayers to the IRS. This threat will likely prompt many to file under the OVDP.

It is not unlawful for a person to have a foreign account, as long as the income from such account is properly reported on the person’s U.S. tax return. In addition, U.S. taxpayers with foreign accounts may also be required to file IRS Form 8938 and a Report of Foreign Bank Account and Financial Accounts (“FBAR”). The penalties for failing to file IRS Form 8938 and the FBAR are substantial.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Armstrong Teasdale LLP | Attorney Advertising

Written by:


Armstrong Teasdale LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.