IRS Announces Offshore Voluntary Disclosure Modifications and Revised Streamlined Procedures

by Snell & Wilmer
Contact

On June 18, 2014, the IRS made significant changes to the procedures pursuant to which U.S. Persons can disclose any failure to timely file a Report of Foreign Bank and Financial Accounts (FBAR), and/or an international information return (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926 and 8621). First, the IRS announced modifications to the 2012 Offshore Voluntary Disclosure Program (2012 OVDP), effective for new submissions made on or after July 1, 2014. The IRS refers to these modifications as the “2014 OVDP.” Second, the IRS significantly expanded the Streamlined Filing Compliance Procedures (Streamlined Procedures), by breaking the former procedure into two procedures depending upon whether the U.S. Person involved has been residing in the U.S. Finally, the IRS made slight revisions to its safe harbor procedures for those who have failed to file one or more of the above forms, but who have otherwise complied with applicable U.S. income tax laws.

I. OVDP Modifications

The most significant modifications as part of 2014 OVDP are as follows:

  • Additional information is now required for preclearance by Criminal Investigation.
  • The miscellaneous offshore penalty increases from 27.5 percent to 50 percent starting August 4, 2014, for any person who has not met the OVDP preclearance requirements by such date, if either (i) a foreign financial institution at which the taxpayer holds or held an account, or (ii) a facilitator who helped the taxpayer establish or maintain an offshore arrangement, has been publicly identified as being under investigation or cooperating with a government investigation. A list of persons currently so identified is accessible here.
  • The offshore penalty must be paid at the time of the 2014 OVDP submission, unless the taxpayer can demonstrate an inability to pay.
  • The previously available 12.5 percent and 5 percent reduced penalty rates within 2012 OVDP have been eliminated.
  • All taxpayers must submit full financial institution statements, but voluminous documents not requiring original signatures may be submitted on CD or flash drive under certain circumstances.
  • Revisions are anticipated to the Offshore Voluntary Disclosure Letter and related attachment.
  • The FAQs pertaining to the asset base to which the offshore penalty applies have been modified.

II. Streamlined Filing Compliance Procedures

The IRS has expanded the Streamlined Procedures (first offered on September 1, 2012). The Procedures are now available to individuals (and estates of individuals) residing in the U.S. The revised Procedures eliminate the risk assessment process, including the significance of the $1,500 tax threshold. Further, an individual residing outside of the U.S. can qualify pursuant to the Streamlined Procedures regardless of whether the individual previously filed all required U.S. income tax returns. The Streamlined Procedures impose no penalty on an individual residing outside the U.S. For those residing in the U.S., there is a 5 percent penalty on assets reportable on the FBAR or Form 8938. To be eligible for the Streamlined Procedures, an individual must be able to certify under penalties of perjury that the failure to report all income, pay all tax, and submit FBAR(s) and/or international information return(s) resulted from non-willful conduct. The IRS defines “non-willful” conduct as conduct due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Tax returns submitted under the Streamlined Procedures will not be acknowledged and a submission pursuant to such Procedures will not result in a closing agreement with the IRS. There will be no automatic audit of the returns submitted pursuant to the Procedures, but such returns may be subject to audit and verification, IRS exam, and civil and/or criminal liability, as applicable.

Once a taxpayer submits an OVDP voluntary disclosure letter on or after July 1, 2014, the taxpayer may not participate in the Streamlined Procedures. Likewise, once a taxpayer submits under the Streamlined Procedures, the taxpayer is ineligible to participate in 2014 OVDP. However, taxpayers who enter OVDP prior to July 1, 2014, can attempt to qualify for the penalty structure of the Streamlined Procedures while remaining in 2012 OVDP. The taxpayer must be able to make the certification of non-willfulness under penalties of perjury. If the taxpayer’s conduct is considered to be non-willful, then the 0 or 5 percent penalty structure would apply (depending upon whether the taxpayer is residing in the U.S.). If the taxpayer were considered to be willful, then the taxpayer would not be eligible for the Streamlined Procedures penalty, but could remain in 2012 OVDP. Additionally, this process would provide the taxpayer with a good understanding of the likely recommendation of the IRS agent regarding willfulness, if the taxpayer were otherwise considering an opt out from OVDP.

III. Safe Harbors (2012 OVDP FAQs 17 and 18)

The previously existing safe harbors, which allowed taxpayers to avoid a penalty for late-filed FBARs or international information returns if the taxpayer did not have U.S. tax non-compliance, have been retained with slight modifications. The most significant modification is that, with respect to a late-filed international information return, the taxpayer must have had reasonable cause for the failure to timely file. A reasonable cause explanation is not required for safe harbor filings made prior to July 1, 2014.

Taxpayers remain ineligible for OVDP, Streamlined Procedures, and the safe harbors if the IRS has initiated a civil examination or criminal investigation of a taxpayer’s return for any taxable year. Similarly, the taxpayer cannot have been contacted by the IRS about the delinquent form before taking action.

Written by:

Snell & Wilmer
Contact
more
less

Snell & Wilmer on:

Readers' Choice 2017
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 using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*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.