IRS announces end to offshore voluntary disclosure programme
The US Internal Revenue Service has announced that it plans to begin “to ramp down” its Offshore Voluntary Disclosure Program, in place since 2014, and to close it completely on 28 September.
The IRS said it was alerting taxpayers now in order to ensure that any US taxpayers with undisclosed foreign financial assets would have time to use the OVDP before it comes to an end.
The announcement comes three months before the tax return filing deadline for Americans living overseas, which is 15 June.
“Taxpayers have had several years to come into compliance with US tax laws under this programme,” said Acting IRS commissioner David Kautter.
“All along, we have been clear that we would close the programme at the appropriate time, and we have reached that point.
“Those who still wish to come forward have time to do so.”
Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programmes to comply voluntarily, according to the IRS.
All told, those taxpayers “paid a total of $11.1bn in back taxes, interest and penalties”, the IRS added, in a statement announcing its decision to bring the OVDP to an end.
The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of US taxpayers of their offshore tax and reporting obligations, the IRS said.
Peak year was 2011
According to the IRS, the peak year for Americans to disclose their offshore assets, in hopes of getting a reduced penalty, was 2011, when about 18,000 people came forward.
After that the number steadily declined through the years, falling to only 600 disclosures in 2017.
The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which in turn followed voluntary programmes offered in 2011 and 2009.
The schemes have all been designed to enable US taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets, and/or their failure to file foreign information returns, such as Foreign Bank Account Reports (FBARs).
The OVDP scheme came in for some criticism, including, in January 2014, from Nina Olson, the US national taxpayer advocate. In her 2013 annual report on the IRS, she said the offshore voluntary disclosure schemes in use since 2009 had “burdened ‘benign actors’ who inadvertently violated the rules”, and went on to call the disclosure programmes then in use as “punitive”, noting that they charged “average penalties of more than double the unpaid tax and interest associated with the unreported accounts”.
Those individuals who decided not to go ahead with a disclosure (that is, those who “opted out”) were automatically audited, and thus penalised for coming forward, and “on average assessed penalties against them of nearly 70% of the unpaid tax and interest”, Olson said.
Although the subsequently-revised scheme that came into force months after Olson’s report still has its critics, they seem to be fewer and less vociferous than they were at the time Olson made her comments.
IRS: the campaign ‘will continue’
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.”
In addition to the OVDP, the IRS has set up other programmes for taxpayers with overseas accounts they might not have been aware they needed to declare, including what is known as the Streamlined Filing Compliance Procedures, which is said to have helped around 65,000 additional taxpayers come into compliance. This programme will remain in place and available to eligible taxpayers even after the OVDP deadline in September.
However, the IRS warned that it “may end the Streamlined Filing Compliance Procedures at some point” in the future.
Full details of the options available for US taxpayers with undisclosed foreign financial assets can be found on IRS.gov by clicking here.