What is the IRS Offshore Voluntary Disclosure Program?
- The IRS Offshore Voluntary Disclosure Program is designed for taxpayers with exposure to potential liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all taxes due in respect of those assets.
Why should I make a voluntary disclosure?
- Taxpayers should make a voluntary disclosure in order to become compliant with their tax obligations, avoid substantial civil penalties and to eliminate the risk of criminal prosecution for all issues relating to tax non-compliance and failing to file FBARs.
What are FBARs?
- FBARs are Reports of Foreign Bank and Financial Accounts. If you have a financial interest in or signature authority over a foreign financial account, you might be required to report such account yearly to the Department of Treasury. It is a separate filing obligation that is not part of filing a tax return.
How does the IRS determine whether an applicant is eligible for the Offshore Voluntary Disclosure Program or the Streamlined Disclosure Programs?
- Simply put, eligibility turns on whether one has willfully avoided one's tax liabilities or whether one was non-willful in doing so. Only non-willful applicants are eligible for the streamlined programs. This determination will be made by an IRS tax agent.
What is the difference between the Streamlined Foreign Disclosure Program and Streamlined Domestic Disclosure Program?
- The Streamlined Foreign Offshore Procedures (SFOP) are created for US taxpayers residing outside the US while the Streamlined Domestic Offshore Procedures (SDOP) are created for US taxpayers residing within the United States. For SFOP applicants, original and amended returns may be filed with the application but for SDOP applicants original returns may not be filed. Also, the SFOP does not assess a 5% miscellaneous offshore penalty to the applicant while the SDOP does.
What are some factors that the IRS might consider in determining whether my failure to pay taxes was willful or non-willful?
- Determinations by the IRS are based upon the facts and circumstances of each case. Generally, not fulfilling your tax obligation when you knew about it is considered to be a willful violation. Not fulfilling your tax obligations when you did not know of such obligation is generally considered to be non-willful. Also, quality and not quantity of the facts matters, which means that even if many factors speak to non-willful behavior, one factor that speaks to willful behavior might characterize one's overall behavior to be willful.
Why does it matter whether my failure to timely fulfill my US tax obligations is willful or non willful in nature?
- If your failure to file is deemed willful, the IRS will not allow you to enter one of the streamlined programs. The streamlined programs impose fewer penalties and requires review of fewer tax returns and financial statements.
How many years of tax returns are reviewed for the OVDP program and Streamlined programs, respectively?
- Eight years of amended tax returns are required for the OVDP application and three years of amended returns are required for the Streamlined applications.