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A Summary of the Streamlined Offshore Voluntary Disclosure Penalties

The Title 26 miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance or value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance or value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.

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Streamlined Voluntary Disclosure Eligibility Requirements

In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Domestic Offshore Procedures described in this section must:

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All tax returns submitted under the IRS streamlined OVDI procedures must have a valid Taxpayer Identification Number (TIN). Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the IRS streamlined ODVI procedures if accompanied by a complete ITIN application.

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On September 1, 2012, the IRS first offered the streamlined offshore voluntary disclosure program to bring non-resident taxpayers back into compliance. [1] The key factor of the streamlined offshore voluntary disclosure program is that failure to file must not have been willful. As the program proved popular, the IRS has made major changes to the program to make it available to a broader base of taxpayers. First, the taxpayer has to certify that their failure to report foreign financial assets and pay all the tax due did not result from willful conduct on their part. If the failure to file was not willful, the program provides a streamlined process for filing amended or delinquent returns, and terms for resolving the tax penalty obligation. At this point, the program is in place for an indefinite time.

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THE PROCESSES FOR FIXING THE PROBLEM

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The Departments of Justice and Treasury have joined forces to crack down on the failure to report foreign accounts and income. They are utilizing the Internal Revenue Service, FinCEN, and the United States Attorney General’s office in a collaborative effort to target individuals, banks, foreign financial institutions, and countries who don’t comply with FATCA and the U.S. tax laws. As their effort has proved profitable with $6.5 billion dollars of collected revenue, more assets have been allocated to allow Justice and Treasury to expand upon their success. In addition, FATCA and other new laws with enhanced penalties have come into play giving the noncompliant taxpayer, financial institution or country greater incentive to come forward before they become the target of an investigation which very well could lead to criminal prosecution or greater civil penalties. Each delinquent filing or noncompliance is considered separately under the law, and carries its own repercussions. There are several consequences for not participating in streamlined OVDP that taxpayers need to be aware of. Here are the highlights.

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