The Internal Revenue Service (IRS) announced last week that it will terminate its Offshore Voluntary Disclosure Program as of September 28, 2018. Taxpayers who have not reported foreign bank accounts and income now have only six months to do so.
In the mid-2000s, the IRS began aggressively pursuing foreign financial institutions for information concerning deposits held by those institutions on behalf of U.S. taxpayers. That effort has resulted in an unprecedented period of world-wide intra-governmental cooperation to identify unreported accounts and untaxed income. The Bank Secrecy Act and the Foreign Account Tax Compliance Act require both foreign financial institutions and U.S. taxpayers to disclose the non-U.S. assets of U.S. taxpayers. Compliance failures can result in both civil and criminal penalties and interest charges. The IRS reports that its programs have gathered approximately $11 billion in delinquent tax, penalties, and interest, and more than 1,500 indictments in recent years.
In 2009, the IRS instituted voluntary compliance programs because some taxpayers either inadvertently or “willfully” failed to comply with disclosure requirements. The IRS’ primary voluntary compliance programs are the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, which the IRS says, together have helped more than 100,000 taxpayers come into compliance. In particular, the Offshore Voluntary Disclosure Program has helped taxpayers whose nondisclosures could be classified as “willful” avoid even more stringent penalties and potential criminal prosecution.
Now, because of waning participation, the IRS is ending the Offshore Voluntary Disclosure Program. Taxpayers who are willfully concealing foreign assets may want to consider taking advantage of the program before the September 28 deadline. For now, the IRS apparently will retain its Streamlined Filing Compliance Procedures for those whose failures are non-willful; however, establishing a lack of “willfulness” is difficult under applicable legal standards, especially in light of the IRS’s efforts to publicize its compliance programs over the last few years. In addition, where potential criminal liability exists, care must be taken in determining how to come into compliance. To protect their interests and avoid potential penalties and criminal prosecution, taxpayers should seek knowledgeable legal counsel to assist with choosing the voluntary compliance alternative that is best for their individual circumstances.
We are experienced in assisting clients with the reporting of foreign accounts and assets and in using the IRS’s voluntary compliance programs. If you have assets or bank accounts overseas and have postponed compliance, we encourage you to consult with your tax advisors about the Voluntary Offshore Disclosure Program while it is still available.