The program began in 2009, as a way for U.S. taxpayers with undisclosed foreign financial assets to come forward and disclose those assets. The purpose of the disclosure is trifold; 1) So that taxpayers may get back into compliance with the IRS, 2) so that these undisclosed foreign assets could be disclosed and in return, potentially eliminate criminal charges that would otherwise be levied against the taxpayer, and 3) to help minimize the fines and penalties to the taxpayer for their failure to disclose in the first place.
Since its inception in 2009, over 56,000 taxpayers have used the program to comply voluntarily; with a total of $11.1 billion in back taxes, interest and penalties received.
The IRS also states that it will continue to use tools besides OVDP to combat offshore tax avoidance such as education, leads from whistleblowers, civil examination and criminal prosecution.
Some of the civil penalties of failing to disclose your foreign assets include:
- A penalty for failing to file FBARs (Foreign Bank Account Reporting) which can reach the greater of either $100,000 or 50% of the total balance of the foreign financial account per violation.
- A penalty for failing to file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The penalty for failure to file this form is the greater of $10,000 or 35% of the gross reportable amount.
- A penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. The penalty for failure to file this form is $10,000 per return and an additional $10,000 for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
- There are others as well, which can all be viewed at the IRS website www.irs.gov.
The criminal charges faced for failing to disclose are:
- Tax evasion, filing a false return, and failure to file an income tax return.
- Willfully failing to file an FBAR and willfully filing a false FBAR are both subject to criminal penalties.
- Conspiracy to defraud the government and conspiracy to commit offense or to defraud the United States are criminal charges as well.
- Tax evasion carries a potential prison term up to 5 years, and a fine up to $250,000. Filing a false return carries a potential 3 years in prison, and a fine up to $250,000. Failure to file a return can lead to up to 1 year in prison and up $100,000.
- Failure to file an FBAR can lead to a possible 10 years of prison and penalties up to $500,000.
- Conspiracy to defraud the government can lead to no more than 10 years in prison and a potential penalty of $250,000; and conspiracy to commit offense or to defraud the United States can lead to 5 years in prison and a fine of up to $250,000.
The best thing about OVDP besides from the lowered penalties and the largely reduced risk of criminal charges, is that once you have been accepted into the program and everything is completed, you will receive a letter from the IRS, stating that you are in compliance and everything is hunky dory.
There are many reasons to jump on the OVDP train, and the window is closing soon. Reach out to your local tax professional and get in compliance before it is too late.
Note: If the above applies to you, but you were unaware of your duty to disclose or of the foreign accounts all together there is another program, titled the Streamline Disclosure Program that you may qualify for. See our blog post about the Streamline program to see if it is right for you.
All of the above information can be found at the IRS website www.irs.gov.