In today’s globalized economy, with the mobility of individuals, many members of wealthy families have bank accounts, rental properties, stocks and securities and assorted other assets spread across the globe. Different jurisdictions have imposed reporting requirements and taxes on some of these assets. The United States taxes it’s citizens and residents[1] on their worldwide income and imposes annual reporting of certain foreign assets. This can be problematic for members of global families with these world-wide assets as many individuals for one reason of another inadvertently have left one or more of these assets off of their U.S. income tax returns. Failure to come into U.S. tax compliance can result in severe financial penalties, prosecution, and even mandatory jail time.
The Internal Revenue Service (“IRS”) currently has a special voluntary disclosure initiative, the Offshore Voluntary Disclosure Program (“OVDP”), designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from unreported foreign accounts and assets in compliance with their taxes. There are substantial penalties imposed in this process. Taxpayers who enter into the OVDP are required to pay an accuracy related penalty equal to twenty percent (20%) of the total amount of the underpayments of the tax for all years and an offshore penalty of twenty-seven percent (27%) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure program.
Following entry into the OVDP, individuals who successfully complete the program are able to become U.S. tax compliant and avoid criminal prosecution. In addition to the general OVDP, the IRS has also recently expanded the OVDP to include a simpler process for individuals with smaller tax compliance issues. This “streamlined” process allows individuals, much faster review and the IRS will not typically assert penalties or pursue follow-up actions.
For a full discussion of issues related to OVDP please download our full article on Offshore Voluntary Disclosure.
As with most matters related to international Taxation, we highly recommend you contact a reputable Tax attorney to provide the strategy that will save you the most money and insure full and proper compliance.
[1] Green card holders and individuals who satisfy the substantial presence test without an applicable exception.
