By Gabe Tsui – Tax Principal, CPA, JD
The IRS announced that it will close the Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. The IRS decided to announce the closure in advance so that any taxpayers who are in delinquent compliance with the reporting requirements for foreign bank accounts can act now and still take advantage of the program.
U.S. citizens and residents are required to pay tax on all worldwide income, including income earned on assets held in foreign financial accounts. In addition, they must disclose the foreign accounts on an annual basis on Form FinCEN 114 (commonly known as an FBAR, Foreign Bank Account Report) if the aggregate value of all such foreign accounts exceeds $10,000.
The IRS said that it has decided to close the program because of decreased participation by taxpayers, increased awareness of the disclosure requirements, and perhaps most tellingly, the increased effectiveness of automatic third-party account reporting. The impending closure of OVDP does not signify an end to the IRS pursuit of taxpayers in delinquent compliance with the foreign bank account reporting requirements. Rather, the IRS appears to be indicating that it no longer needs taxpayers to come forward voluntarily because it can find them itself. The closure of OVDP is a removal of the easiest method that affected taxpayers can use to reduce civil and criminal penalties.
OVDP provides a means for taxpayers to voluntarily come forward and report their undisclosed foreign financial accounts and pay all tax due. The taxpayers will pay a penalty and all tax due on these accounts. Moreover, the taxpayers must file eight years of amended tax returns and FBARs and provide additional information such as complete copies of account statements for the covered period. The IRS indicated that all OVDP submissions must be complete by September 28, 2018 to be accepted. Because the process of gathering information can be time-consuming, the time to act is now.
After OVDP closes, taxpayers can still utilize the Streamlined Disclosure Program to report undisclosed foreign accounts. However, this program is substantially more difficult to qualify for than OVDP, and it is widely speculated that this program may also be terminated in the near future. The IRS will continue to aggressively pursue taxpayers who are not complying with the disclosure requirements, and the lack of an OVDP option will result in potentially increased civil and criminal penalties.
Any taxpayers who still have undisclosed foreign financial accounts are strongly urged to contact us today. Bronswick Benjamin has an experienced tax attorney, and a team of tax, reporting and accounting professionals well experienced to help taxpayers navigate the OVDP process and assist in reducing the harsh penalties associated with delinquent compliance.
Bronswick Benjamin is a mid-size, solutions-focused CPA firm located in the Chicagoland area. Our firm supports privately held businesses ranging from mid-size to large entities, owners, and their executives. We use a unique Business Evolution approach that helps clients address the different needs that arise as they navigate through their life cycle. Our firm provides outsourced accounting, tax planning and return filings, audits and reviews, and personal tax strategies for domestic and international clients. www.bronswick.com