Offshore Voluntary Disclosure Program :
Third And Last Chance For Taxpayers
The Internal Revenue Service (IRS) declared that for the third and the last time, they will reopen the Offshore Voluntary Disclosure Program (OVDP) for taxpayers to disclose their offshore accounts. This program has similarities with the 2011 program, except for the fact that the reopened OVDP will allow people to apply for an indefinite period of time, unless stated otherwise.
The two previous programs of IRS had brought about 33,000 disclosures and $4.4 billion revenue ($3.4 billion in 2009 and $1 billion in 2011). It is not illegal to possess bank accounts overseas as long as the taxpayers declare it in the tax returns and on the reports of Foreign Bank and Financial Accounts (Foreign Bank Accounting Report or FBAR). Taxpayers have to declare the existence and their account size; otherwise, they will face civil and criminal charges. Self-report foreign assets before the government finds them.
In 2009, IRS started the Offshore Voluntary Disclosure Initiative (OVDI), a program offering the taxpayers the chance to declare their assets and pay taxes, with 20% penalty on back taxes, and “FBAR penalty” of 20% of the highest aggregate balance for the last eight years, starting from 2003. As the FBAR penalty could kick up to 50% of the account balance per year, the OVDI was a solution to taxpayers who are afraid of being prosecuted.
14,700 taxpayers came forward and took part in OVDI, which ended in October 2009. In February 2011, IRS conceived the OVDP scheme, giving the taxpayers the same contract, except that the FBAR penalty could range from 20-25% of the account from 2003 to 2010. OVDI and OVDP had taxpayers disclosing their assets and had brought in billions of dollars, but many offshore taxpayers did not take part, either because they thought they will escape detection, or because they were not aware of the programs' existence.
The reopened OVDP and the program in 2011 have the same penalty scheme, except for the taxpayers belonging to the highest penalty tier. In the new program, the taxypayer has to pay the 27.5% penalty of the highest balance in their offshore bank accounts or the worth of their offshore assets for the past eight years. In 2011, the penalty amount was 25%. Some taxpayers will be eligible for 5% or 12.5% penalties, which was the same as that in 2011. Taxpayers should fill out their tax returns, including back-tax payments and interests. In few conditions, 5% will be payed by some taxpayers. Those with small offshore accounts or those with limited access to their foreign bank accounts and assets will be eligible to pay the 12.5% penalty. Those whose offshore assets did not reach $75,000 in any of the calendar year will pay the same low rate.
IRS, as of the time being, are working out new systems so that taxpayers will abide by the US tax law. The agency is also doing their best to educate taxpayers so that they will know and understand their US tax accountabilities.
Sources:
*http://www.forbes.com/sites/insider/2012/01/11/offshore-voluntary-disclosure-part-iii-yet-another-last-chance-for-taxpayers/
*http://www.irs.gov/newsroom/article/0,,id=252162,00.html?portlet=108
Disclaimer:
This memorandum is intended only as a general discussion of these issues. It is not considered to be legal advice. We would be pleased to provide additional details or advice about specific situations. For additional information on this important topic, please feel free to call us at 469-828-0829 or email to info@helpfortax.com
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