IRS Revised Guidelines Offshore Voluntary Disclosure Program

On June 18, 2014, the IRS issued revised guidelines under the Offshore Voluntary Disclosure Program (OVDP). Under a new program called the Streamlined Domestic Offshore Procedure, if a taxpayer failure to file the foreign bank account record (FBAR) was non-willful conduct, which is defined as negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law, they are eligible for the program. Under the program, the taxpayer must file 3 years of amended tax returns to report all unreported income from the foreign bank account(s) and pay a 5% miscellaneous penalty on the foreign holdings over the last 6 years at the high mark of the foreign holdings. Also, the taxpayer must file 6 years of delinquent FBAR’s. Additionally, the taxpayer must send in a certification stating they were non-willful and the reasons for not disclosing the previously undisclosed foreign bank account. The IRS will not automatically audit the returns/FBAR’s. The taxpayer risk of being audited is no more greater than it normally would be. The IRS would also not look for any penalties on tax due and owing on the 3 years of amended returns. There is no closing agreement signed with the IRS. Also, there is no protection that the IRS would not open the case up for criminal investigation.

Under FAQ 15, it states “What if a taxpayer has already filed amended returns reporting income from OVDP assets without making a voluntary disclosure (i.e., quiet disclosure”)? The IRS answer is “The IRS is aware that some taxpayers have made “quiet disclosure” by filing amended returns, by filing delinquent FBAR’s, and paying any related tax and interest for previously unreported income from OVDP assets without otherwise notifying the IRS. Taxpayers who have already made “quiet disclosures” are encouraged to participate in the OVDP by submitting an application, along with copies of their previously filed returns (Original and amended), and all other required documents and information to the IRS.” If the IRS finds your case to be willful, they will not allow the taxpayer to enter this Streamlined Program, will criminally investigate the taxpayer and will use everything provided to the IRS in such investigation.

Also, the IRS has a list of banks that there is already cooperation from. If the IRS is working with your bank and later receives information about you, you may be subject to audit and/or criminal investigation.

There is also the normal OVDP program, which is subject to a 27.5% FBAR penalty, filing of 8 years of amended returns and FBAR’s (with 20% penalty on the tax due). If your bank is on the IRS list or already cooperating with the IRS, the FBAR penalty rises to 50%.

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