By Bethany Bouw, CPA
Big changes are coming for those who have missed a foreign filing requirement. As we have previously noted, there are a variety of procedures for becoming compliant. One of those methods will soon be closing, and this may signal additional changes on the horizon.
The IRS has announced that the Offshore Voluntary Disclosure Program (OVDP) is closing on September 28, 2018. The announcement allows for those who need to avail themselves of the program to do so before it shuts. When opened in 2009, the program did not have an official expiration date, but rather always gave the IRS the ability to shut it down at their discretion. Taxpayers have had 9 years to take advantage of this program to become compliant.
This program has gone through several iterations. In the final version, the OVDP was an open-ended program with higher penalty rates. Those who have willful omissions and are seeking a way to become compliant instead of risking exposure and potential prosecution were eligible to take part. This program has generally required the filing of eight years of amended returns and eight years of FBARs.
With this program closing, the options for compliance narrow. The IRS noted that more than 56,000 taxpayers have come forward to comply voluntarily under OVDP paying more than $11 billion in delinquent taxes, penalties, and interest. A further 65,000 have become compliant through the Streamlined Procedures.
What does this mean for those with willful omissions? Completed OVDP disclosures that conform to the requirements of FAQ 24 must be received or postmarked by September 28, 2018 to be submitted to OVDP before it expires. These submissions may not be partial or incomplete. There is no sending part of the submission prior to the deadline in an attempt to get in under the wire and buy more time to complete the submission. Submission must be fully complete, or they will risk not being considered under OVDP rules.
Otherwise, the IRS is going to continue to use the resources at their disposal to suss out noncompliance. Discovering noncompliance has become much easier for the IRS with the implementation of Intergovernmental Agreements (IGAs) under the Foreign Account Tax Compliance Act (FATCA). There is increased sharing of information between nations regarding those with international bank accounts.
- For example, should a US citizen have a bank account in Switzerland that they are not reporting, the Swiss banks may now share that information with the IRS.
- Note: Depending on the country and model agreement used, the foreign bank may be required to provide the information to their government who in turn provides the information to the IRS. Some are also reciprocal agreements allowing the US to report to the foreign countries about their people.
Not only have the IGAs aided the IRS, but the IRS also has access to various criminal cases against the very people who worked to provide tax avoidance methods to US persons.
- Returning to the previous example, it is likely that the US citizen had an advisor help him with the hidden Swizz bank account. Should that advisor be subject to any criminal cases for similar behavior, his clients could now be open to investigation. It is possible that once charged, a plea deal could be made that involves turning over information.
The IRS has expressed that foreign tax compliance remains a top priority. With the closing of OVDP, we may see even more of the IRS budget used to track down those who have held back and not participated in coming forward.
As before, making a quiet disclosure will still be subject to civil or criminal penalties.
- A quiet disclosure is considered the act of filing amended returns to report delinquent income/asset information without making a voluntary disclosure.
- If the US citizen in our example decides to file an amended return to include the Swiss account, he will need to follow the disclosure procedures. Not following the disclosure procedures in an attempt to go unnoticed will result in strict, possibly criminal, penalties.
Streamlined Filing Compliance Procedures
There may be those who are worried about what this change means for the streamlined procedures. These procedures will remain available after OVDP closes. However, the IRS has left the streamlined procedures closing date open-ended as well. The IRS reserves the right to end the streamlined procedures at any point in the future.
What may be next?
Other disclosure options may come to an end in the future as well. While the back tax paid from disclosures has been large, it was received by a relatively small population size. The State Department estimated back in 2016, that perhaps as many as 9 million US citizens live abroad. When you consider this against the number of disclosures filed, it may indicate that there are still those who are willfully holding out on becoming compliant.
Therefore, the IRS may decide to focus even more attention on finding those non-compliant taxpayers using the means available to them. We have already seen their use of the John Doe summons related to cryptocurrency. An increased focus may come to those who file and disclose foreign items but have never taken such steps previously and did not amend or utilize available programs. It is possible that the IRS may examine those they believe have chosen to only be forthcoming with current and future filings. Anyone who has failed to disclose and comply with prior year filings may be at risk for investigation.
No matter what happens next though, the landscape is already shifting. Taxpayers continue to come forward to resolve their lack of compliance. We have helped many people file under a variety of available programs. It is highly encouraged that you not to wait to get a complaint! With open-ended closing dates, you do not want to miss your chance to take advantage of the programs while they are still available.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings. For questions or concerns regarding your international accounts and assets, click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
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