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New IRS procedures allow taxpayers with foreign financial accounts to comply with international tax laws without fear of criminal prosecution and with reduced penalties.

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IRS Streamlines Offshore Voluntary Disclosure Program

  • 9/4/2014

On June 18, 2014, the IRS announced updated procedures for its offshore voluntary disclosure program (OVDP) and streamlined filing procedures. In many cases, the changes will reduce the penalty exposure for noncompliant taxpayers to 5 percent of the highest balance in foreign financial accounts and nondeclared assets.

Changes to the 2012 OVDP include:

  • Requiring additional information from taxpayers applying to the program
  • Eliminating the reduced penalty percentage for certain nonwillful taxpayers in light of the expanded streamlined procedures
  • Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application
  • Enabling taxpayers to submit records electronically rather than on paper
  • Increasing the offshore penalty percentage (from 27.5 percent to 50 percent) if, before the taxpayer’s OVDP preclearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account, or another party facilitating the taxpayer’s offshore arrangement, is under investigation by the IRS or Department of Justice.

“Whether intentional or not, foreign assets or foreign financial accounts that go unreported to the authorities carry significant fiscal penalties as well as the risk of criminal prosecution,” says Dan Warr, engagement director for CliftonLarsonAllen. “OVDP and a streamlined filing program allow U.S. taxpayers to become compliant without fear of criminal prosecution, and to mitigate penalty exposure.”

Since 2009, three OVDP programs have brought 45,000 individuals back into compliance with international tax laws, and collected $6.5 billion in taxes, penalties, and interest.