American Expats Get US Disclosure Program Changes

By Editorial 23 June, 2014

Under pressure from American residents abroad that have not deliberately failed to abide by their tax obligations, the Internal Revenue Service (IRS) has announced major changes to its offshore voluntary compliance program (OVCP) from July 1, 2014.

The current OVDP was launched in 2012 and is the successor to prior voluntary programs offered in 2011 and 2009. The IRS has disclosed that, since the launch of the first program, more than 45,000 taxpayers have become compliant voluntarily, paying about USD6.5bn in taxes, interest, and penalties.

The IRS confirmed that the changes "reflect the thoughtful input of the tax community given the growing awareness among US taxpayers of their offshore tax obligations." An expansion of the streamlined filing compliance procedures, which were originally announced in 2012, is intended for US taxpayers whose failure to disclose their offshore assets was "non-willful," while there are other important modifications to the 2012 OVDP.

"This opens a new pathway for people with offshore assets to come into tax compliance," said IRS Commissioner John Koskinen. "The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs."

"Through our enforcement efforts, taxpayers are more aware of their obligations, and we believe want to come into compliance," he added. "In this rapidly changing environment, we listened to feedback from the tax community as well as the National Taxpayer Advocate about our voluntary programs. We have made important adjustments to provide opportunities for all US taxpayers to come in, including those who are not willfully hiding assets."

The 2012 streamlined procedures were available only to non-resident non-filers, and taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer's response to a "risk" questionnaire. Under the new arrangements, the expanded streamlined procedures are available to a greater number of US taxpayers living outside the US who have unreported foreign financial accounts and, for the first time, to certain American taxpayers residing in the US.

The changes include an elimination of the requirement that the taxpayer should have USD1,500 or less of unpaid tax per year; the abolition of the risk questionnaire; and a new requirement for the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible American taxpayers residing outside the US, all penalties are to be waived. For eligible US taxpayers residing in the US, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue.

There are also important modifications to the OVDP, including a requirement for additional information from taxpayers applying to the program; an elimination of the existing reduced penalty percentage for certain non-willful delinquent taxpayers in light of the expansion of the streamlined procedures; a requirement that taxpayers submit all account statements and pay the offshore penalty at the time of the OVDP application; and a possibility for taxpayers to submit records electronically rather than on paper.

However, from August 4, 2014, the 27.5 percent offshore penalty percentage will be increased to 50 percent if, before the taxpayer's OVDP pre-clearance 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 the Department of Justice (DOJ).

In fact, the IRS has pointed out that, balanced against the modified OVDP program, the Government change will bolster its "ongoing effort to combat the misuse of offshore assets." Working closely with the DOJ, it will continue to investigate foreign financial institutions (FFIs) that may have assisted US taxpayers in avoiding their tax filing and payment obligations, while, on July 1, the new information reporting regime resulting from the Foreign Account Tax Compliance Act will go into effect, and FFIs will begin to report to the IRS the foreign accounts held by US persons.

Tags: Individuals | Compliance | Tax | Tax Compliance | Law | Enforcement | Offshore | United States | Penalties | Individual Income Tax | Compliance | Expats | Tax |


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