In this Spotlight, Paul addresses the top 3 considerations for individuals who may want to use the Offshore Voluntary Disclosure Program (OVDP) before it closes on September 28, 2018.
1. What are the top 3 considerations for individuals who may want to use the Offshore Voluntary Disclosure Program (OVDP) before it closes on September 28, 2018?
First and foremost, is the OVDP the right strategy for the taxpayer to fix compliance issues? The IRS provides other remedial programs, including Streamlined Procedures and the Delinquent FBAR/International Information Return Procedures, which are much less intrusive and onerous in terms of penalty exposure. The OVDP is really intended for situations where a taxpayer’s conduct (noncompliance) was willful in nature, and thus, concerns arise as to criminal prosecution. Plus, much higher levels of civil penalties, in particular the civil FBAR willful penalty, come into play.
Second, the IRS is more closely scrutinizing Streamlined submissions, specifically taxpayer assertions that noncompliance was not willful, and is selecting some of these for full audit. The IRS is concerned that some taxpayers who should have proceeded under the OVDP have tried to sneak by under the Streamlined Program, which has a less onerous penalty structure.
Third, it is generally advisable for taxpayers to make sure they are eligible for the OVDP (i.e., the IRS does not already have their name) through the pre-clearance process. The OVDP pre-clearance procedure has been taking at least 30 days or more to complete, so given the sunset date for OVDP, it makes sense to start the pre-clearance process sooner rather than later.
2. The IRS indicated that the Streamlined Program will remain open after September 28. When do you think this program may be closed or modified?
I suspect the IRS does not have a finite termination date in mind. However, as happened with the OVDP, I could see the IRS increasing the penalty level (which is currently 5% for residents) and possibly requiring some penalty for overseas filers.