On March 13, 2018, the IRS announced that the 2014 Offshore Voluntary Disclosure program, better known as OVDP, is coming to an end on September 28, 2018. The next few months will be the last opportunity taxpayers will have to avail themselves of the beneficial and protective terms of the program.
After September 28, individuals who do not qualify for Streamline Filing will have to revert to pre-OVDP voluntary disclosure practice methods, which are much more stringent and less certain (not to mention more onerous and expensive).
Although this is a last opportunity for those who are thinking about using the program, completing the program is especially important for taxpayers who gained initial pre-clearance or clearance for OVDP and have not yet completed their submissions. In these cases, the IRS already has these individuals on its radar (and potential list to pursue if the filings are not completed).
“Alea Iacta Est” – The Die Is Cast!
Like Julius Caesar crossing Rubicon into Italy, the die has been cast, and the time to act is now. The IRS has already made clear that a complete disclosure must be made by the 28th, not “partial, incomplete, or placeholder submissions.” Thus, it is critically important to note the documentation needed to make an accurate disclosure.
Here are the steps required for a complete OVDP submission:
- Confirm you are not under audit or examination for any issues. We typically recommend that you defer to legal counsel or an experienced tax practitioner to review the transaction codes on the last 8 years of account transcripts to make this determination.
- Check your foreign financial institutions and advisers against the IRS blacklist, available on the IRS website at https://www.irs.gov/businesses/international-businesses/foreign-financial-institutions-or-facilitators. If they are on the list, then you may be subject to the 50% penalty.
- Make sure to get your Pre-Clearance Letter, OVDP Letter, and Required Attachments all completed well before the September 28 deadline. These letters and attachments have specific format and content requirements and should be assembled with the assistance of an attorney. Also, it is best to have these steps completed by early June (at the latest). Why? It will take the IRS Criminal Investigations time to process the Pre-Clearance Request (30 days for the pre-clearance authorization letter and then 45 days to submit the OVDP Letter and Attachments). Once the OVDP Letters and Attachments are submitted, it can take the IRS up to 45 days to provide the OVDP entrance letter. For the file to be complete, you will need to have the IRS responses approving each of these submissions. You will also need to sign consent forms to extend the time to assess civil penalties and FBAR violations.
- Provide full copies of your last 8 years’ worth of tax returns. Assuming that your 2017 return has not been filed, this would include the 2009–2016 returns.
- Provide amended tax returns for the last 8 years that include all of the unreported foreign financial income and international informational reports including but not limited to Forms 5471, 8865, 926, 8621, 3520, 3520-A, and 8938.
- Provide amended or delinquent FinCEN Forms 114 (also known as the FBAR) for the last 8 years.
- Provide copies of all foreign financial statements for the last 8 years. For example, for a savings account with UBS in Zurich, Switzerland, that was not properly reported on the FBAR, you would need to provide all 8 years’ worth of monthly bank statements related to this account.
- Complete the IRS OVDP Penalty Calculation form. This form is not user-friendly and is difficult to work with if you have to back out transfers between accounts when determining the maximum aggregate balances.
An Offshore Voluntary Disclosure has many moving parts. It is no easy task to recreate 8 years’ worth of tax returns with international reports and FBARs. If you plan on using the program before it closes or rectifying an incomplete OVDP, now is the time to get started and fully committed!