In 2009, the IRS created an amnesty program that let taxpayers confess their sins about offshore accounts. The program--known as the Offshore Voluntary Disclosure Program (OVDP)--has been successful. And now the IRS has tweaked the rules and opened the doors to more taxpayers.
Since 1969, taxpayers owning interests in, or signature authority over, foreign accounts have had to disclose them by filing a Report of Foreign Bank and Financial Accounts by June 30 of the subsequent year. For many years, it has been commonplace for investors to dodge taxes (illegally) by hiding assets in foreign banks shrouded in secrecy. Under the Foreign Account Tax Compliance Act (FATCA), taxpayers no longer can avoid disclosure of their foreign accounts by such foreign banks .
Under the prior iterations of the amnesty program, taxpayers were assessed a penalty equal to 20%, 25% or 27.5% of the highest aggregate balance in the unreported foreign bank accounts or the value of their foreign financial assets during the past eight tax years. The OVDP also requires taxpayers to file amended income tax returns and FBARs. Finally, they must pay back taxes, interest, and any applicable IRS penalties thereon.
1. Streamlined procedures. These procedures are now available to a wider population of U.S. taxpayers living outside the country and, for the first time, to some U.S. taxpayers who live here. The changes include:
For eligible U.S. taxpayers residing outside the U.S., all penalties will be waived. For eligible U.S. taxpayers residing in the U.S, the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets resulting in the tax compliance issue.
2. OVDP modifications. The IRS also made important modifications to the OVDP, including:
The OVDP may be an appropriate recourse for wayward taxpayers. Those who have been evading taxes illegally are urged to come forward. The alternative, should the IRS come knocking on your door, could include up to 300% FBAR penalties and criminal prosecution.
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