Taxpayers who have unreported foreign accounts and unreported foreign income can apply to the IRS Offshore Voluntary Disclosure Program (“OVDP”), the streamlined submission procedures, or the delinquent filing procedures. It is important to hire an experienced tax attorney to navigate which program is best for your situation. Thousands of taxpayers have already taken advantage of the Offshore Voluntary Disclosure Initiative (“OVDI”) and OVDP programs and have come into compliance with their foreign account reporting.
The basic terms of the 2015 OVDP Amnesty (The Current Program) are:
1. Participants must file all original and amended tax returns (up to the past 8 years) reporting income from world-wide sources. All unfilled FBARs must also be filed.
2. Participants must pay back taxes and interest for up to eight years as well as accuracy related and/or delinquency penalties.
3. A 27.5 percent penalty is computed on the taxpayer’s non compliant offshore accounts with the highest aggregate account balance over an 8 year period. A more significant penalty of 50% is imposed if the taxpayer banks with an institution that is listed on the Foreign Financial Institution and Facilitators list published by the IRS. At the conclusion of the Program, the taxpayer can accept the penalty or can opt out of the penalty framework.
Offshore accounts and other holdings such as Controlled Foreign Corporations, Foreign Partnerships, and Foreign Trusts have become a huge focus to the IRS in recent years. FBAR enforcement is getting more frequent and the penalties more harsh. Financial institutions are implementing the Foreign Account Tax Compliance Act (“FATCA”). FATCA will require financial institutions to collect information on the beneficial owners of accounts and will also require these financial intuitions to withhold U.S. taxes on earnings from selected accounts. Due to these new regulations, the next phase in international tax enforcement is likely to obtain significantly increased global cooperation.
The Bank Secrecy Act requires that a FINCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of all foreign accounts exceed $10,000 at any time during the year. The FBAR covers a calendar year and must be filed no later than June 30th of the following year and includes any interest a U.S. person has in a foreign financial account.
Many FBAR/Offshore Voluntary Disclosure Cases also involve other issues. The Offshore Amnesty Program may not be the best solution for every case. Taxpayers should consult with a tax attorney to understand all of their options.
Our firm has handled Offshore Cases dealing with the following issues:
- PFIC/Passive Foreign Investment Company Reporting. (Form 8621). Including: Section 1291, Mark-to-Market, Qualified Electing Fund (QEF) Election
- Statement of Specified Foreign Financial Assets (Form 8938)
- U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans Including:(Registered Retirement Savings Plans “RRSPs”, Registered Retirement Income Funds “RRIFs”, Canadian Profit Sharing Pension Plans “PSPs”, Guaranteed Investment Certificates “GICs”).(Form 8891)
- Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520)
- Information Return of U.S. Persons With Respect To Certain Foreign Corporations (Form 5471)
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