Avoid-US-Tax-Criminal-Penalties-OVDPDid you know that if you are a U.S. Tax payer abroad and you’ve never filed income taxes to the IRS you may not be compliant with your U.S. tax obligations?

Here is the good news: The Offshore Voluntary Disclosure Program (OVDP) provides protection from criminal liability and fixed terms for resolving civil tax and penalty obligations.

U.S. persons (citizens and green card holders) who are looking to get caught up on their U.S. income tax filings can now take advantage of two “favorable” taxpayer programs?

One such program is the Offshore Voluntary Disclosure Program.

This program is intended for U.S. persons who neglected to file U.S. tax filings, report all income, pay full tax liability and submit all required information returns (FBAR’s, FATCA) due to willful conduct and have exposure to potential criminal liability and/or substantial civil penalties.

But there are some key Requirements:

  1. Cooperate in the voluntary disclosure process
  2. Pay 20 percent accuracy-related penalty on the full amount of your offshore-related underpayments of tax for all years
  3. Pay failure-to-file and failure-to-pay penalties
  4. Pay a miscellaneous offshore penalty equal to 27.5% (or 50% in certain circumstances) of the highest aggregate value of OVDP assets
  5. Submit full payment of all penalties or enter a payment arrangement
  6. Execute a Closing Agreement on Final Determination Covering Specific Matters
  7. Agree to cooperate with the IRS and Department of Justice offshore enforcement efforts

You also need to provide the following documents:

  1. Payment of tax, interest, all penalties (offshore, accuracy related, failure-to-file, failure-to-pay). Payment arrangements can be made for taxpayers who cannot pay the total amount due.
  2. Copies of previously filed original (and amended) U.S. federal income tax returns for tax years covered by the voluntary disclosure under the “disclosure period”
  3. Complete and accurate amended federal income tax returns (1040x) or original income tax returns (1040) for the disclosure period
  4. Completed and signed Offshore Voluntary Disclosure Letter
  5. Foreign account or asset statement for each previously undisclosed OVDP asset during the disclosure period
  6. Taxpayer account summary with penalty calculation
  7. Signed agreements to extend the period of time to assess tax (including penalties) and to assess FBAR penalties.
  8. Copies of filed FBAR’s (foreign bank account reports) on FinCEN Form 114
  9. Copies of statements for all financial accounts reflecting all account activity for each of the tax years covered by your voluntary disclosure. For OVDP assets other than foreign financial accounts, provide all relevant documents pertaining to the asset
  10. Statement identifying all foreign entities, whether held directly or indirectly, for the tax years included in the voluntary disclosure, and a statement concerning ownership or control of such entities

If the taxpayer is a decedents estate, or is an individual who participated in the failure to report an OVDP asset provide a complete and accurate amended estate or gift tax returns for tax years included in the disclosure period

If the taxpayer has a Passive Foreign Investment Company (PFIC) involved they should include a statement whether the amended or delinquent returns involve PFIC issues during the tax years covered by the OVDP period, and if so, whether the taxpayer chooses to elect the alternative to the statutory PFIC computation.

Qualification: Taxpayers who have undisclosed OVDP assets and meet the requirements of Internal Revenue Manual (IRM) 9.5.11.9 can apply for IRS Criminal Investigation’s Voluntary Disclosure Practice and the OVDP penalty regime. OVDP is only available to address the taxpayer’s own liability and cannot be used for individuals whom facilitated noncompliance of U.S. tax law for others.

You can find more information on the Streamlined Filing Compliance Procedures and Offshore Voluntary Disclosure Program on our US Tax Compliance page.

Additional Resources:

About US Tax Practice GmbH:
US Tax Practice offers U.S. tax services in Switzerland. It is the go-to tax preparation service and compliance practice for U.S. tax payers. Located in Schaffhausen, Switzerland, the company was founded by Patrick Evans, a U.S. tax accountant (CPA) and U.S. citizen determined to work with his clients’ best interests in mind. US Tax Practice GmbH services include U.S. Income Tax Preparation, U.S. Tax Compliance, Foreign Bank Account Reporting (FBAR), Tax Planning and Optimization, and Expatriation.

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