Potential 50% Penalty for Non-Tax Filers


Recently on June 18, 2014 the IRS announced major modifications to its offshore voluntary compliance programs. These modifications were made to influence taxpayers to declare their overseas assets and to become compliant with current offshore regulations. These procedures are available to taxpayers residing in and outside the United States (penalties differ).

Changes were made to both the Offshore Voluntary Disclosure Program (OVDP) and the streamlined filing compliance procedures. The streamlined procedures require a taxpayer to file a statement declaring their failure to disclose offshore assets was non-willful.

Some of the major changes to the streamlined procedures include:

1. Requiring taxpayers to declare that previous failures to disclose income, pay tax, and submit required information returns, including FBARs and offshore assets was due to non-willful conduct.
2. Eligible taxpayers who declare non-willful conduct can avoid the offshore penalty all together if they live overseas; residents of the U.S. face a 5% penalty.
3. Eliminating a requirement that taxpayers have $1,500 or less of unpaid tax per year.
4. Eliminating the required risk questionnaire.

Major changes to the OVDP were:

1. Requiring additional information from taxpayers applying to the program.
2. Requiring taxpayers to submit all account statements, pay all of the taxes, penalties, and interest at the time of submission.
3. Enabling taxpayers to submit voluminous records electronically rather than on paper
4. Increasing the offshore penalty percentage from 27.5% to 50% if, before the taxpayer’s OVDPpre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or DOJ.

As part of the Foreign Account Tax Compliance Act (FACTA) reporting regime, foreign financial institutions will start to report to the IRS foreign accounts and assets held by U.S. citizens, who can end up paying a 50% miscellaneous offshore penalty. This list of foreign financial institutions will continue to expand as time passes. We strongly urge you to comply with the new OVDP regulations and streamlined procedures to avoid hefty civil penalties, largely eliminate the risk of criminal prosecution relating to tax noncompliance, and be able to have peace of mind.

Our firm can assist you with your OVDP and streamlined procedure filings. Please contact us if you are interested or have any questions regarding the new OVDP and streamlined procedures.