The Internal Revenue Service announced major changes in its offshore voluntary compliance programs, providing new…
Article Discusses Termination of Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures (SFCP)
The Internal Revenue Service (IRS) currently offers non-compliant US taxpayers several different relief programs in which to report foreign assets and/or income and become compliant with US rules related to the disclosure of foreign assets. One option is the Offshore Voluntary Disclosure Program (OVDP). Another is the Streamlined Filing Compliance Procedures (SFCP). SFCP is further bifurcated into two sub-programs—one for US residents (Streamlined Domestic Offshore Procedures or “SDOP”) and one for non-US residents (Streamlined Foreign Offshore Procedures or “SFOP”). Each program has its own set of tailored procedures and eligibility requirements. Non-willful US taxpayers who enter SDOP must only pay a five percent penalty of undisclosed foreign assets during the disclosure period (three years), and US taxpayers who enter SFOP pay no penalty.
However, Tax Notes magazine recently published an article speculating that OVDP and SFCP may be discontinued in the foreseeable future. The article cites various reasons the IRS may have for discontinuing the programs, including decreased participation over the past five years. The article also surveys tax practitioners to solicit their perspective on the effectiveness of the voluntary disclosure programs and whether the IRS should adopt new, alternative procedures if OVDP and SFCP are discontinued so that US taxpayers may still have an adequate mechanism for becoming compliant.
Meanwhile, the IRS has not commented on terminating OVDP or SFCP. The IRS has publicly stated that it may terminate the disclosure programs at any time. However, the termination of the disclosure programs would reduce the ability of non-compliant taxpayers to enter a structured program to achieve finality and certainty with respect to their tax compliance.
In our firm’s experience, we have seen fewer participants in the OVDP program over the last few years, however, the OVDP program remains a good option for certain taxpayers. Separately, we have seen significant interest and increased participation by taxpayers in the SFCP program. We do not see any termination of the disclosure programs in the immediate future.