IRS Announces New Statistics Regarding Voluntary Disclosures

Since the initiation of the U.S. Internal Revenue Service’s (IRS) Offshore Voluntary Disclosure Program (OVDP) which originally began in 2009 and the Streamlined Filing Compliance Procedures first offered on September 1, 2012, the IRS recently reported that more than 54,000 taxpayers have come forward  and the result is more than $8 billion in  tax collections.

The Streamlined Filing Compliance Procedures are available to both U.S. individual taxpayers residing outside the U.S. and U.S. individual taxpayers residing in the U.S.and is premised upon the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114) being due to non-willful conduct.

Moreover, while returns submitted under the Streamlined Filing Compliance Procedures  would not be subject to IRS audit automatically, the IRS points out that:

“[t]hey may be selected for audit under existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers. After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.”

The IRS added that more than 30,000 taxpayers have also used the streamlined filing compliance procedures to come back into compliance with US tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014. The streamlined filing compliance procedures, which is for non-willful taxpayers, require a 5% penalty for resident taxpayers and a 0% penalty for nonresident taxpayers.

This IRS statistic is the first publicized by the IRS regarding the streamlined filing compliance procedures. This indicates that the program is incredibly popular.  Our law firm has counseled dozens of clients on the popular streamlined filing compliance procedures.

Both the OVDP and the streamlined procedures enable taxpayers to correct prior omissions and regularize their affairs while mitigating penalties.  For those who are not compliant with reporting worldwide income on U.S. tax returns, FBARs and IRS Forms 8938, it is safest to join the OVDP or (in appropriate cases) at least the Streamlined program.

The IRS warned that potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to the offshore voluntary disclosure program to resolve their tax obligations.  The streamlined procedures, initiated in 2012, were developed to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed.

Considering the IRS’ efforts to combat offshore tax evasion through the Foreign Account Tax Compliance Act coupled with the automatic exchange of information between various  governmental tax authorities (including the Canada Revenue Agency) and the IRS under numerous intergovernmental agreements, the IRS has reiterated that:

“OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations.  The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution”