Effective September 28, 2018, the IRS is ending the Offshore Voluntary Disclosure Program (OVDP). In order to participate in the OVDP, a taxpayer must make a complete submission by September 28, 2018.

OVDP is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets.  OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.

The IRS is ending the program due to its success and declining number of participants. Over 56,000 taxpayers have participated and the IRS has collected over $11 billion in revenue. The OVDP is no longer a cost-effective tool for the IRS to bring taxpayers into compliance. In previous years, finding non-compliant taxpayers was time consuming and costly; thus, offering the OVDP with a reduced penalty regime made economic sense for the U.S. Government. With recent advancements, the IRS now believes it has the tools available to locate non-compliant taxpayers with relative ease and minimal cost; thus, foregoing the need for the OVDP.

Furthermore, tolerance for non-compliant taxpayers relating to unreported foreign financial assets and the failure to file information returns is diminishing. The OVDP has been in existence for almost a decade, and it has been widely publicized both domestically and abroad. As a result, the IRS has far less sympathy with taxpayers today than it did in prior years with regard to reporting foreign financial assets.

Since the OVDP program has been in existence for nearly a decade and has been widely publicized domestically and abroad during that time, the IRS has far less sympathy for today’s noncompliant taxpayers than the noncompliant taxpayers of yesteryears. With only 600 OVDP program participants in 2017 (down from a high of 18,000 participants in 2011), the IRS believes these stragglers to be somehow more willful than their OVDP participating predecessors and, therefore, more deserving of criminal prosecution and penalty.

Moreover, the end of the OVDP does not mean the U.S. Government is softening its portion toward foreign tax compliance; rather, it signals its position is strengthened as it no longer needs the program, and foreign tax compliance remains a top priority for the U.S. Government. The result is that taxpayers will face increased scrutiny, higher civil penalties and greater risk of criminal prosecution.

The IRS has stated that taxpayers will continue to have existing avenues to disclose offshore noncompliance after September 28, 2018, but details have not been released. Any new program may involve significantly higher penalties and a greater lookback period. The Streamlined Filing Compliance Procedures program is not ending; however, this program is for non-willful taxpayers only.

Taxpayers who have US tax noncompliance issues (whether willful or non-willful) with respect to offshore accounts, assets, entities or trusts should contact Ortiz & Gosalia immediately to take advantage of the current non-compliance disclosure programs available. We can discuss your specific facts and circumstances to determine if you are required to report foreign financial interests and income and help guide you through the process.