IRS commissioner John Koskinen issued an announcement, and the IRS issued a press release, of major changes to its Offshore Voluntary Disclosure Program (OVDP) that will take effect July 1, 2014. The OVDP was established in 2009 to encourage taxpayers with undisclosed foreign bank and investment accounts to come forward and comply with the reporting and tax requirements in exchange for a reduced penalty and promise of no criminal prosecution.
Thus far, the program has been very effective, collecting $6.5 billion from over 45,000 taxpayers. Even so, the National Taxpayer Advocate has been critical of the program, citing that the one-size-fits-all approach does not take into account those who truly unintentionally failed to comply with the FBAR reporting requirements. Partially in response to this criticism, the IRS initiated
The U.S. Financial Crimes Enforcement Network (FinCEN) Form 114 is the Report of Foreign Bank and Financial Accounts. The FinCEN Form 114 is commonly referred to as the “FBAR,” which replaces the prior Form TD F 90-22.1. A U.S. person must file an FBAR if the U.S. person has a financial interest or signature authority over foreign financial accounts and the aggregate highest balance or value of all reportable foreign accounts exceeds $10,000 during the calendar year. The due date for the 2013 FBAR is Monday, June 30, 2014. The due date of the FBAR cannot be extended. Effective as of July 1, 2013, all FBARs must be filed electronically, rather than by paper. The Form 114 (FBAR) is filed through
On June 26, 2012, the IRS posted updated frequently asked questions and answers regarding the extended Offshore Voluntary Disclosure Program that it announced in January 2012 (http://www.irs.gov/businesses/small/international/article/0,,id=256774,00.html). The IRS decided to extend the program indefinitely following the success of the 2011 and 2009 Offshore Voluntary Disclosure Initiatives. In its press release IR-2012-64 on June 26, 2012, the IRS announced that the programs have resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures under the 2011 and 2009 programs. Another 1,500 disclosures also have been made since the program was extended in January 2012.
The purpose of the IRS Offshore Voluntary Disclosure Program is to motivate U.S. taxpayers to come into compliance voluntarily with the U.S. international reporting requirements and to prevent offshore tax evasion. The program allows U.S. taxpayers to file delinquent forms such as the Report of Foreign Bank and Financial Accounts (“FBAR”) Form TD F 90-22.1; Form 8938 regarding specified foreign financial assets; Form 5471 regarding foreign corporations owned by U.S. persons; Form 5472 regarding 25% foreign-owned U.S. corporations; Form 8865 regarding foreign partnerships owned by U.S. persons; Forms 3520 and 3520-A regarding foreign gifts and foreign trusts; and Form 926 regarding transfers of property to foreign corporations.
The voluntary disclosure period under the 2012 program includes the most recent eight years for which the filing due date has already passed. According to FAQ #9, the eight year voluntary disclosure period does not include current years for which there has not yet been non-compliance. For example, U.S. taxpayers who submit the voluntary disclosure prior to the original or extended filing due date for the year 2011 must include the years 2003 through 2010 in the disclosure. For U.S. taxpayers who disclose after the original or extended due date for the year 2011, the disclosure must include the years 2004 through 2011.
The applicable penalty for participating in the Offshore Voluntary Disclosure Program is 27.5% of the highest aggregate balance in foreign bank accounts or value of foreign assets during the period covered by the voluntary disclosure. In some limited circumstances, a lower penalty of 12% or 5% could apply based on the requirements in FAQs #52 and #53. The incentive to participate in the Offshore Voluntary Disclosure Program is that U.S. taxpayers are able to file delinquent forms that should have been filed for prior years while avoiding criminal liability.
According to FAQ #3, the 2012 Offshore Voluntary Disclosure Program does not have a set filing deadline by which U.S. taxpayers must apply. However, the IRS could change the terms of the program at any time going forward. For example, the IRS could increase the penalties, limit access to the program for certain taxpayers or end the program altogether.
For further information, please contact your Aronson tax advisor or Alison Dougherty, International Tax Services at 301.231.6795.
The filing of the FBAR or the Form 8938 does not preclude the U.S. taxpayer from being required to file the other form. Both the FBAR (Form TD F 90-22.1) and the Form 8938 may need to be filed. A chart with the comparison of the filing requirements for the FBAR and the Form 8938 is on the IRS website at http://www.irs.gov/businesses/article/0,,id=255986,00.html.
On June 7, 2012, the IRS issued updated basic questions and answers regarding Form 8938 reporting for specified foreign financial assets. The Hiring Incentives to Restore Employment Act of 2010 (Public Law 111-147) enacted Internal Revenue Code Section 6038D which requires U.S. taxpayers to
The Form TD F 90-22.1 is commonly referred to as the foreign bank account report or “FBAR.” The FBAR is usually due on June 30th following the calendar year end. This year June 30th is on a Saturday so the FBAR for the calendar year 2011 is required to be received by the U.S. Treasury Department on or before June 29, 2012. The mailbox rule does not apply to the filing of the FBAR and an extension of the due date is not allowed. The mailbox rule means that U.S. federal income tax returns are considered to be filed based on the date