The Internal Revenue Service (IRS) has announced major changes in its offshore voluntary compliance programs, providing new options to help taxpayers who reside in the U.S. and abroad.
The changes are expected to provide thousands of people a new avenue to come into compliance with their U.S. tax obligations.
Changes include an expansion of the streamlined filing compliance procedures announced in 2012, and important modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP). The streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful.
“This opens a new pathway for people with offshore assets to come into tax compliance,” IRS Commissioner John Koskinen said. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”
Balanced against the modified programs is the government’s ongoing effort to combat the misuse of offshore assets. The IRS, working closely with the U.S. Department of Justice, continues to investigate foreign financial institutions that may have assisted U.S. taxpayers in avoiding their tax filing and payment obligations. In addition, on July 1, the new information-reporting regime resulting from the Foreign Account Tax Compliance Act (FATCA) will go into effect. Thousands of foreign financial institutions will begin to report to the IRS the foreign accounts held by U.S. persons.
The current OVDP was launched in 2012 and is the successor to prior voluntary programs offered in 2011 and 2009. Since the launch of the first program, more than 45,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.
“Through our enforcement efforts and implementation of FATCA, taxpayers are more aware of their obligations, and we believe want to come into compliance,” Koskinen said. “We have made important adjustments to provide opportunities for all U.S. taxpayers to come in, including those who are not willfully hiding assets.”
The changes announced today make key expansions in the streamlined procedures to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts. The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States.
For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue. Full details of the changes to FATCA and OVDP procedures can be found on IRS.gov.