IRS Amnesty Programs

Introduction

The IRS over the last decade has become very aggressive in the international tax area. This is very evident in the recent cases involving US citizens holding Swiss bank accounts and not disclosing their existence on Form 114 (formerly Form 90-22.1), Report of Foreign Bank and Financial Accounts (FBARs). The IRS prosecuted many taxpayers for not disclosing and reporting these accounts and many were fined and are facing additional prosecution. Although the original amnesty program (Offshore Voluntary Disclosure Programs 2009 & 2011-ODVP) for the FBARs has expired, it is still a very good idea to file the FBARS even if late. Once again, the IRS expects voluntary compliance and penalizes those taxpayers who fail to file tax returns.

The current Offshore Voluntary Disclosure Program was launched in 2012 and is the successor to prior voluntary programs offered in 2011 and 2009. It has been further modified on June 18, 2014. You can read more about these modifications by clicking on the this link. Offshore Asset Disclosure Changes.

Offshore Voluntary Disclosure Programs

The ODVP intitiative started in 2009 specifically designed to allow taxpayers to voluntarily disclosures their foreign financial accounts without the fear of criminal prosecution.   It was very successful and has since been modied and replaced in 2011, 2012 and 2014.  As the IRS and the Department of Justice have increased efforts to identify taxpayers will undisclosed foreign accounts and collect unpaid taxes, many taxpayers who had previously gone undetected have been subject to increased scrutiny. At the same time, the Foreign Account Tax Compliance Act (FATCA) is expected to go into effect soon as well. FATCA, which became law in March 2010, also targets tax non-compliance by U.S. taxpayers with foreign accounts. Under FATCA, both taxpayers with offshore financial accounts and assets, as well as the financial institutions housing foreign financial accounts by U.S. taxpayers, have reporting obligations to the IRS (1). OVDP allows taxpayers who are potentially suitable for criminal prosecution to possibly avoid such prosecution by participation in the program.

 

Streamlined Compliance Program

In response to comments made by the tax community, the IRS launched a new streamlined compliance procedure for non-resident US taxpayers on June 26, 2012.   Referred to as the Streamlined Compliance Procedure, this program was designed to assist those taxpayers that really did not fit the OVDP programs due to the non-willful nature of their non-compliance.    These procedures were  implemented in recognition that some U.S. taxpayers living abroad  failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs),  but have recently become aware of their filing obligations and now seek to come into compliance with the law. These new procedures were for non-resident citizens/green-card holders including, but not limited to, dual citizens who had not filed U.S. income tax and information returns.

The streamlined procedure require taxpayers to file the past three and to file delinquent FBARs for the past six years.   All taxes and interest are required to be submitted with the delinquent tax returns.  If the tax due on any year was greater than $1,500, the taxpayer’s acceptance in the Streamlined Compliance Program was at risk.   Further, the taxpayer was required to complete a 3 page Questionnaire to further determine eligibilty for the Program.

As further explained in the June 18, 2014 IRS News Release, few but very significant changes were made to this Program as follows:

  • All Taxpayers (resident or not resident in the US) Are Eligible
  • Completion of Questionnaire No Longer Required
  • $1,500 tax threshhold removed