Does the Offshore Voluntary Disclosure Program Work?
US residents or citizens who pay US taxes and hold financial assets outside of the country are required to report these assets when tax time comes around. Failure to do this, or filing a false return, can result in prison time and hundreds of thousands of dollars worth of fines. Fortunately, the Offshore Voluntary Disclosure Program (OVDP) allows taxpayers the chance to escape criminal liability or civil penalties for the failure to report foreign financial assets – and pay taxes on those assets.
Under the program, taxpayers with undisclosed offshore accounts can come forward, file tax returns, disclose their offshore assets, pay the taxes owed, and move forward without incurring criminal penalties. Here’s how it works.
Who is the Offshore Voluntary Disclosure Program Designed For?
People who voluntarily disclosed all of their income and filed all their US taxes are usually okay under IRS laws–even if they not willfully failed to file particular forms. That sort of mistake is generally easily amendable. The OVDP is for those who have reason to believe they may face criminal prosecution.
The OVDP is designed to allow U.S. persons to disclose offshore accounts so that they can pay any taxes and penalties they owe without fear of criminal prosecution and harsh penalties. A U.S. person is defined as any U.S. citizen, green card holder, or legal resident of the United States. Non-resident aliens aren’t usually considered U.S. persons, but anyone who spends more than 183 days a year in the U.S. may be considered a U.S. person under OVDP definition.
If you have a US passport, whether you’ve been living abroad for a long time or you’re a US resident with an offshore account, you must report your offshore accounts.
What You Are Required to Disclose in the Offshore Voluntary Disclosure Program
You must disclose any bank or brokerage accounts outside of the U.S. that contain more than $10,000. This amount combines the balances of all your foreign accounts. So, if you have $5,000 in a French bank and $5,000 in a Swiss bank, you have $10,000 in offshore accounts and must disclose your offshore assets. You must file 8 years of amended tax returns and foreign bank accounts (FBARs). You must also pay interest on your taxes and a 20% penalty on whatever you owe. Some people will face higher penalties as well.
The disclosure requirement is not based on your average balance throughout the year, or your year-end balance. It’s based on your highest balance for any one day of the year. So, if you bought an apartment in Belize for $50,000, and you opened a bank account in that country in order to purchase that apartment, you still have a reporting requirement for that offshore account even if you wired the money in one day and out the next.
The offshore account must be under your control or in your name in order to meet the disclosure requirements. That means an escrow account opened to buy property abroad does not bear an OVDP disclosure obligation.
If you have foreign bank accounts, hold stock in foreign countries, or have an account in a foreign bank that is under investigation by the IRS, you may need to take advantage of the OVDP.
As you might guess, this is a complicated matter that usually requires the assistance of a qualified tax attorney. Make sure you have an experienced legal team on your side to help you with this complex process.
Contact Experienced Tax Lawyers Today
Tax law and regulations like the Offshore Voluntary Disclosure Program can be complex and lengthy process and difficult to navigate alone. If you believe you are at risk for prosecution, you should definitely contact a tax attorney. The attorneys of Mackay, Caswell & Callahan, P.C. have experience dealing with various tax situations and can ensure you retain your rights throughout the process.
If you have a question or concern about this program or any other tax matter, we can help. For a consultation, fill out our online contact form or call 844-MCC-4TAX (622-4829). Speak with an experienced NYC tax attorney today!