IRS Releases 2016 Offshore Voluntary Compliance Statistics

irs headquarters sign in washington d.c. a place for fbar reporting and becoming Fatca compliant

On October 21, 2016 the IRS released the latest statistics on Taxpayers who have made disclosures under the Offshore Voluntary Disclosure Program (OVDP) or by using the Streamline Procedures.

According to the News Release, a total of 55,800 taxpayers have come into compliance since 2009, resulting in the collection of approximately $9.9 billion in taxes, interest and penalties.

An additional 48,000 Taxpayers have made disclosures using the Streamlined Procedures, paying $450 million in taxes, interest and penalties.

In its News Release, the IRS implies that IRS detection is inevitable for those who fail to come forward.

The foregoing is based upon Taxpayer information received by the IRS through a number of initiatives including:

(i) inter-governmental agreements (IGA’s) executed between the U.S. and its international partners under FATCA providing for the exchange of Taxpayer  financial information;

(ii) Taxpayer information provided by institutions participating in the  Swiss Bank Program;

(iii)  criminal prosecution of Foreign Financial Institutions, institution relationship managers, bank officers, attorneys and other facilitators;

(iv) information gathered in response to the issuance of a John Doe Summons;

(v) Taxpayer information obtained from IRS “Whistleblowers;” and

(vi) Taxpayer information gathered through IRS participation in various international task forces.

For those who elect to proceed under the Streamline Procedures, the bar to establish “non-willfulness” has been raised. The IRS will no longer accept Taxpayer applications under the Streamlined Procedures unless the Taxpayer provides a “narrative statement of facts,” pays the tax due, and submits the required information returns.

This statement must clarify why the particular party failed to disclose offshore assets. Accordingly, a request for relief that fails to contain a detailed explanation, in all likelihood, will result in a denial of relief.  Similarly, a statement that the Taxpayer was unaware of the filing and reporting requirements will not meet the threshold for non-willfulness.

Finally, taxpayers, who self prepared their returns and who answered “no” to questions 7a and 7b on Schedule B pertaining to the existence of an interest in or signatory authority over a foreign financial account, will find it difficult, if not impossible, to establish “non-willfulness.”

© Anthony N. Verni, Attorney At Law, Certified Public Accountant         10/23/2016

A press release from the IRS

About The Offshore Voluntary Disclosure Program (OVDP)

OVDP Lawyer for The Offshore Voluntary Disclosure Program

US citizens and residents are required to report foreign accounts and assets by filing an FBAR and other tax documents. Often, our clients are surprised to learn about the degree of possible penalties for an unreported foreign account. US citizens and residents who miss filing an FBAR  (that’s IRS jargon for the Report of Foreign Bank and Financial Account) for just one year can end up with a penalty of  $100,000 or 50% of the highest balance of the over-reported account.

Unintentional violations may receive fewer penalties, but still cause serious financial loss if not resolved properly with the help of a skilled tax attorney.

What is OVDP?

OVDP stands for Offshore Voluntary Disclosure Program. Often it’s also referred to as OVDI. It is the IRS amnesty plan that allows you to disclose offshore accounts and reduce your penalties. Without a voluntary disclosure, the IRS can and will impose much higher fees on your assets. The IRS can also seek criminal action against individuals who do not voluntarily disclose foreign bank accounts and assets.

What’s new in OVDP?

Also referred to as the 2014 OVDP, it is a continuation of the 2012 OVDP with a few changes.  A significant change is the increased 50% penalty from the previous 27.5% penalty. What this means is that a 50% offshore penalty applies if:

  • Either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.

This is significant because there is a list of banks attempting to acquire Non-Prosecution Agreements with the Department of Justice to avoid paying this new penalty.  To date, there are only a handful of financial institutions whose clients would be subject to the 50% offshore penalty. However this list can grow at any moment. There are three events that will cause a financial institution’s offshore account holders to be subject to the 50% penalty beginning on August 04, 2014. Consulting with an OVDP lawyer will help you understand how this new law may affect reporting your offshore accounts and assets.

Hire the Right Legal Help to Deal with the IRS

Individuals sometimes choose to take their chances and hope they won’t get caught, simply because they can’t afford the penalties. Or, they opt to settle IRS matters on their own. That can be a very expensive mistake.

If you are facing an investigation by the IRS due to an OVDP issue, you will need an OVDP lawyer who can help you with the following:

  • If you can prove that your failure to report a foreign account was accidental, the penalty could be $10,000 or even waived.
  • Collect only the necessary documents to present to the IRS. This helps you from disclosing unnecessary information that the IRS may use against you during an investigation.
  • Make arrangements for standard amnesty, where the penalty is 27.5% but only imposed on 1 year.

As with any tax debt, the IRS wants to get paid quickly. The best option is always to pay the amnesty penalties in full, but payment plans are available and sometimes even an offer in compromise can be worked out. With the assistance of an experienced and skilled tax attorney, you can resolve many of your OVDP issues without adding additional fees and penalties.

Click here to request a consultation

The Justice Department Crackdown on Offshore Foreign Accounts

Offshore financial accounts are the target of a recent IRS crackdown on tax evasionSince the Justice Department raised the threat of prison time for Americans who did not reveal their offshore accounts, the tax-evader crackdown has proven very successful for the United States government. Since 2008—when the Justice Department began a push against Swiss banks—the U.S. has prosecuted 103 people, including 62 guilty pleas and 5 trial convictions.

Of the 103 people prosecuted, only 18 received prison time. In almost every single case, the defendants received sentences that were below the set advisory guidelines. During sentencing, judges must weigh guidelines that seek to provide both consistency and fairness across the board. Although the guidelines still exist, they became advisory rather than mandatory as a result of a 2005 Supreme Court ruling in United States v. Booker [543 U.S. 220 (2005)]. Because the average defendant charged with tax evasion is both a first-time offender and likely very charitable due to their wealth, virtually all judges give out sentences below the guidelines.

The Case of Beanie Babies creator Ty Warner and Tax Evasion

Such is the case with billionaire Beanie Babies creator H. Ty Warner. Warner pleaded guilty Oct. 2 to tax evasion related to Swiss accounts in which he held as much as $107 million. Before sentencing, he had paid a $53 million civil penalty and $27 million in back taxes. Though the guidelines called for between 46 to 57 months in prison, U.S. District Judge Charles Kocoras sentenced Warner to two years’ probation, ordering him to perform 500 hours of community service and pay a $100,000 fine. Remarking upon the relatively light sentence, Judge Kocoras stated, “Society will be best served to allow [Warner] to continue his good works.”

Making a Voluntary Disclosure to the IRS

Since 2009, more than 38,000 taxpayers have joined the government’s amnesty program and paid $5.5 billion in back taxes, interest, and penalties. Deciding whether to participate in the Offshore Voluntary Disclosure Program (“OVDP”) or proceeding under an alternative voluntary disclosure protocol requires careful evaluation of the specific facts in each case and should not be undertaken without the assistance of a competent tax attorney.

Dealing with delinquent foreign financial accounts or unreported income from offshore activity is not a matter that should be handled by the taxpayer without the assistance of competent tax counsel.