IRS Announces Round 3 of OVDI
Yesterday the IRS announced a third round of their highly successful Offshore Voluntary Disclosure Initiative (OVDI) program. The OVDI was highly publicized with the 2009 revelation that several large Swiss banks, including UBS, were going to be cooperating with the IRS in disclosing the names of US citizens and residents holding Swiss bank accounts.
The first and second rounds of OVDI produced great results for the IRS, netting the Treasury almost $4.4 billion in revenues. The third round of OVDI announced this week, unlike its predecessor programs, has no official deadline to apply by. In an effort to discourage “holding out” the IRS has upped the potential penalties to 27.5% of the highest aggregate balance in the undisclosed foreign account during the full eight years prior to disclosure in addition to the usual late payment penalties and interest on income generated from the account. This is an increase from the 25% penalty rate set out in OVDI 2. Some taxpayers will be eligible for reduced penalties of 5% or 12.5% depending on circumstances. To be eligible taxpayers must file all original and amended tax returns and delinquent Foreign Bank Account Reporting (FBAR) statements and include payment for back-taxes and interest for up to eight years as well as pay any accuracy-related and/or delinquency penalties.
US citizens and resident aliens are required to report and pay income tax on their worldwide income, in addition to declaring any foreign accounts with an aggregate balance greater than $10,000 each year. The IRS is currently looking to close the “tax gap” and aggressively pursuing taxpayers who hold foreign accounts in an effort to raise revenue. This includes many taxpayers who have legitimate reasons for maintaining foreign bank accounts and/or have foreign assets acquired through perfectly legitimate means (such as an inheritance). Given the substantial risk of penalties as well as the implementation in 2013 of the Foreign Account Tax Compliance Act (FATCA) that was part of President Obama’s HIRE act passed in 2010, it is imperative all foreign holdings are properly disclosed to avoid penalties.
Contact your LMGW tax advisor at once if you believe any of these laws may affect you.
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