What is OVDP?
The Offshore Voluntary Disclosure Program (OVDP), the IRS program that has offered relief from criminal penalties to taxpayers who report previously undisclosed overseas assets, will end on September 28, 2018. After that, taxpayers with undisclosed foreign financial assets could face significant jail time in addition to the interest and penalties imposed under the law.
Participation in this successful program dropped from a high of 18,000 people in 2011 to only 600 in 2017, leading the IRS to conclude that it’s time to end the voluntary program and focus on enforcement.
Make no mistake: The IRS has the resources and ability to ferret out these undisclosed assets wherever they are. The connected nature of today’s global financial network and the reciprocal agreements between countries to share account-holder information have increased the likelihood that accounts once thought to be safely hidden are now easily discoverable.
If the IRS did not have confidence that it could recover these funds, then it likely would not terminate such a successful program, which has collected a total of $11.1 billion in back taxes from 56,000 taxpayers.
Who is Affected by OVDP?
U.S. taxpayers hold assets in foreign countries for a wide variety of legal, legitimate purposes. It’s also common for U.S. taxpayers to invest in foreign opportunities that trigger reporting requirements at the investor level. Similarly, foreign entities that have investments or operations in the U.S. may have reporting and payment obligations. Still other taxpayers have used foreign accounts to try to hide assets from taxation in the U.S.
Whatever the reason for the offshore holdings, the U.S. tax code includes significant reporting requirements related to these assets and imposes severe penalties for failure to disclose them and pay related taxes. If the IRS determines the assets were willfully hidden, penalties can run as high as $100,000 per financial account or a hefty percentage of the assets.
Act Now to Avoid Penalties or Prosecution
The late-September deadline leaves no time to lose. U.S. taxpayers with undisclosed assets, as well as foreign taxpayers with undisclosed U.S. tax obligations, must act now to take advantage of this opportunity to avoid criminal prosecution and substantial financial penalties.
The application process can take months and requires complete disclosure of all assets held overseas — which can prove complex for businesses that hold accounts through multiple subsidiaries.
Taxpayers who have received prior guidance that they are clear of U.S. tax obligations should seek a second opinion. Given what’s at stake, now is the time to double-check these assumptions.
For more information on how the closing of the OVDP could affect your taxes, please contact Williams Benator & Libby.