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Foreign Bank Accounts: OVDP and Streamlined Requests

Foreign Bank Accounts: OVDP and Streamlined Requests

The IRS closed the 2014 Offshore Voluntary Disclosure Program in September of 2018, leaving taxpayers with unreported foreign accounts with fewer disclosure options. In November of 2018, the IRS issued a new framework for resolving offshore voluntary disclosure matters for taxpayers that are concerned about potential criminal liability.

New Offshore Voluntary Disclosure Program Rules

The new procedures require an initial pre-clearance that must be sent to IRS Criminal Investigations. Next, Form 14457 must be submitted, which includes a narrative describing the facts and circumstances related to the noncompliance with foreign asset reporting requirements.

After this step, cases that receive preliminary acceptance will be assigned to a civil examiner. Taxpayers must promptly and fully cooperate during the various phases of the civil examination process, or the examiner has the option to request a revocation of the preliminary acceptance.

The Resolution Framework

The IRS will then handle the voluntary disclosures under the new civil resolution framework. This framework can also be used to handle non-offshore voluntary disclosures.

Some highlights of the new framework include:

  • A six-year disclosure period, although the examiner can expand this period if an agreement isn’t reached.
  • Taxpayers are required to submit all returns and reports for this disclosure period.
  • The examiner will assess a civil fraud penalty or a penalty for the fraudulent failure to file a return for the single tax year with the highest tax liability. However, the examiner also has the discretion to apply this penalty to more than one tax year.
  • Willful FBAR penalties can be assessed, which can be the greater of $100,000 or 50% of the account balance.
  • Taxpayers can request the imposition of accuracy-related penalties instead of civil fraud penalties or of non-willful FBAR penalties instead of willful FBAR penalties. The IRS expects lesser penalties to only be granted in exceptional cases.

Proceed Carefully With Offshore Disclosure

These new procedures give a lot of discretion to the civil examiner handling your case. You could potentially be charged the massive willful FBAR penalties, civil fraud penalties for six years or more, and other penalties. The examiner also has the ability to revoke your preliminary acceptance if you don’t cooperate fully with the examination.

Before you use these new voluntary disclosure procedures, you should determine whether you qualify for the Streamlined Filing Procedures, which come with much lower penalties and a process that has been tested over the course of many years. Consult a tax attorney to determine whether you meet the “non-willful” requirement for using the Streamlined Procedures.

If you do need to use the new voluntary disclosure framework, get assistance from a tax attorney to make sure you achieve the best possible outcome.

Get help resolving your offshore disclosure matters by calling The Gartzman Law Firm at (770) 939-7710. We can help you determine the best offshore disclosure method and guide you through this complex process.