Tax Compliance & Controversy
Tax Compliance for Foreign Income/Assets
1. The Offshore Voluntary Disclosure Program ("the OVDP program") - Closed on September 28, 2018
Since 2009 when the OVDP program was first established, an official venue is available for U.S. taxpayers to become compliant with their IRS tax disclosure and tax payment obligations with respect to their foreign income and/or foreign assets, provided that no criminal activities were involved. Since the roll-out of the streamlined programs in 2014 (discussed below), the OVDP program is for taxpayers who are not able to certify under penalties of perjury that their failure to report and pay was not willful.
For the OVDP program, the taxpayer needs to apply for clearance to enter the program. Once accepted, the taxpayer is required to submit 8 years of tax returns and 8 years of foreign bank account reporting forms (FBARs). An IRS agent will be assigned to the taxpayer's case to oversee the process. Upon exit, the taxpayer and the IRS will sign a closing agreement and the taxpayer is protected against criminal prosecution.
Under the OVDP program that was in effect prior to September 28, 2018, in addition to back taxes and interest, there are also several penalties:
- 20% accuracy-related penalties on the full amount of the offshore-related underpayments of tax for all 8 years;
- Failure-to-file penalties, if applicable;
- Failure-to-pay penalties, if applicable;
- A miscellaneous Title 26 offshore penalty equal to 27.5% of the highest aggregate value of OVDP assets during the 8-year period covered by the OVDP program. (The offshore penalty is increased to 50% if the OVDP assets were kept with financial institutions that appear on an IRS-maintained list.)
2. The Streamlined Offshore Procedures (the "streamlined programs")
Since July 1, 2014, two streamlined programs for tax compliance are available for taxpayers who can certify under penalties of perjury that their failure to report and pay was not willful. For taxpayers who qualify for the foreign residency requirement (the Streamlined Foreign Offshore Procedure), there is no penalty - the taxpayer only needs to pay back taxes and interest. For taxpayers who do not qualify for the foreign residency requirement (the Streamlined Domestic Offshore Procedure), there is a 5% penalty based on the asset value in addition to back taxes and interest.
For the streamlined programs, the taxpayer submits 3 years of tax returns and 6 years of FBARs. Unlike the OVDP program, no IRS agent will be assigned to the taxpayer's case and no closing agreement will be executed at the conclusion. The taxpayer is also not protected against criminal prosecution. In a way, the streamlined programs function on the honor system, and therefore, the IRS reserves the right to audit a taxpayer's streamlined submission for accuracy.
We have assisted many taxpayers to become compliant with their IRS obligations through both the OVDP program and the streamlined programs since the first OVDP program in 2009. We can help you choose the appropriate program for you to become compliant.
Tax Controversy
We handle tax audits from both the IRS and New York State for both personal income tax (especially the issue of New York residency) and business tax.