IRS Offshore Programs Produce Billions – Come In And Participate Or Else …
BACKGROUND
The IRS recently released IR-2015-116 announcing its offshore compliance programs have generated $8 Billion. More than 54,000 taxpayers subject to U.S. worldwide income and disclosure requirements have come in from the cold to participate in IRS offshore remediation disclosure programs since 2009. The IRS also urged taxpayers with non-compliant offshore accounts to “strongly consider existing paths established to come into full compliance with their federal tax obligations.” Over 30,000 of the 54,000 taxpayers took advantage of the non-willful Streamlined Filing Compliance Procedures with approximately 20,000 participating after the procedure requirements were relaxed in June 2014.
In addition to the results from taxpayers proactively coming forward to the IRS, the announcement emphasized that the IRS has conducted thousands of offshore-related civil audits resulting in the collection of tens of millions of dollars. The announcement also touts that the IRS has pursued criminal charges resulting in billions of dollars in criminal fines and restitution. Amazingly, all this activity has been occurring during a time of budget reduction for the agency.
THE CARROT
The Offshore Voluntary Disclosure Program (OVDP) (for taxpayer’s who willfully failed to comply) and the Streamlined Filing Compliance Procedures (for taxpayer’s whose failure to comply was not willful) are two pathways for taxpayers to correct prior noncompliance while providing some certainty regarding penalty exposure in each case. If a taxpayer discloses under the OVDP before their foreign financial institution is publicly identified by the Department of Justice, the OVDP non-disclosure “miscellaneous” penalty will not escalate. The escalation of the OVDP penalty under these circumstances is driving non-compliant U.S. taxpayers to disclose sooner rather than later. Additionally, non-compliant taxpayers may take advantage of the Delinquent FBAR Procedure and the Delinquent International Information Return Procedure as well.
THE STICK
“The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion,” said IRS Commissioner, John Koskinen. “People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”
Between the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting is currently a reality. It is much more difficult, if not impossible in most scenarios, to conceal unreported offshore accounts from the IRS in today’s environment.
