An important IRS program for reporting foreign accounts and assets is ending on September 28, 2018. If you hold assets offshore, you must take action or face possible IRS sanctions including audits, investigations, and heavy penalties.
Over recent years, the IRS has significantly increased its focus on the disclosure of foreign accounts and assets held by US citizens, resident aliens, and green card holders. To facilitate the reporting of offshore accounts, the IRS created the Offshore Voluntary Disclosure Program (OVDP), which allows taxpayers to voluntarily approach the IRS and pay reduced penalties.
Although the IRS is ending the OVDP on September 28, 2018, it is not changing its intense focus on offshore assets. The minimum penalty for late or unfiled foreign informational disclosure forms is generally $10,000 per form, per year, with penalty escalation after that depending on facts and circumstances. At this time, there are several ways to address noncompliance with foreign asset reporting rules and avoid statutory penalty structures and potential criminal exposure:
- Taxpayers the IRS deems to have willfully neglected their reporting obligations with regards to offshore assets and income may still correct their compliance through the OVDP by September 28, 2018, to avoid indictments and pay reduced penalties.
- Certain taxpayers who can establish that they unintentionally failed to disclose foreign assets and/or report foreign income can use Streamlined Filing Compliance Procedures (SFCP). Although SFCP does not currently have an expiration date, the IRS has indicated that it may close this program as well, so if appropriate, taxpayers should take advantage of it soon.
- Taxpayers can correct certain errors in foreign reporting due to reasonable cause through Delinquent International Information Return Submission Procedures. These rules allow amended returns accompanied by statements outlining the reasons for failure to timely file.
As in the past, catching up on omitted disclosures or unreported foreign income by simply submitting amended returns outside of any sanctioned disclosure program is likely to be viewed far more negatively by the IRS and is not a recommended approach. Therefore, if you believe you may have undisclosed foreign assets or unreported foreign income, please contact us as soon as possible while you still have options available to correct any compliance issues in the most appropriate and risk-managed way.