Nearly 30 Years Of Positive Results

Photo Of Chaya Kundra

The window is closing to disclose foreign assets under OVDP

On Behalf of | Jul 9, 2018 | International Tax Law |

Time is running out for taxpayers in the U.S. who have undisclosed foreign assets. The IRS is bringing the Offshore Voluntary Disclosure Program (OVDP) to a close. The program will end on September 28th, 2018. This will bring an end to the third installment of the program, which was reopened due to high levels of interest by taxpayers and tax practitioners in 2014.

Taxpayers with undisclosed foreign assets have little time left and a small margin for error to get their affairs in order. The IRS states that people had several years to comply with the law and now must submit by the deadline. After disclosing offshore assets, taxpayers will need to pay.

According to the IRS, people who already came forward to disclose their assets through this program have paid a sum of $1.1 billion in interest, penalties and back taxes. Fees and taxes make taxpayers weary of coming forward, however, the alternative may be worse.

Does the closure of this program mean the IRS has changed priorities?

The closure of the OVDP does not indicate that the IRS has shifted priorities in finding undisclosed foreign assets. In fact, it is quite the opposite. One the program ends, the IRS will increase awareness and tighten the reigns on reporting obligations of offshore assets. Alongside this voluntary program, the IRS follows through with whistleblower leads, civil examination and criminal charges. The IRS will enforce compliance through tax and FBAR requirements.

It is best to disclose assets rather than have them discovered by the IRS. Offending taxpayers will face increased fines and potential criminal prosecution. The IRS takes undisclosed foreign assets seriously. Since 2009, more than 2,216 taxpayers have been charged with criminal offenses related to international activities and international criminal tax violations.

What civil penalties apply for failing to file?

Civil penalties for failing to report offshore financial assets can quickly accumulate into hundreds of thousands of dollars. Just some penalties include:

  • FBAR penalties apply, including a fine of up to $100,000 or 50 percent of the balance of the foreign financial account for willfully failing to file, whichever is greater. Taxpayers are subject to a $10,000 penalty for non-willful violations.
  • A penalty also applies for failing to file Form 8938 for reporting interest for foreign assets. The penalty for each return is $10,000 and an additional $10,000 for every month after 90 days following notification of delinquency.
  • Failing to file the Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts and other related forms will result in penalties. The penalty for failing to file each form is the greater of $10,000 or 35 percent of the gross reportable total.

What should taxpayers do next?

Rules and regulations surrounding foreign accounts, trusts, businesses, assets and estates are extremely complex and the penalties for breaking them can be harsh. Do not wait for the IRS to hunt you or your assets down. Take proactive measures by contacting an experienced international tax law attorney. A knowledgeable lawyer can help you safely and effectively navigate this complicated program as the deadline quickly approaches. If you need any assistance contact Kundra & Associates.