U.S. OFFSHORE VOLUNTARY DISCLOSURE PROGRAM REOPENED 2012
On January 9, 2012 the Internal Revenue Service (“IRS”) reopened the offshore voluntary disclosure program (“OVDP”). More details are expected to be released over the coming month but the program is similar to the 2011 OVDI program which ended September 9, 2011. The penalty’s associated in the new program have increased and the penalty framework requires individuals to now pay 27.5%, up from 25%, of the highest aggregate balance in their foreign bank accounts over the eight year required filing period. Some taxpayers may be eligible for a reduced penalty rate of 5% or 12.5% depending on their specific situation. For example people whose offshore accounts did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for the reduced 12.5% rate. As full details have not yet been released, based on the prior program, the reduced 5% rate was eligible for those individuals who are foreign residents and meet the following three conditions:
Resides in a foreign country;
Made a good faith showing that they have complied with all the tax reporting and payment requirements in the country of citizenship; and
Has 10,000 or less of U.S. source income each year.
To date these programs have brought in over $4.4 billion to the U.S. Entering the OVDP should not be taken lightly as it does require a complex package to be submitted requiring a lot of information and disclosure; furthermore, the costs can be significant not only for the penalty but also the cost associated with preparing the full submission.
What are your options if you want to get compliant with the U.S. but do not want to enter into the 2012 OVDP? Following much press on the matter in the latter half of 2011 the IRS made a formal release on December 13, 2011 disclosing some additional information for Dual residents residing outside the U.S. This statement followed numerous comments and pressure made by Canada’s Minister of Finance stating that Canada would not cooperate in the collection of many of the penalties and the reasonableness of the required filings for honest, taxpaying Canadians. The IRS’ statement essentially stated that for those individuals who have become aware of their filing requirement and would like to become compliant that they should file the past 6 years of filings including a letter stating the reason why they have not previously filed. The IRS further stated that penalties will not be imposed in all cases and that the IRS will use reasonableness when assessing things such as the FBAR returns. Furthermore, a taxpayer who owes no U.S. tax will not owe any failure to file penalty or failure to pay penalty.
If you would like to discuss the specifics of your situation and potential implications and options please contact us to arrange an appointment by calling our reception at 250-381-2400.
The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.
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