Can the Streamlined Program or OVDP help Me?

People with unreported foreign assets on tax returns may benefit from the Offshore Voluntary Disclosure Program or the Streamlined process.

U.S. persons who own property or other assets in countries outside the United States may do so in part for potential tax advantages. However, taxpayers may still need to report foreign assets on domestic income tax returns. Failure to do so when required by law may result in criminal as well as civil prosecution.

The Internal Revenue Service has established two programs to give people who have not paid taxes on their foreign assets and who have not reported their foreign assets on information returns such as Form 8938, FBAR (FINCEN Form 114), Form 5471, Form 3520, etc. the opportunity to do so while potentially avoiding such prosecution. The Streamlined program and the Offshore Voluntary Disclosure Program give taxpayers two different options from which to choose. It is important that people interested in these programs understand how they work so as to select the right one.

Reporting errors with Streamlined program

Failing to provide accurate information to the Internal Revenue Service is the result of an honest error. That is what the Streamlined program focuses on. Participants in this program must certify that they did not willfully hide or fail to report assets or income from overseas sources.

If the IRS deems that a taxpayer’s certification was incorrect, the penalties may be face can be quite severe. The IRS may also choose to criminally prosecute these taxpayers. Penalties paid for past taxes in the Streamlined process may be much lower than without this program. However, this process does not give taxpayers immunity from criminal charges. In addition, any other information that is discovered during the process may be used against a taxpayer.

Penalties may reach five percent on the highest account balance in a Domestic Streamlined process (there is a zero percent penalty for the Streamlined Offshore Program). This may be assessed based on end of year balances.

Intentional non-reporting and the OVDP

If a taxpayer consciously chose to omit certain assets from a tax return filing, the Offshore Voluntary Disclosure Program might be the better fit. This may also be appropriate for cases where the IRS may deem the taxpayer’s conduct as willfully blind. Civil penalties may still apply but are handled as part of the program.

The OVDP establishes a plan under which a person pays taxes, penalties and interest. Generally, the taxpayer is required to file delinquent information returns (such as the FBAR Form) and pay any unreported taxes for the past 8 years. Penalties in this program may be as high as 50 percent on the highest balance if the bank is being investigated by the Department of Justice. The Standard penalty is 27.5% of the high balance of the account in any one year during the eight year look back period. In addition, the taxpayer is responsible for paying any additional taxes owed and an additional penalty on the unpaid tax.

Help is important when facing unpaid taxes

The consequences of not being compliant with federal taxes may be severe. Taxpayers should always reach out to an attorney for help in these cases before talking to the IRS to understand what programs may be of the biggest benefit to them. Taxpayers in some situations may also be eligible for the delinquent filing procedures, which allows for a “quiet disclosure” of delinquent information returns and amended tax returns. Taxpayers should consult an experienced lawyer as to what program fits them best.

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