Offshore Voluntary Disclosure Program (OVDP)

Streamlined Filing Procedures for the Offshore Voluntary Disclosure Program (OVDP)

In 2009 the IRS was successful in its negotiations with Union Bank of Switzerland (UBS) to turn over thousands of accounts that were owned by Americans.  It turned out that many of the accounts had not been reported by the Americans on their tax returns.  The U.S. requires that income and the information about foreign accounts, which in aggregate, equals or exceeds US$10,000, must be reported on their tax return each year.  In September of 2009 the IRS established the first voluntary disclosure program in an effort to get taxpayers to report and pay taxes on foreign assets.  Since that time there have been numerous updates and changes to the program.

Because the of U.S. Government’s enforcement efforts are increasing the risk of detection for taxpayers with undisclosed foreign assets, it has been determined that a similar program should be available to taxpayers who wish to voluntarily disclose their offshore accounts and assets to avoid prosecution and limit their exposure to civil penalties, but have not yet done so.  However, unlike the 2009 Offshore Voluntary Disclosure Program (OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (OVDI), there is no set deadline for taxpayers to apply.  It is important to note that the terms of this program could change at any time going forward.  For example, the IRS may increase penalties or limit eligibility in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.  This new program, the Offshore Voluntary Disclosure Program (OVDP) will be available until further notice to taxpayers who come forward and complete certain requirements.  The terms of the program will also be offered to taxpayers who made offshore voluntary disclosures after the deadline forthe 2011 OVDI.

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.  The streamlined procedures are designed to provide taxpayers in such situations with; (1) a streamlined procedure for filing amended or delinquent returns, and (2) terms for resolving their tax and penalty obligations.  These procedures will be available for an indefinite period until otherwise announced.

The streamlined filing procedures that were first offered on September 1, 2012 have been expanded and modified to accommodate a broader group of U.S. taxpayers.  Major changes to the streamlined procedures include:

  1. extension of eligibility to U.S. taxpayers residing in the United States,
  2. elimination of the $1,500 tax threshold, and
  3. elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.

The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers.  The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States.  Descriptions of the specific eligibility requirements for the streamlined procedures for both nonresidents of the U.S. (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (the “Streamlined Domestic Offshore Procedures”) are described below.

Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

All tax returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN).  For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN).  For individuals who are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN.  Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures.  However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application.

Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the OVDP and should consult with their professional tax or legal advisers.

After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

Eligibility for the Streamlined Foreign Offshore Procedures

In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must: (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR with respect to a foreign financial account, and such failures resulted from non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.

Example 1: Mr. W was born in the United States but moved to Canada with his parents when he was five years old, lived there ever since, and has not established residency in the U.S.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Example 2: Assume the same facts as Example 1, except that Mr. W moved to the United States and acquired U.S. residency in 2012.  The most recent three years for which Mr. W’s U.S. tax returns are 2013, 2012, and 2011.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test.

Example 3: Ms. X is not a U.S. citizen or lawful permanent resident, was born in Canada, and resided in Canada until May 1, 2012, when her employer transferred her to the United States.  Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013.  The most recent three years for which Ms. X’s U.S. tax returns are 2013, 2012, and 2011.  While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011.  Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.

Description of the Procedures

U.S. taxpayers (defined as U.S. citizens, lawful permanent residents, and those meeting the substantial presence test) eligible to use the Streamlined Foreign Offshore Procedures must;

  1. for each of the most recent three years for which the U.S. tax return due date has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, 8938, 8891, etc.), and
  2. for each of the most recent six years for which the FBAR due date has passed, file any delinquent FBARs.  The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.

A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined below will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.  Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to failure-to-file and failure-to-pay penalties or accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful.  Any previously assessed penalties with respect to those years, however, will not be abated.  However, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

For returns filed under these procedures, retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty.  The proper deferral elections with respect to such plans must be made with the submission.

The risk assessment process associated with the 2012 Streamlined Filing Compliance Procedures for nonresident, non-Filer, U.S. taxpayers has been eliminated for all streamlined filers.

Specific Instructions for the Streamlined Foreign Offshore Procedures

Failure to follow these instructions or to submit the items described below will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.

  1. For each of the most recent three years for which the U.S. tax return due date (or if properly extended due date) has passed:
    • if a U.S. tax return has not been filed previously, submit a complete and accurate delinquent tax return using Form 1040, U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, 8938, 8891, etc.) even if these information returns would normally be filed separately from the Form 1040, or
    • if a U.S. tax return has been filed previously, submit a complete and accurate amended tax return using Form 1040X, amended U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, 8938, 8891, etc.) even if these information returns would normally be filed separately from the Form 1040.
  1. Include at the top of the first page of each delinquent or amended tax return and at the top of each information return “Streamlined Foreign Offshore” written in red to indicate that the returns are being submitted under these procedures.  This is critical to ensure that your returns are processed through these special procedures.
  2. Complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying;
    • that you are eligible for the Streamlined Foreign Offshore Procedures;
    • that all required FBARs have now been filed; and
    • that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

You must submit the original signed statement and you must attach copies of the statement to each tax return and information return being submitted through these procedures.  You should not attach copies of the statement to FBARs.  Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.

  1. Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts.  Your taxpayer identification number must be included on your check.
  2. If you are not eligible to have a Social Security Number and do not already have an ITIN, submit an application for an ITIN along with the required tax returns, information returns, and other documents filed under these streamlined procedures.
  3. If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:
    • a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
    • a dated statement signed by you under penalties of perjury describing:
      • the events that led to the failure to make the election,
      • the events that led to the discovery of the failure, and
      • if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and
    • for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission.
    • the documents listed above, together with the payments described above, must be sent in paper form (electronic submissions will not be accepted) to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741

This address may only be used for returns filed under these procedures.  For all future filings, you must file according to regular filing procedures.

  1. For each of the most recent six years for which the FBAR due date has passed, file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.  You are required to file these delinquent FBARs electronically at FinCEN.

Eligibility for the Streamlined Domestic Offshore Procedures

In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Domestic Offshore Procedures described in this section must:

(1)   fail to meet the applicable non-residency requirement (for joint return filers, one or both of the spouses must fail to meet the applicable non-residency requirement);

(2)   have previously filed a U.S. tax return (if required) for each of the most recent three years for which the U.S. tax return due date (or properly extended due date) has passed;

(3)   have failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, 8621, and 8891) with respect to the foreign financial asset, and

(4)   such failures resulted from non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Description of Scope and Effect of Procedures

U.S. taxpayers (defined as U.S. citizens, lawful permanent residents, and those meeting the substantial presence test) eligible to use the Streamlined Domestic Offshore Procedures must;

(1)   for each of the most recent three years for which the U.S. tax return due date (or properly extended due date) has passed, file amended tax returns, together with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, 8621, and 8891),

(2)   for each of the most recent six years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1), and

(3)   pay a Title 26 miscellaneous offshore penalty described below.  The full amount of the tax, interest, and miscellaneous offshore penalty due in connection with these filings should be remitted with the amended tax returns.

The Title 26 miscellaneous offshore penalty is equal to 5 percent (5%) of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period.  For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.

A foreign financial asset is subject to the 5% miscellaneous offshore penalty in a given year if the asset should have been, but was not, reported on an FBAR (FinCEN Form 114) for that year.  A foreign financial asset is subject to the 5% miscellaneous offshore penalty in a given year if the asset should have been, but was not, reported on a Form 8938 for that year.  A foreign financial asset is also subject to the 5% miscellaneous offshore penalty in a given year if the asset was properly reported for that year, but gross income in respect of the asset was not reported in that year.

A taxpayer who is eligible to use these Streamlined Domestic Offshore Procedures and who complies with all of the instructions will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties.  Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original return was fraudulent and/or that the FBAR violation was willful.  Any previously assessed penalties with respect to those years, however, will not be abated.  However, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

For returns filed under these procedures, retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty.  The proper deferral elections with respect to such plans must be made with the submission.

Specific Instructions for the Streamlined Domestic Offshore Procedures

Failure to follow these instructions or to submit the items described below will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.

  1. For each of the most recent three years for which the U.S. tax return due date (or properly extended due date) has passed, submit a complete and accurate amended tax return using Form 1040X, amended U.S. Individual Income Tax Return, together with any required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, 8621,and 8891) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return.  You may not file delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) using these procedures.
  2. Include at the top of the first page of each amended tax return “Streamlined Domestic Offshore” written in red to indicate that the returns are being submitted under these procedures.  This is critical to ensure that your returns are processed through these special procedures.
  3. Complete and sign a statement on the Certification by U.S. Person Residing in the U.S. certifying:
    • that you are eligible for the Streamlined Domestic Offshore Procedures;
    • that all required FBARs have now been filed;
    • that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct; and
    • that the miscellaneous offshore penalty amount is accurate.

You must maintain your foreign financial asset information supporting the self-certified miscellaneous offshore penalty computation and be prepared to provide it upon request.  You must submit an original signed statement and attach copies of the statement to each tax return and information return being submitted through these procedures.  You should not attach copies of the statement to FBARs.  Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.

  1. Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts.  Your taxpayer identification number must be included on your check.
  2. Submit payment of the Title 26 miscellaneous offshore penalty.
  3. If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:
    • a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
    • a dated statement signed by you under penalties of perjury describing:
      • the events that led to the failure to make the election,
      • the events that led to the discovery of the failure, and
      • if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and
    • for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission.
  1. The documents listed above, together with the payments described above, must be sent in paper form (electronic submissions will not be accepted) to:

Internal Revenue Service
3651 South I-H 35Stop 6063 AUSC
Attn: Streamlined Domestic Offshore
Austin, TX  78741

This address may only be used for returns filed under these procedures.  For all future filings, you must file according to regular filing procedures.

  1. For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.  You are required to file these delinquent FBARs electronically at FinCEN.

We recommend that you seek further guidance and assistance from an attorney or accountant experienced in these types of filings.

Cross Border Tax & Accounting – 800-394-9462

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