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On March 13, 2018 the Internal Revenue Service announced (IR-2018-52) that it will close the 2014 Offshore Voluntary Disclosure Program (OVDP) on Sept. 28, 2018. Acting IRS Commissioner David Kauffer states
“Taxpayers have had several years to come into compliance with US Tax Laws under this program. All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Beginning in 2009, the IRS initiated a series of offshore voluntary disclosure (OVD) programs to settle with taxpayers who had failed to report offshore income and file any related information return such as the FBAR. According to the IRS more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers have paid a total of US $11.1 billion in back taxes, interest and penalties.
The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations. With respect to U.S. persons living in Canada, the enactment of the U.S. Foreign Account Tax Compliance Act (FATCA) and the signing of the Intergovernmental Agreement (the “IGA”), between the Government of Canada and the Government of the United States of America, required Canadian financial institutions to report information about their U.S. customers to the IRS (indirectly via the Canada Revenue Agency).
The number of taxpayer disclosures has decreased substantially over the years with only 600 disclosures in 2017. Unlike Canada, the IRS does not have an on-going voluntary disclosure program. All programs have a specific beginning and end date.
The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”
Streamlined Procedures and Other Options
Effective September 1, 2012, the IRS introduced the Streamlined Filing Compliance Procedures. These procedures were introduced for taxpayers who might not have been aware of their filing obligations.
The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. Similar to OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.
Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:
What you need to do
If you are a US person and you have not brought your past filings into compliance time is running out. If you do not file under one of the IRS programs you may be subject to significant penalties for non-compliance. Cadesky US Tax has a long history of assisting clients with bringing their past filings up to date. We can also assist with renunciation should that be an option you wish to examine.
Please do not hesitate to reach out to any member of the Cadesky US Tax team if you have any questions.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.