Offshore Voluntary Disclosure Initiative (OVDI)
The U.S. Internal Revenue Service (IRS) has made it a priority to ensure that taxpayers are compliant with their offshore tax obligations. As globalization increases and more individuals and businesses have foreign financial interests, the IRS has intensified its focus on offshore tax compliance.
Every U.S. individual or entity with a financial interest in or authority over foreign financial accounts, which could encompass bank accounts, securities, or other financial instruments in a foreign country, must disclose these accounts. This becomes mandatory when the combined value of all these accounts surpasses $10,000 at any moment during a calendar year. Such individuals or entities are obligated to annually file a report known as TD F 90-22.1, or the Report of Foreign Bank and Foreign Accounts (often referred to as the FBAR), to the Department of the Treasury. This filing is due by June 30 of the subsequent year.
However, the implications of neglecting or being non-compliant with the FBAR requirements can be profoundly severe and financially crippling. A non-willful violation could result in civil penalties of up to $10,000 for each breach. More daunting, willful violations could lead to penalties greater than $100,000 or 50% of the account’s balance at the time of the breach. Furthermore, if these FBAR violations are combined with certain other legal infractions, the individual or entity could be slapped with a fine as high as $500,000 or face imprisonment for up to 10 years. In extreme cases, both civil and criminal penalties might be applicable concurrently.
Recognizing the complexity of offshore financial interests and the potential for inadvertent non-compliance, the IRS reintroduced the offshore voluntary disclosure program on January 9, 2012. While the program had previously been launched in 2011 and 2009, those iterations had closed, leading to the introduction of this ongoing version. The program’s purpose is straightforward: to provide taxpayers with unreported offshore income a structured path to comply, rectify their past omissions, and mitigate potential penalties.
To benefit from the program’s advantages, participants must meet specific criteria:
- They must agree to a penalty of 27.5% on the highest balance of their undisclosed offshore accounts over eight years.
- They are obligated to pay back taxes, with interest, for up to eight years and might also be liable for accuracy-related or delinquency penalties.
- Full compliance requires participants to file all original and amended tax returns and settle any due taxes, interest, and pertinent penalties.
Need Legal Help?
The Offshore Voluntary Disclosure Initiative (OVDI) stands as a unique opportunity for taxpayers to address past oversights, substantially reduce penalties, and ensure future compliance, all while potentially avoiding criminal prosecution. If you or your entity have offshore interests and are considering the benefits of the OVDI, it is advisable to seek expert counsel.
Todd S. Unger, Esq. LLC possesses the expertise and experience to steer you through the intricacies of the OVDI process. For a comprehensive discussion and professional guidance on offshore tax compliance, please contact the Law Offices of Todd S. Unger. (877) 544-4743