For the past three years, the U.S. Internal Revenue Service has taken drastic measures to prevent tax criminals from illegally holding money in offshore bank accounts. In attempt to stamp out tax cheats, the IRS has made efforts to track down every offshore account holder, no matter the size, in hopes of finding the big tax fraud offenders.
Therefore, when IRS Commissioner and government problem solver, John Koskinen said that the IRS is thinking about revising the present-day Offshore Voluntary Disclosure Program (OVDP) to lessen penalties on U.S. resident foreign account holders who were not willfully concealing their investments abroad, many foreign account holders sighed in relief.
The previous method was too broad and greatly affected account holders who were not holding money overseas. It is also good news for taxpayers who did not file the FBARs disclosing their foreign accounts by the deadline, but as afraid to expose themselves under the present OVDP.
“The problem with this approach – like destructive bottom-trawler fishing – is that it touches everything, including the millions of Americans who have lived outside of the United States for years and don’t owe the IRS anything because they reside in higher-tax countries, such as Canada,” wrote Barrie McKenna of the Globe and Mail.
Additionally, the current program non-selectively inflicts more than a 27% penalty “on the highest aggregate account balance of all participants (with very narrow exceptions). The current program treats the taxpayer who has purposefully hidden money in accounts overseas to evade taxes in the same as the taxpayer who has overseas accounts for benign purposes, such as holding gifts or inheritances from overseas relatives or holding funds while living overseas. Such non-willful account holders are typically unaware of their duties to file an FBAR, and upon learning of the heavy fines associated with the current program, are left with few options,” wrote Sirote & Permutt for AL.com.
The first OVDP was instituted in 2009, and was updated in 2011 and 2012. Since then, the IRS has amassed more than $6 billion in back taxes, penalties and interest from this program.
“We are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives,” said Koskinen. He also pledged to provide taxpayers with more details soon. “Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes.”
Maybe the IRS is trying to create a route for truthful people who want to comply with U.S. tax laws, and maybe they are attempting to shield them from large fines intended to punish those U.S. taxpayers attempting to evade taxes. However, it is important to note that Koskinen’s pledge to create a simpler amnesty program comes just before the Tax Compliance Act comes into effect on July 1.
Update from AccountingToday.com: Today the IRS has announced the implementation of two sets of changes to encourage more taxpayers with foreign income to come forward. The IRS had expanded the eligibility criteria for the OVDP, eliminated the cap on the amount of taxes owed to qualify for the program and dropping the questionnaire that was required to complete an application.
The other changes help focus the program on those taxpayers who willingly failed to comply with the FBAR and who see relief from criminal prosecution. From now on they would be required to produce additional documentation, submit all account statements and even pay penalties.
In his statement today Koskinen also mentioned that those who continue to willingly evade the tax laws will end up paying higher price for non-compliance.: “By then, it will be too late to avoid the new higher penalties under the OVDP of 50 percent – nearly double the regular 27.5 percent.”
For those taxpayers that want to become compliant but isn’t sure what is required or how to do it, the IRS is recommending contact a tax professional or visiting the IRS website to learn more about disclosure requirements.