The U.S. Internal Revenue Service has finally updated its voluntary disclosure procedures following the closure of the Offshore Voluntary Disclosure Program (the “OVDP”) earlier this year. The updated procedures will apply to all voluntary disclosures made after September 28, 2018.
Prior to its closure, the OVDP provided non-compliant taxpayers with a fixed civil penalty framework and protection from criminal prosecution for failing to file correct and complete U.S. Federal tax returns and non-U.S. financial account disclosures (typically referred to as “foreign bank account reports” or “FBARs”). While the updated procedures will continue to provide non-compliant taxpayers with protection from criminal prosecution, the civil penalty framework is no longer fixed and the overall cost of making a disclosure will likely be significantly higher.
While the exact details of the updated procedures have not been finalized, a number of key changes have been introduced. These changes include: (i) the taxpayer must now submit an explanatory narrative providing the facts and circumstances related to the taxpayer’s noncompliance; (ii) the disclosure period is now generally six years (rather than eight years under the OVDP); and (iii) the civil penalty framework is now generally based on the Internal Revenue Code’s existing fraud penalties and willful FBAR penalties, which can be as high as 75% of the tax underpayment and 50% of the highest balance of undisclosed non-U.S. financial accounts.
The Butler Snow International Tax team is closely monitoring the development of the new voluntary disclosure procedures. Taxpayers who have any concerns about their U.S. Federal tax payment or reporting obligations should contact a U.S. international tax professional to discuss potential disclosure options.