Don’t get caught out.
IRS Tax amnesty ends September 2018.
It is estimated that the US government loses out on nearly $200 billion in tax revenue per year and it is therefore a high priority for the IRS to improve on avoidance. To act as an incentive, different IRS amnesty programmes have been created to help taxpayers get back on track and avoid some hefty penalties.
However, one of the main amnesty programmes is due to close on September 28, 2018 and therefore to avoid potential penalties action must be taken now by those affected. Thankfully other amnesty routes remain open but awareness of the closure of this programme is a must for all US taxpayers.
US citizens and residents (which include “green card” holders) are required to report and pay tax on their worldwide income and declare their ownership of certain foreign financial assets and accounts. These requirements apply regardless of where the individual physically resides or lives. Failure to file the required tax returns or information reports, failure to properly declare foreign financial assets, or failure to pay any US tax required can subject the taxpayer to significant penalties.
The current Offshore Voluntary Disclosure Program (OVDP) began in 2014 and is a modified version of the programme first offered in 2009, which provided US taxpayers with the opportunity to disclose noncompliance associated with foreign accounts.
Key requirements of the OVDP include:
submission of information regarding the undeclared foreign financial assets and the foreign financial institutions and intermediaries associated with such assets;
submission of amended (or complete original) tax returns and Reports of Foreign Bank and Financial Accounts (FBARs) for the eight most recently ended tax years;
payment of all tax, interest, and applicable penalties due on the submitted returns; and
payment of an Offshore Miscellaneous Penalty equal to either 5% or 50% of the highest aggregate value of the taxpayer’s previously undeclared foreign financial assets during the relevant period.
According to the IRS, 56,000 taxpayers used one of the OVDPs and have paid a total of $11.1 billion in back taxes, interest, and penalties. The number of OVDPs peaked in 2011, when 18,000 people came forward but has steadily declined falling to 600 OVDPs in 2017.
On March 13, 2018, the IRS announced they will close the OVDP on September 28, 2018. After which, the IRS intends to provide additional information on future disclosures of offshore noncompliance.
Key Difference Between the OVDP and Streamlined Provisions
The OVDP is designed for taxpayers with exposure to potential criminal liability due to wilful failure to report foreign financial assets. On the other hand, the Streamlined procedures are designed for taxpayers that certify their failure to report foreign financial assets did not result from wilful conduct on their part.
The good news is that the Streamlined Filing programme is still in place and remains an ideal way to bring your tax affairs up to date should you have fallen behind. With this compliance procedure, provided you can provide assurance that you did not wilfully delay the disclosure and filing, you can file three years of back tax returns and six years of FBAR forms without incurring a penalty. This includes any previously reported foreign-owned income or assets, and although as an expatriate you need to pay the owed taxes plus interest, you are let off the 5% penalty you would need to cover should you be living in the US.
I haven’t filed Tax Returns for years – what should I do?
To encourage disclosure and regularise your tax affairs with the IRS, the IRS continues to offer forgiving amnesty programmes such as the streamlining approach. But, to take advantage of these you must actively seek and participate in them and they will not be granted should the IRS make first contact with you about your late filing. In this case you will most likely be subject to an audit instead. In addition, once you have made the submission you must continue to file Returns on an annual basis.
Many feels that the amnesty program is an attempt for the IRS to catch you out but be assured that the government is more concerned that proper disclosure takes place, rather than punishing non-filers.