Why is the IRS OVDP or Offshore Voluntary Disclosure Program the safest choice for US taxpayers coming into compliance with IRS FBAR disclosures? How does the OVDP reduce risk for US citizens and foreign resident nationals who are required to file US tax returns? The key issue is the IRS’ determination of “willful” or “non-willful” conduct on the part of the taxpayer. On its own website, the IRS clearly states “ignorance is not an excuse.” The IRS has also stated that if you are sophisticated enough to have offshore accounts, investments, assets and income you should know to study US tax laws and follow them. This is an incredibly tough position, especially when you consider the plight of resident foreign nationals who live and work in the US, but own property and have their own bank accounts abroad.
There are many reasons why a professional working on an H1B Visa or a resident foreign national would be caught up in FBAR challenges. Most of these professionals own property in their native country, and in some cases real estate has been passed down through generations. They had bank accounts before coming to the US, and many do not realize their exposure under FATCA and the IRS FBAR disclosure rules. Our offices have experienced a surge in questions from this community. These clients are completely unaware of their obligations to file FBARs reporting all of the accounts, assets and income generated by the property they owned or controlled before coming to the US.
The Safest Option for FBAR Compliance is the OVDP
However, under US tax law these accounts and assets must be disclosed on an FBAR which is due June 30. If prior year’s tax returns did not include FBARs or did not fully disclose the extent of accounts and holdings, the safest route to consider is the OVDP. How does the OVDP reduce risk when the streamlined option seems so much less expensive? The streamlined option seems to be an obvious preference for every taxpayer as it offers a minimal 5% penalty on affected accounts and income. However, the huge catch in the streamlined application is the extensive biographical disclosure that these forms now require of every taxpayer applying for the streamlined program. The questionnaire probes deeply into all issues of the taxpayer’s past including education, financial activity across the years, travel, investment activity, reasoning for offshore involvement, advisory input and tax advice received in the past, and all under the penalty of perjury. There is no caseload to establish what happens to a taxpayer when the IRS rejects the streamlined application and asserts that the conduct of the taxpayer was “willful.” The IRS holds all the power in this situation and the burden of proof is clearly on the taxpayer. If rejected, the US taxpayer will face overwhelming penalties and the genuine exposure to criminal tax evasion prosecution and prison time.
We invite you to contact us for a free and substantive consultation at 866-631-3470. How does the OVDP reduce risk for US taxpayers? It removes all questions and provides a clear path to resolve and eliminate criminal exposure with the IRS while limiting the associated penalties to those established in the OVDP. If you file streamlined, you face the risk of the IRS rejecting the application and facing the full fury of the IRS without protection from draconian fees that amount to 50% of the highest accumulated balance point each year, for each incidence or $100,000 per incidence whichever is higher.