For several years we have worked with taxpayers who may not have been in compliance with the complex US rules for reporting global income and disclosing foreign financial data. Avenues to bring taxpayers into compliance historically focused on the Offshore Voluntary Disclosure Program (OVDP)and more recently the Streamlined Filing Compliance Procedures (SFCP), the delinquent FBAR submission procedures, or the delinquent international information return submission procedures. Of course the nature of the non-compliance and a taxpayer’s intent are the key factors in determining the appropriate path back to compliance.
While you may know the OVDP was closed on September 28, 2018, there is brand new guidance. A November 20 memorandum was released that addresses the process for all voluntary disclosures (domestic and offshore) following the closing of the OVDP. Click here for the link. In essence, taxpayers who may not qualify for the SFCP or the delinquent filing programs for various reasons had no specific route back to compliance once the OVDP closed and were concerned with how to approach the IRS and what possible penalties would be. The memorandum also reminds us that the other programs could be discontinued at any time.
Note: These penalties under the new guidance will be higher than those under OVDP.
In the latest memorandum, Kirsten B. Wielobob, Deputy Commissioner for Services and Enforcement, states that Taxpayers who did not commit any tax or tax related crimes and do not need the voluntary disclosure practice to seek protection from potential criminal prosecution can continue to correct past mistakes using the SFCP or delinquent programs mentioned above. So, who is she referring to in the memorandum? Taxpayers that willfully violated the rules should be the ones focusing on these rules. Those that may not have willfully violated but who can’t prove non-willfulness should also take note.
Taxpayers impacted are those submitting voluntary disclosures (purely domestic or those involving offshore items) post-September 28, 2018. Furthermore, the IRS has the discretion to apply these procedures to all other non-offshore voluntary disclosures received on or before September 28, 2018. Taxpayers must fully cooperate with the IRS to stay eligible.
Generally, examiners will use a six-year disclosure period that will function more like an audit than the general reviews we’ve seen under OVDP. Civil penalties for fraud or the fraudulent failure to file will apply to the one tax year with the highest tax liability, although examiners could apply the penalties to more than one year in certain cases. A willful FBAR penalty may also apply.
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