June 18, 2014
Today we’re announcing a number of important changes to our offshore account compliance program that we believe will lead to a significant increase in the number of U.S. taxpayers coming forward to report on undisclosed foreign accounts.
The steps we’re outlining today include an expanded streamlined filing compliance process and important modifications to our Offshore Voluntary Disclosure Program, or OVDP. The combined effect of these revisions will be to allow more taxpayers to participate. This reflects a carefully balanced approach. We are providing additional flexibility in key parts of our compliance effort while maintaining central components of the offshore program.
Our goal is to build on the success the IRS has already had in reducing offshore tax evasion through the OVDP, which allows individuals to avoid criminal prosecution if they disclose their foreign accounts and pay a substantial penalty. The current OVDP is the successor to prior initiatives in 2011 and 2009. Taken together, these programs have resulted in more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties. To supplement the OVDP, in 2012 we added what we call the streamlined filing compliance procedures. This has provided a way for a limited group of U.S. taxpayers living abroad who didn’t know they were out of compliance to catch up on their U.S. filing requirements without paying steep penalties.
We are announcing two sets of actions. These involve some very technical issues, but they carry great importance for thousands of taxpayers and our continuing efforts in the offshore arena.
First, we’re expanding the streamlined procedures to cover a much broader group of U.S. taxpayers we believe are out there who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations. To encourage these taxpayers to come forward, we’re expanding the eligibility criteria, eliminating a cap on the amount of tax owed to qualify for the program, and doing away with a questionnaire that applicants were required to complete.
Second, we will be reshaping the terms for taxpayers to participate in the OVDP. This is designed to cover those whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures. These changes will help focus this program on people seeking certainty and relief from criminal prosecution. From now on, people who want to participate in this program will have to provide more information than in the past, submit all account statements at the time they apply for the program, and in some cases pay more in penalties than they would have done had they entered this program earlier.
These changes reflect the helpful feedback of tax practitioners and the National Taxpayer Advocate, along with what we learned in our experience operating the OVDP. Over time, we discovered that there were people, including many here in the U.S., for whom the existing program penalties were too harsh or restrictive. These people had small enough issues that they didn’t really need the protection from criminal prosecution offered by the OVDP. But they also didn’t fit into the narrow criteria of the streamlined procedures, either.
It’s important to keep in mind that the IRS is seeking a balanced approach with this program, particularly in light of our other work on offshore issues. Our aim is to get people to disclose their accounts, pay the tax they owe and get right with the government. At the same time, for important categories of these non-willful people with offshore issues, a compliance regime that is too harsh won’t net the desired result.
In addition, we want to send a message to anyone who continues to willfully and aggressively evade our tax laws by hiding money overseas that they will pay a higher price for that noncompliance. Even though we’re tightening components of the OVDP, we still believe it’s a better deal than the alternative, because if we find you, you will face higher penalties and, as the record shows, could face criminal prosecution and jail time.
We want everyone to know that we are continuing our efforts to track down people still out there who are hiding assets overseas. More information on these accounts is coming in every day. For example, Swiss banks are cooperating through a program put in place last year by the Department of Justice. I would note that Justice recently reached an historic agreement with Credit Suisse. Also, more banks around the world will be coming forward with information on their U.S. customers beginning July 1. That’s when reporting requirements under the Foreign Account Tax Compliance Act, or FATCA, go into effect. It’s clear that the days of hiding assets in accounts overseas are coming to an end. There is no reason not to come into compliance.
We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. 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 anyone who wants to come into compliance but isn’t sure what to do, I recommend talking to a tax professional or going to our website, IRS.gov. This has a wealth of information about what disclosures are required and how to make them; we plan to add to this area.
For me as a tax administrator, the bottom line on what we’re announcing today is about fairness. For our system of voluntary tax compliance to work right, the average taxpayer who abides by the law has to be confident that everyone is being held to a similar standard. As part of that, people can no longer expect to hide their money in foreign countries and avoid paying their fair share.