On June 18, 2014, the Internal Revenue Service announced changes to the offshore voluntary disclosure program. These changes:
- Increase the offshore penalty to 50 percent if either (i) the foreign financial institution at which the taxpayer has or had an account or (ii) a facilitator who helped the taxpayer establish or maintain the account has been publicly identified as being under investigation or cooperating with a U.S. government investigation. This increased penalty will apply to any voluntary disclosure submitted on or after August 4, 2014. The prior penalty of 27.5 percent still applies if the relevant financial institution or facilitator has not been publicly identified.
- Permit U.S. residents to use the streamlined program. Previously, the streamlined program was only open to non-residents. U.S. residents who enter the streamlined program are eligible for a reduced offshore penalty of 5 percent if (among other requirements) such U.S. resident (i) submits three years of amended income tax returns, (ii) pays all tax and interest shown as due on such returns, (iii) files six years of Reports of Foreign Bank and Financial Accounts (“FBARs”), and (iv) certifies, under penalties of perjury, that the taxpayer qualifies for the streamlined program and the failure to file tax returns, report all income, pay all tax and submit all required information returns (including FBARs) was not willful.
- Eliminate the penalty for nonresidents who use the streamlined program and (among other requirements) (i) submit three years of original (or amended) income tax returns, (ii) pay all tax and interest shown as due on such income tax returns, (iii) file six years of FBARs, and (iv) certify, under penalties of perjury, that the taxpayer qualifies for the streamlined program and the failure to file tax returns, report all income, pay all tax and submit all required information returns (including FBARs) was not willful.Require the offshore penalty to be paid at the time the voluntary disclosure is submitted.
Except for the increased penalty, these changes will be in effect for all voluntary disclosure submissions made on or after July 1, 2014.