The Foreign Account Tax Compliance Act (“FATCA”) was enacted as part of the Hiring Incentives to Restore Employment Act of 2010 (the “HIRE” Act). The FATCA withholding regime was designed to compel information reporting and disclosure with respect to the foreign accounts of U.S. persons and foreign entities with U.S. owners.
Additionally under the HIRE Act, a shareholder in a passive foreign investment company (a “PFIC”) or foreign mutual fund is required to report information under Internal Revenue Code IRC §1298(f) and is required to attach Form 8621 (entitled “Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund”) to the PFIC shareholder’s annual income tax or informational return.
To assist U.S. taxpayers in voluntarily resolving past non-compliance related to unreported offshore income and failure to file foreign information returns under the FATCA regime the IRS launched the Offshore Voluntary Disclosure Program (“OVDP”). Various forms of the Internal Revenue Service sponsored OVDP have existed since 2009 wherein taxpayers may seek amnesty for undisclosed foreign bank accounts. Since its initial launch in 2009, more than 56,000 taxpayers have used one of the forms of the OVDP to voluntarily comply, and to date has accrued payments in back taxes, interest and penalties totaling $11.1 billion. According to the IRS website, the number of taxpayer disclosures under the OVDP peaked in 2011 when approximately 18,000 taxpayers came forward, and has steadily declined over the years, reaching a low of approximately 600 disclosures in 2017.
Since its launch in 2009 the IRS has been clear that the OVDP would be closed at some point in the future. Given the steady decline of disclosures over the years, the IRS announced on March 13, 2018, that the current OVDP (which began in 2014, and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009) will come to a close on September 28, 2018. The IRS has noted that it will continue to use other tools to combat tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution.
As an aside, it should be noted that the Streamlined Filing Compliance Procedures (which, as compared to the OVDP, has very specific requirements for eligibility), will remain in place and will continue to be available to eligible taxpayers who might not have been aware of their filing obligations. The IRS has noted that the circumstances of taxpayers with foreign financial assets vary widely, and as such, the IRS intends to continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those foreign assets:
- IRS-Criminal Investigation Voluntary Disclosure Program;
- Streamlined Filing Compliance Procedures;
- Delinquent FBAR submission procedures; and
- Delinquent international information return submission procedures.
Even though the above mentioned programs will continue to be offered, each program limits the eligibility of taxpayers that may apply by requiring that taxpayers first meet certain criteria; therefore, we suggest that you take advantage of the OVDP before its termination on September 28, 2018 if you are unsure whether you have satisfied your obligation(s) to report information pertaining to any foreign accounts of U.S. persons and foreign entities with U.S. owners. For this purpose, please contact us as soon as possible so that we can assist you in voluntarily reporting these assets without the threat of facing criminal or civil charges.