The IRS released a new set of Frequently Asked Questions (FAQs) June 26, 2012, for the 2012 Offshore Voluntary Disclosure Program that it announced in January of this year. The terms of the 2012 OVDP are very similar to the 2011 program described in our prior newsletter issued April 5, 2011 (Vol. 6, No. 1). Two notable differences are that the offshore penalty has been raised to 27.5 percent (up from 25 percent for the 2011 program) and the IRS has set no deadline for participating in the 2012 program. The offshore penalty rates of 12.5 percent and 5 percent under the 2011 program still apply in limited circumstances.
The IRS has added a FAQ that addresses taxpayers with certain Canadian retirement plans who failed to elect under the U.S.-Canada Treaty to defer income earned by the plan, as well as a FAQ that addresses the eligibility of taxpayers who challenged a foreign government’s disclosure of tax information through the foreign country’s judicial system and failed to notify the U.S. Justice Department of the appeal. The IRS has cautioned that it could change the terms of the program at any time, including the amount of the offshore penalty and who qualifies for the program. It also announced that the first two offshore disclosure programs, in 2009 and 2011, resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures. The IRS has received an additional 1,500 disclosures so far under the 2012 OVDP since it announced the program in January.
The IRS also announced, the same day, its plans to help U.S. citizens residing abroad get current with their U.S. tax-filing obligations. For certain U.S. taxpayers living abroad who have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs) and who owe little or no back taxes ($1,500 or less) for any of the covered years, the IRS is offering to forego penalties and additional enforcement action if the taxpayers file all delinquent tax returns along with appropriate related-information returns for the past three years and the delinquent FBARs for the past six years. The new procedures will also allow resolution of certain issues related to certain foreign retirement plans. These new procedures do not come into effect until September 1, 2012, and we expect that the IRS will provide additional guidance prior to that date.