The head of the IRS, John Koskinen, made big changes to the Offshore Voluntary Disclosure Program in 2014. This was the fourth time the program had been changed. The changes were both good and bad, but they were needed to make the program fair and run better. If you have a bank account in a foreign country worth more than $10,000, you need to report it to the government every year. If you don’t, you could get in big trouble. In 2008, the U.S. investigated a big Swiss bank for helping Americans hide their money from the government. After that, the government made it easier for people to come clean about their hidden money with the Offshore Voluntary Disclosure Program (OVDP). This program lets people report their hidden money and avoid going to jail. But if they don’t report it and the government finds out, they could get in even more trouble. The program has changed over the years, but it’s still important to follow the rules about reporting foreign bank accounts. In 2012, the IRS made changes to the Offshore Voluntary Disclosure Program (OVDP) to make it stricter and increase the offshore penalty. They also introduced a new option called the streamlined filing compliance procedure for nonresident U.S. taxpayers who owed little or no back taxes. This new option became popular among U.S. taxpayers living abroad.
Outside the OVDP, taxpayers who failed to file an FBAR but paid taxes on all income could still disclose their foreign accounts and not face penalties for late filing.
The OVDP has been successful in helping the IRS and DOJ catch tax evaders and collect information and documentation from foreign banks and U.S. taxpayers to uncover hidden offshore accounts. The OVDP program had a big flaw – it treated all tax evaders the same, regardless of their situation. A person who deliberately hid money in a Swiss bank was treated the same as someone who inherited money from their mom and didn’t know they had to report it. The IRS realized this and made changes to the program in 2014. Now, if you have a foreign bank account and didn’t report it, you could be treated more harshly if the IRS thinks you knew you were supposed to report it. If you have money in a bank outside the U.S., you have to pay taxes on it to the IRS. If you didn’t know that and didn’t pay, you used to be able to avoid big penalties by saying you didn’t know. But now, the IRS has changed the rules and if the bank you’re using is being investigated, you’ll have to pay a bigger penalty. So, if you didn’t pay taxes on your overseas money, you should fix that before the IRS catches you. If you haven’t paid all your taxes, you might be eligible for a program called the streamlined procedure. An important change in 2014 made it easier for more people to qualify for this program. It now applies to U.S. taxpayers who live in the U.S., not just those who live outside the country. If you’re eligible, you can use this program to catch up on your taxes without getting in trouble. To qualify for the streamlined tax procedures, a taxpayer must prove that they didn’t intentionally fail to report income or pay taxes. If they’re under investigation by the IRS already, they can’t use this process. It can be hard to prove whether someone acted intentionally or not, so it’s important to get professional help. Depending on their situation, the taxpayer can choose between the foreign or domestic streamlined procedure. If they were not living in the US for most of the past three years, they can use the foreign procedure. If they don’t meet those requirements, they can use the domestic procedure. It’s no longer necessary for the taxpayer to have filed an original return for the period in question. If you live outside the U.S. and haven’t filed your taxes or FBARs, you can use the Streamlined Foreign Offshore Procedures. You need to file your delinquent or amended tax returns for the past three years, along with all required information returns and FBARs for the past six years. You also need to pay the full amount of the tax and interest due. If you qualify, you won’t have to pay penalties. You’ll also need to sign a certification stating that you qualify for the SFOP and that your failure to file was not intentional.
If you live in the U.S., you can use the Streamlined Domestic Offshore Procedures. The process is similar to the SFOP, but you also have to pay an offshore penalty of 5 percent of the highest aggregate year-end balance or value of your assets. This penalty is lower than what you would have to pay under a different program. The rules for the Streamlined Domestic Offshore Program (SDOP) are the same as the Streamlined Foreign Offshore Program (SFOP), but with some changes. To apply for the program, you need to provide more information to the IRS about your foreign and domestic financial accounts and entities. The IRS now requires the offshore penalty to be paid upfront with the application. The forms for the program have also been updated on the IRS website. The IRS has changed the rules for filing late reports on foreign bank accounts. If you didn’t report your account because you didn’t know you had to or you had a good reason, you can now file late without getting a penalty. You also need to provide bank statements for all your foreign accounts, no matter how much money is in them. And you can submit all your documents on a CD or DVD. If you didn’t report your offshore assets to the IRS, you may have to pay a penalty. The IRS has new rules for calculating this penalty and they also have a special program with lower penalties. If you’ve already told the IRS about your offshore assets, you might be able to get the lower penalties with the new rules. If you joined a program to voluntarily disclose your taxes to the IRS before July 1, 2014, and haven’t finished the process, you may be able to get a better deal. You have to apply for this special treatment, and it’s not guaranteed. If the IRS agrees, you’ll have to pay what you owe, but it might be less than what you would have paid before. This is good news for people who made mistakes on their taxes but didn’t do it on purpose. If you didn’t know about the FBAR (Foreign Bank Account Report) and didn’t report your foreign income, you could face big penalties. It’s important to act fast and file, especially if you deliberately didn’t report your foreign accounts. The penalties for not filing can be as much as 50% of the money in your account. The IRS has collected billions of dollars from people who didn’t report their foreign accounts, and they have a program for people who come forward and admit they didn’t report on purpose. So if you’re in that situation, it’s best to take action now. The IRS had a program called the OVDP (Offshore Voluntary Disclosure Program) where people who didn’t properly report their foreign assets could come forward and fix their taxes. There were a lot of rules and procedures, and the IRS could change the program at any time. They also announced efforts to help Americans living overseas. The program brought in billions of dollars in taxes, and there were different FAQ pages and forms for people to use. The IRS doesn’t like “quiet disclosures,” which are when people secretly file amended tax returns without telling the IRS about their previously unreported offshore income. But now, they’re letting people who did that enter a program called streamlined procedures. This program won’t automatically trigger an IRS audit, but people should still be careful and talk to a tax or legal adviser to figure out the best option for them. The term “individual” refers to U.S. citizens or permanent residents, and just living in the U.S. temporarily doesn’t necessarily mean your home is here. If you file your taxes late or don’t report all your income from foreign assets, you won’t be penalized as long as you come clean under the IRS’s program. But if they find out you were being sneaky on purpose, you’ll still get in trouble. If the IRS already knows about your offshore money, you can’t use this program. You have to give detailed info about the financial institutions and businesses you’re involved with. And there are forms you have to fill out, but they’re pretty much the same as before. If you have a bank account overseas and didn’t report it on your tax return, you can still fix it by paying a smaller penalty. If you meet certain conditions, like not taking out a lot of money or living in another country, you might not have to pay as much. The process is now done online. If you have missed filing certain tax forms with the IRS, there are procedures to help you catch up. The IRS has different procedures for different types of forms, and there are transitional rules that may apply in certain situations. If you need to participate in the Streamlined Filing Compliance Procedures, you will need to provide a written statement and other documentation to show that you didn’t willfully fail to report your foreign activities and assets. You can mail your request for a waiver to the Offshore Voluntary Disclosure Unit at the IRS in Austin, Texas. Remember, it’s important to comply with tax laws, and there are procedures to help you if you’ve missed something.
Source: https://www.floridabar.org/the-florida-bar-journal/offshore-account-compliance-the-evolution-of-a-revolution/
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