US offshore tax disclosure FAQ

The US Internal Revenue Service (IRS) has collected more than $5 billion from taxpayers with overseas holdings thanks to a voluntary disclosure scheme.

Now, the program has been extended indefinitely – and to help US taxpayers decide how the program affects them, here are the answers to some frequently asked questions:

Why is the IRS running the overseas voluntary disclosure program (OVDP)?

The main answer is economies of scale. Calling for volunteers to disclose their financial affairs is cheaper than tracking each one down individually, while investigators can pick patterns and trends from the information disclosed – like common financial advisers or institutions involved.

What’s the advantage of disclosing?

The penalties are far less severe than those imposed if the IRS investigates a taxpayer, and generally, any criminal prosecution is waived.

The IRS sees the program as helping taxpayers help themselves.

How does a taxpayer join the disclosure program?

Disclosure involves completing, amending and filing tax returns for the years in question, plus agreeing to pay up to 20% of any accuracy-related penalties, plus all late-filing, failure to pay penalties and any other penalties related to the offshore assets.

Coming clean also involves making a written promise to continue to make full and frank disclosures in future tax years.

What if a taxpayer has undisclosed domestic taxes as well?

Taxpayers must make full disclosure, which includes any liability to unpaid domestic taxes, if there are any, under the overseas disclosure program.

How far back does disclosure go?

Eight full tax years, not including the current tax year, so disclosure for 2012 dates back until 2003.

Can a taxpayer join the program if an IRS investigation is underway?

No. Eligibility to join the scheme ends will the start of a civil inquiry.

What if I can’t pay my tax bill, but I want to disclose?

Join the scheme and negotiate a payment plan with the IRS.

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