The Internal Revenue Code requires U.S. citizens and permanent residents to report worldwide income, foreign bank accounts and foreign financial assets regardless of where they are located. This is not a new requirement, yet many U.S. persons have historically failed to satisfy these reporting requirements. To address this problem, since 2012, the IRS has allowed U.S. persons to voluntarily disclose previously unreported foreign income, bank accounts and assets through the Offshore Voluntary Disclosure Program (“OVDP” or the Program”). The Program allows taxpayers to get into compliance with their reporting obligations, with reduced penalties that might otherwise apply for such failures. In addition to the requirement to file amended tax returns reporting their foreign income for the prior eight years, the general provision is to subject non‑disclosing taxpayers to a penalty equal to 27.5% of the amounts held in foreign financial accounts. While the Program has been successful for both parties, it has been particularly successful for the IRS in obtaining information regarding the U.S. ownership of foreign accounts by taxpayers who did not come forward themselves as participants in OVDP.
- In Tax Corner