Offshore Voluntary Disclosure or Streamlined Filing Compliance
Offshore Voluntary Disclosure (OVDP) or Streamlined Filing Compliance: When it comes time for a taxpayer to make the final decision as to whether they will submit to Offshore Voluntary Disclosure Program (VDP or “New OVDP”) or the streamlined program, it can be a overwhelming decision. While the IRS terminated the Offshore Voluntary Disclosure Program back in 2018, they also expanded the traditional voluntary disclosure program (VDP) to include both domestic and offshore tax compliance.
Comparing OVDP vs Streamlined
The main consideration between OVDP and Streamlined Filing Compliance is whether or not the U.S. person was willful or non-willful. Once a person can determine if they willful or non-willful the next step is (usually) to assess what the potential FBAR penalties will be.
There are other non-FBAR assets and investments that may be included in the penalty computation base beyond FBAR reportable accounts — but oftentimes the FBAR penalty will be the determining factor in which option to choose.
OVDP & Streamlined Filing Eligibility
In determining whether a person should submit to OVDP for the streamline program, the taxpayer should consider the following:
Willful or Non-Willful in OVDP vs Streamlined
There is no bright line test to determine whether a person is willful or non-willful. Since there is no bright line test, instead the taxpayer must evaluate their foreign account noncompliance by using a totality of the circumstance test. This type of analysis requires a very complicated and detailed assessment of the FBAR noncompliance facts and circumstances.
Oftentimes the taxpayer will benefit by first consulting with a tax specialist to evaluate the important non-willful factors.
If a person believes they are willful, then they are not eligible for the streamline program or any of the other non-willful alternative. Rather, the Taxpayer would be limited to the voluntary disclosure program (VDP) was their only opportunity to submit to tax amnesty.
If the taxpayer believes that they are non-willful, then they will have several options available to them, including the IRS streamlined program, delinquency procedures and/or reasonable cause — each program has their own guidelines for FBAR penalties.
One important fact to consider is that willfulness does not require intent.
A person may have acted with reckless disregard or willful blindness and still be considered willful — and therefore ineligible for streamlined filing and/or other non-willful FBAR procedures.
FBAR Penalties in General
The scope and extent of FBAR penalties range dramatically depending on the facts of each case.
On the one hand, a non-willful person may receive a penalty waiver in lieu of penalty. On the other hand, they may be subject to a $10,000 penalty per account, per year ($10,000 adjusts for inflation).
If the IRS determines the person to be willful, they may be subject to a 50% penalty on the maximum value up to 100% penalty in a multi-year audit situation.
The baseline minimum willfulness penalty is $100,000 per year ($100,000 adjusts for inflation).
FBAR Penalty Under Streamlined Procedures
There are two versions of the streamline program: streamlined domestic offshore procedures (SDOP for US residents) and the streamlined foreign offshore procedures (SFOP for foreign residents).
Under the foreign version of the program, the taxpayer receives a complete penalty waiver for any FBAR or other offshore penalty.
This is a great opportunity for foreign residents to safely get into compliance.
The streamlined domestic program is also a great program, and reduces the total penalty down to a single 5% penalty on the highest year’s 12/31 aggregate total of unreported accounts.
We have a separate page that shows you how to calculate the 5% streamlined penalty.
Offshore Voluntary Disclosure Program FBAR Penalties
Under the updated version of the voluntary disclosure program (which replaced OVDP), the FBAR penalties are relatively straightforward.
The taxpayer gets hit with a 50% penalty on the highest year’s unreported aggregate maximum balance for the compliance period.
While the IRS has said the 50% penalty is not set in stone — and may be negotiable — it is a rare occurrence that the IRS will modify the 50% penalty under the new version of VDP.
When a taxpayer is audited for FBAR and foreign account compliance, the IRS agent has wide authority to penalize the taxpayer under the various FBAR non-willful penalty tiers.
The tiers range from a warning letter in lieu of penalty, all the way up to a $10,000 per account/per year penalty.
While a recent case did provide that the non-willful FBAR penalties limited to a penalty per form, and not per occurrence/per year — that case was at the District Court level, and at the time of this article has not yet gone up on appeal.
International FBAR Lawyers: We Represent Clients Worldwide
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and Streamlined Disclosure.
Contact our firm today for assistance with getting compliant.