Tax Notes published a very interesting article recently which noted that the IRS seems to have no plans to terminate the formal Offshore Voluntary Disclosure Program/Initiative, despite having alluded to its “impermanence” only a few months ago.
Since its prominence in 2009, the various iterations of the Offshore Voluntary Disclosure Program/Initiatives have changed in form, but the specifics of the deals have changed. With the inclusion of the domestic offshore streamlined procedures in the last couple years, bolstered by the FATCA letters that taxpayers have been receiving from their foreign banks requesting their social security numbers, the program has seen even more participation. Does everything good have to come to an end?
This is more an issue for tax practitioners, as many of us have seen significant business from helping taxpayers get into compliance. When the current deal will end, from taxpayers’ perspective, should not be a looming question for those looking at the formal OVD (as opposed to Streamlined) program, however. Whenever it does end, there is no telling whether it will mean there is no formal program at all (which seems unlikely given how successful it has been) or whether the incentives to participate will get better or worse. Without such information, risk-neutral taxpayers should opt to participate as soon as possible.
Taxpayers who would qualify for the streamlined program already have plenty of reason to participate. The streamlined program offers the opportunity for those who always intended to comply with the tax laws, but who didn’t know they weren’t complying, to clean up their mistake. These “non-willful” taxpayers typically act quickly to rectify things, and the streamlined program’s penalties are so attractive there is no reason for them not to.
From the IRS’s perspective, the OVD program, FATCA, and the streamlined domestic offshore procedures must be considered a huge success. With minimal resources, a litany of taxpayers, many of whom had only nominal interest income that was unreported, have come forward and paid penalties. For many of these taxpayers, had they known of their obligations, they would have simply filed FBARs and any other information returns on time and had to pay virtually no extra tax. Instead, the IRS is receiving both compliance and penalties – essentially a win-win and something of a windfall. Until the OVDP and the streamlined filing program cease to be profitable, I would expect this to continue.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.