American expatriates who decided to participate in the latest OVDP, Offshore Voluntary Disclosure Program, should be ready for an unpleasant surprise. Please read here to learn What is Voluntary Disclosure. Effective March 4, 2013 the IRS Criminal Investigation Division started to send out letters to US taxpayers who were previously accepted into the OVDP that they are disqualified from participating in the program.
The issue is that American expatriates who entered the OVDP, Offshore Voluntary Disclosure Program, have already submitted a complete OVDP package including amended tax returns as well as they paid tax, interest, penalties and professional fees. Americans living abroad entered the OVDP with the intention to avoid criminal penalty sanctions. Some of the US taxpayers had already been in the OVDP for 6 months before they got the post-clearance disqualification letters.
What is the reason that American expatriates were disqualified from the OVDP?
Per FAQ 21 of the OVDP’s list, “once the Service or the Department of Justice obtains information . . . that provides evidence of a specific taxpayer’s noncompliance with the tax laws or Title 31 reporting requirements, that particular taxpayer will become ineligible for OVDP, Offshore Voluntary Disclosure Program.” Evidently, it was a miscommunication between the Criminal Investigation Unit of the IRS that administers the OVDP, and the Department of Justice Tax Division, which had received the bank account information of US taxpayers from foreign banks that resulted in disqualification of accepted American expatriates from the OVDP.
What are the consequences of the disqualification from the OVDP?
The issue is that now the government goes after the American expatriates who received disqualification letters. These taxpayers were informed that they are subject to a grand jury investigation of undisclosed accounts. This situation undermines the trust of taxpayers who believed in the OVDP, Offshore Voluntary Disclosure Program.
What is the lesson for American expatriates with undisclosed accounts and past due expatriate tax returns?
American expatriates who still think whether they have to file US expatriate tax returns must remember that their foreign bank might be required to disclose the information about US account holders. If this situation happens, these American expatriates face serious consequences.
- First, they are disqualified from participating in the OVDP, Offshore Voluntary Disclosure Program.
- Second, they will not be able to join the IRS streamlined program either because they will receive a failure to file the FBARs letter.
- Third, they will be under the radar of the IRS until they fully comply with US expatriate tax requirements, pay enormous FBAR penalties, taxes and other fees.
American expatriates with delinquent expatriate tax returns should consult an expat tax CPA to assist with FBARs, FATCA and other overseas tax issues. International tax experts at Artio Partners are here to help you.