What is Voluntary Disclosure Program? Who can participate in the Offshore Voluntary Disclosure Program (OVDP)? This is the latest email from one of our clients. “I am an American living abroad. I have filed overseas tax returns in Hong Kong since I moved there. However, I didn’t know that I had to file US expatriate tax returns. I heard about the Streamlined Program and Voluntary Disclosure Program. Which one is the best option for me?
We wrote about the streamlined program for delinquent Americans living abroad earlier.
The purpose of this article is to address two expatriate tax questions: What is Voluntary Disclosure Program and Who should participate in 2012 OVDP.
What is Voluntary Disclosure Program?
The 2012 Offshore Voluntary Disclosure Program was introduced in January 2012. Actually, the IRS reopened the OVDP following the success of the program in 2009 and 2011. As a result of 2009 OVDP and 2011 OVDI programs the IRS has collected more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures.
Who should participate in the 2012 Voluntary Disclosure Program?
The objective of 2012 Offshore Voluntary Disclosure Program is to allow US taxpayers with undisclosed foreign accounts and unreported income to become compliant. American expats living abroad who seek protection from criminal prosecution are encouraged to apply under this program. Taxpayers must be accepted by the IRS to participate in this program.
What is the deadline of 2012 OVDP?
The 2012 OVDP doesn’t have a set deadline, however, the terms of the program can change any time.
What are the penalties if an American living abroad participates in this program?
The OVDP offers protection from criminal prosecution but the civil penalties are substantial. The taxpayers who participate in this program might be required to pay tax, interest and accuracy-related penalties. The offshore penalty has been increased to 27.5% from 25% in 2011 on the highest aggregate balance during the eight years before disclosure. Also, the reduced penalty categories of 5 percent and 12.5 percent are still available.
How many years of tax returns the participant in the 2012 OVDP must file?
American expats living abroad must submit eight years of tax returns, FBARs, as well as other information forms like 5471, 3520 etc.
Conclusion
American expats living abroad are strongly encouraged to contact an expatriate tax professional before making a decision to participate in the OVDP.