U.S. IRS Reopens Offshore Voluntary Disclosure Program

January 11, 2012 Posted by China Briefing Reading Time: 3 minutes

Jan. 11 – The U.S. Internal Revenue Service (IRS) reopened its Offshore Voluntary Disclosure Program (OVDP) on Monday, giving U.S. citizens with hidden offshore assets another chance to come clean.

The revival of the OVDP follows the closure of the 2011 and 2009 programs, during which around 33,000 voluntary disclosures were made and a total of US$4.4 billion was collected on offshore accounts. Most participants of the new program will be required to pay a penalty of 27.5 percent (compared to the 25 percent penalty in the 2011 program) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure.

As under the previous programs, some taxpayers may be eligible for lower penalties. Taxpayers in limited situations can qualify for a 5 percent penalty, and smaller offshore accounts – such as those that did not surpass US$75,000 in any calendar year covered by the new program – will face a 12.5 percent penalty.

In addition to paying penalties, participants of the new program also must disclose the banks and financial advisers that have helped them with their tax evasion. On January 4, the Switzerland-based Weglin & Co. said that three of its bankers have been prosecuted for helping U.S. clients shield over US$1.2 billion from the IRS, according to a Bloomberg report. The United States has also charged clients of UBS AG and HSBC Holdings Plc. since 2009.

Unlike the previous programs, the new OVDP sets no deadline for people to apply. However, taxpayers may still want to come forward sooner, as the IRS could change the terms of the program at any time going forward. Penalties could be increased and the entire program could be ended at any point.

The IRS has recognized remarkable success in the 2009 and 2011 programs, and expects to collect a larger amount through the new program.

“We’re gaining momentum in our international efforts and the word is spreading across the globe,” IRS Commissioner Doug Shulman said on Monday.

“Taxpayers are turning themselves in because federal prosecutors have finally begun to go after the individual tax haven banks, bankers and other professionals helping them cheat on their taxes,” said Senator Carl Levin, chairman of the U.S. Senate Homeland Security Permanent Subcommittee on Investigations.

At the same time, the U.S. government is developing new rules that would require overseas financial institutions to report the identities of their U.S. clients with undeclared assets. Therefore, fewer banks are now willing to take such U.S. customers, and more taxpayers would rather work with the IRS as there are not many options left.

The IRS also aims to improve all taxpayers’ understanding of their U.S. tax responsibilities through the OVDP and other efforts. For example, dual citizens and other U.S. citizens should be aware of their tax filing obligations even if they do not owe U.S. taxes.

More details about the program will be available within the next month on the IRS web site, according to an official news release issued on Monday.

U.S. expats who require additional assistance or clarification on this new program may contact Richard Cant of Dezan Shira & Associates at tax@dezshira.com.

Dezan Shira & Associates is a specialist professional services firm handling FDI legal and tax issues for multinationals in China, Hong Kong, India, Singapore and Vietnam. For assistance with investment legal or tax matters concerning any of these regions, please email asia@dezshira.com, visit the practice’s web site at www.dezshira.com, or download the firm’s brochure here.

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