On January 9, 2012, the IRS announced a new Offshore Voluntary Disclosure Program (“2012 OVDP”), which effectively extends (with several changes) the 2011 program that ended on September 9, 2011.
As mentioned in a prior post, IR-2012-65 provides FBAR penalty relief to many US citizens and green card holders living outside the US (either “low compliance risk” relief or reasonable cause relief). Thus, the 2012 OVDP seems pointed at resident US citizens or green card holders who failed to file Forms TDF 90-22.1 and also failed to pay the tax on the related offshore income.
The 2012 OVDP allows taxpayers who failed to file Forms TDF 90-22.1 (to report their offshore accounts) to do so with reduced penalty exposure. The “relief” afforded by the 2012 OVDP is still painful: the standard penalty is 27.5% of the highest aggregate account balance during the last eight years. (However, some may find this less expensive than the statutory penalty under 31 USC § 5321(a)(3) of $10,000 per year per unreported account.) Lower penalties of 12.5% and 5% remain intact for taxpayers meeting stringent criteria. The 2012 OVDP is not available if the taxpayer already has been contacted by the IRS.
The key changes from the 2011 OVDP are the following:
● No Deadlines. The 2012 OVDP ostensibly imposes no deadline on filing delinquent Forms TDF 90-22.1, and the program currently has no termination date. However, the IRS indicates that the program (including eligibility and penalty rates) may change or end at any time.
● New List of Frequently Asked Questions. On June 26, 2012, the IRS posted updated 2012 OVDP frequently asked questions and answers, which are sometimes referred to as “FAQs.”
● Increased Penalty Rate. The penalty rate was increased from 25% to 27.5%.
● 2012 OVDP Unnecessary if Taxpayers Made All Filings Except FBARs. Taxpayers need not use the 2012 OVDP if they reported all income on overseas accounts and paid all taxes in prior years. Instead, they merely need to file the delinquent Forms TDF 90-22.1 with the Department of Treasury along with an explanation of why the Forms TDF 90-22.1 were filed late. See FAQ 17. Query: Is full penalty relief available under FAQ 17 if the prior year income tax returns were filed late? Or if filed all at once along with the delinquent Forms TDF 90-22.1? If yes, then FAQ 17 treats US taxpayers living in the US nearly the same as IR-2012-65 treats US taxpayers living outside the US.
● No De Minimis Exception. As in the 2011 OVDP, there is no de minimis exception to the 27.5% penalty. In other words, if there is any unreported income on any offshore account, the relief described in FAQ 17 will not apply. See FAQ 33.