The IRS has simultaneously tightened the eligibility requirements to participate in the 2012 Offshore Voluntary Disclosure Program (“OVDP”) and announced a plan to help certain “low-risk” US citizens residing overseas who owe little or no US taxes to become current with their US tax filing and reporting obligations without incurring civil penalties. The Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers (“FAQs”) have also been updated to incorporate these changes.
Although the mere fact that the IRS has made a treaty request or a “John Doe” summons has been served on a non-US financial institution will not result in ineligibility to participate in the voluntary disclosure program, taxpayers who appeal the disclosure of tax information in response to a treaty request in a foreign court without notifying the US Department of Justice of their appeal of the release of this information will no longer be eligible to participate in the IRS OVDP. In addition, the IRS “may announce” that certain groups of taxpayers that have or had accounts at specific non-US financial institutions will be ineligible to participate in the OVDP due to pending US government actions in connection with those specific institutions. Details regarding eligibility or ineligibility of specific taxpayer groups connected to such institutions will be posted to the IRS website. Because ineligibility on this basis is expected to be prospective, taxpayers should still have the opportunity to participate in the OVDP until such details are released.
The IRS has also announced that a new procedure will come into effect beginning on September 1, 2012, under which certain “low-risk” US taxpayers who currently reside outside the US, including dual-citizens, will be able to file three years of delinquent US tax returns (including required information reporting forms) and six years of FBARs without the imposition of penalties, although this procedure will provide no protection from the risk of criminal prosecution. Whether a taxpayer is “low-risk” will depend on a number of factors, but will primarily require that the tax due is less than US$1,500 for each of the covered years.
US persons with undeclared bank accounts are reminded that the 2012 OVDP gives taxpayers with unreported foreign bank accounts a chance to come clean while mitigating the risk of criminal prosecution, and that they should consider remedying any past non-compliance with their US tax and information reporting obligations while there is still an opportunity to do so. Those who believe that they might fall into the “low-risk” category described above may instead wish to consider becoming compliant by means of this alternate procedure. Persons who may be affected by these developments should contact legal counsel, who can help determine if they are eligible for the OVDP and the newly announced alternative procedure, evaluate the risks of criminal prosecution, and recommend a course of action to come into compliance.