Exploring the Differences Between OVDP vs. Streamlined OVDP

Sep 11, 2017

This FBAR Wiz blog post will explore the key differences between the IRS Offshore Voluntary Disclosure Program ("OVDP") versus the IRS' Streamlined Offshore Voluntary Disclosure Program. As a brief background, OVDP and Streamlined OVDP are two voluntary disclosure programs offered by the IRS that are specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties - due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. OVDP is designed to provide to taxpayers with: (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations. OVDP The current iteration of the OVDP program is intended to help those taxpayers who knowingly violated the tax laws to come back into compliance and avoid criminal prosecution. In general, this program requires a taxpayer to file eight prior years’ tax returns and FBARs, provide detailed information regarding any unreported foreign financial account(s), and pay all taxes, accuracy penalties, delinquency penalties (up to 47.5% of the tax due), and interest due for the eight-year period. In addition, the IRS imposes an FBAR-type civil penalty equal to 27.5% of the single maximum aggregate balance in the unreported foreign financial accounts during the eight-year period. The penalty is increased to 50% if the IRS or U.S. Department of Justice has initiated an investigation of the financial institution in which the accounts are held. Nevertheless, this program remains a potentially attractive option for a US person otherwise exposed to even greater civil penalties or potential criminal prosecution. Streamlined OVDP The IRS's Streamlined Filing Compliance Procedures (commonly referred to as the “Streamlined Offshore Program”) are available for a resident or non-resident US person who mistakenly failed to file an FBAR and/or failed to report on a US tax return income related to foreign financial account(s) (See source). These procedures are also available for a non-resident US taxpayer who failed to file a federal income tax return (i.e., Form 1040). In general, a taxpayer is eligible to participate in the Streamlined Program if his or her failure to file a US tax return and/or FBAR was not willful. The Streamlined Program requires a participant to file federal income tax returns (or amended returns) for three prior years and FBARs for six prior years, along with a declaration (signed under penalties of perjury) attesting that his or her failure to file was not willful. A false certification could expose a disclosing taxpayer to potential civil fraud, FBAR and information return penalties, as well as criminal liability. In general, under the terms of the Streamlined Program, the IRS will not impose any penalties on a participating non-resident taxpayer. For a taxpayer resident in the US, the IRS will impose (1) accuracy penalties (20%) on the unreported tax, and (2) an FBAR-type penalty equal to 5% of the maximum aggregate balance in the unreported foreign financial account(s) during the six-year period. The Streamlined Procedures are fully described on the IRS's website. Note that a taxpayer currently under examination is not eligible for the Streamlined Program. Before exploring whether the OVDP or Streamlined OVDP program is right for you, you should use the free FBAR Wiz app to quickly and anonymously determine your IRS filing obligations with respect to foreign accounts and/or foreign assets. The app will quickly summarize your filing obligations and tell you which forms you need to file. For a better understanding of the tools and 'weapons' that the IRS has at its disposal, check out this related blog post.