As FATCA Takes Hold, IRS Increases Offshore Amnesty Penalty From 27.5% To 50% And Expands OVDP Information Requirements

In an effort to keep the OVDP process in light with FATCA developments, the IRS and the Department of Justice (DOJ) have increased the Offshore Amnesty Penalty from 27.5% to 50% while expanding OVDP informational requirements. With foreign banks uncovering more and more illegal American accounts, the more than $6.5 billion in taxes, interest and penalties that OVDP has generated from over 45,000 taxpayers is expected to increase. On July 1, 2014, the next stage of FATCA and global bank transparency kicks into gear. If you are worried about international accounts, please contact the international tax consultants at LSL CPAs for help.

Offshore Amnesty Penalty Increased

With over 100 Swiss banks stepping in line with full disclosure of American accounts and accepting a structured tier of penalties, foreign financial institutions across the world are taking notice. What proved disturbing to many and should generate further results is that no deal was offered to 14 Swiss banks under U.S. investigation. Given the two alternatives, it makes sense that the vast majority of foreign financial institutions will get on board with FATCA as well. Despite the increase in the offshore amnesty penalty percentage, such widespread bank participation makes the Offshore Voluntary Disclosure Program the best option for a taxpayer with undisclosed foreign accounts.

Beyond the increase of the offshore amnesty penalty percentage from 27.5% to 50% of the amount in the offshore accounts, the new changes to OVDP for taxpayers include the following:

1. A major expansion of the OVDP’s electronic options for the submission of paperwork and financial records
2. Additional information from taxpayers is now required in order to apply to the program
3. Existing reduced penalty percentage for taxpayers classified as non-willful has been eliminated
4. All account statements must be submitted at the time of the OVDP application
5. Taxpayers now must pay the offshore penalty at the time of the OVDP application

Offshore Amnesty Penalty Percentage

Without question, the international tax team at LSL CPAs understands why taxpayers with foreign accounts would be intimidated by the penalty increase. Despite this foreboding number of 50%, it is less foreboding than the huge penalties that can be added on if foreign accounts are not disclosed. In all honestly, there is no avoiding the inevitability of FATCA leading to the disclosure of foreign financial accounts. As a result, the best option remains the Offshore Voluntary Disclosure Program after your financial accounts and tax situation has been cleared by international tax experts like the foreign tax consultants at LSL CPAs.

Pursuant to U.S. Treasury Department Regulations, any federal tax advice in this article is not intended or written to be used for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

It is important to further note that this article presents only a partial view of the subject matter. It does not claim or attempt to be comprehensive or perfectly accurate. To learn more about how these issues might apply to your particular international accounts or financial holdings, please call LSL CPAs international tax accountant Yana Weaver at 714.569.1000.