On June 18, 2014, the IRS announced new updated procedures for the voluntary disclosure program and new streamline filing procedures which in many cases substantially reduces the penalty exposure for non compliant taxpayers to 5% of the highest balance in foreign accounts and non-declared assets. I have personally worked with clients that were involved in the old voluntary disclosure program and I can tell you it is not a pleasant experience.
Under the old program the penalties could easily exceed 25% or more the assets held in the foreign accounts even if all of the income was reported on the income tax return. With many farmers holding accounts in Canada or farm operations out of the country, it is extremely important to properly report these accounts. The penalties for not reporting them can be extreme, although the new modifications do seem to reduce these substantially.
Changes made to the existing 2012 Voluntary Disclosure Program are as follows:
- Requiring additional information from taxpayers applying to the program;
- Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;
- Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application;
- Enabling taxpayers to submit voluminous records electronically rather than on paper;
- Increasing the offshore penalty percentage (from 27.5% to 50%) if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice.
For full details of the IRS announcement, you can access it here. If there are new changes, we will keep you posted.