The IRS recently released new Frequently Asked Questions (FAQs) for the 2012 Offshore Voluntary Disclosure Program (OVDP). The 2012 OVDP was announce in January of this year, and represents a third amnesty program rolled out by the IRS with respect to undisclosed foreign assets. The 2012 OVDP initially was substantially similar to the 2011 program, other than the maximum penalty was increased to 27.5% (from 25%) of the highest account balance, and imposing no deadline. The latest FAQs provide some additional changes.
In FAQ # 5, the IRS clarified that beginning with the tax year 2011, a taxpayer who does not disclose foreign financial assets and is examined by the IRS, could be subject to penalties for failure to file Form 8938, Statement of Specifi ed Foreign Financial Assets, in addition to other penalties related to FBARs, Forms 5471, 5320, etc. The new guidance (FAQ # 7.1) also specifically provides that the OVDP is available to taxpayers who have undisclosed tax liabilities from domestic sources, in addition to the offshore income, accounts and assets. FAQ # 9 clarifies that those taxpayers, who enter the program after 4/15/2012, will have to amend eight years of tax returns, going back to the tax year 2004.
Two new FAQs, # 54 and # 55, address taxpayers with certain foreign retirement or pension plans. Taxpayers who have particular Canadian retirement or pension plans (such as RRSPs or RRIFs), but did not make a timely election under the U.S.-Canada income tax treaty to defer U.S. tax on the undistributed income earned by those plans, may be able to make the election under the OVDP procedure. Those taxpayers who have a non-Canadian, foreign retirement or pension plan, for which they believe there is no U.S. reporting obligation and that they believe should be excluded from the offshore penalty base, are instructed to contact the OVDP hotline.
The IRS also added two ways in which a taxpayer may become ineligible for the program. First, per FAQ # 21, if a taxpayer appeals a foreign tax administrator’s decision authorizing the disclosure of account information to the IRS and fails to notify the U.S. Attorney General, as required by law, the taxpayer becomes ineligible for the OVDP participation. Second, the IRS also said in FAQ # 21, that it may announce that certain taxpayer groups that had or have accounts at specific financial institutions will be ineligible due to U.S. government actions related to those institutions.
The updated IRS website for the 2012 OVDP also provides some procedural changes to the program. The IRS has reformatted the Offshore Voluntary Disclosure letter. The letter now requires an attachment, for each offshore account being disclosed, asking detailed information about the account, affiliated individuals and entities, and communications related the account.