OVDP / Streamline / FBAR

Offshore Voluntary Disclosure Program & Streamline Offshore Disclosure

Do you now or did you have money in a foreign bank account?  If so, did you report the existence of the bank account on an FBAR Form 114, formerly TDF 90-22.1?  Reporting is required even if you did not receive interest or dividends.  If you did not report the account, continue reading and call us.

The Offshore Voluntary Disclosure Program (OVDP) and Streamlined Domestic Offshore Disclosure is available to taxpayers with undisclosed foreign assets. The IRS has made it clear that the 2012 OVDP, now OVDP 2014, can be discontinued at any time.  OVDP is designed to allow taxpayers to come clean with the assurance that they will not face criminal prosecution and they will be assessed predictable penalties. Incidentally, The mere willful failure to file an FBAR is a tax crime.   Taxpayers have the added benefit of receiving a fixed penalty structure for settlement of past non-compliance.

In order to enter into the Offshore Voluntary Disclosure Program and Streamline Domestic Offshore, taxpayers must:

  • Provide copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure;
  • Provide complete and accurate amended federal income tax returns for all tax years covered by the voluntary disclosure;
  • File complete and accurate original or amended offshore-related information returns, including FBAR Form 114 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) for tax years covered by the voluntary disclosure; and
  • Cooperate in the voluntary disclosure process, including providing information on offshore financial accounts, institutions and facilitators, and signing agreements to extend the period of time for assessing liabilities and FBAR penalties;

In exchange for their voluntary compliance and information exchange, taxpayers will be assessed a miscellaneous penalty in lieu of all other penalties that may apply to their undisclosed foreign assets and entities, such as FBAR and offshore-related information return penalties and tax liabilities.

Incidentally, the penalty for failing to file an FBAR is 50% of the account balance per year.  The penalties can easily exceed the account balance of unreported funds.

Generally speaking, the miscellaneous penalty is equal to 5% in the Streamline Domestic Offshore Program and 27.5% in the Offshore Voluntary Disclosure Program.  The penalty is calculated on the highest aggregate balance in all foreign financial accounts during the period covered by the voluntary disclosure. Additional penalties on the taxpayer’s unreported income during the disclosure period may also apply, as well as penalties for failure to file a tax return or pay tax due, if applicable.

We have experience navigating both the 2011 2012, and 2014 Offshore Disclosure Programs and the Streamline Domestic Offshore Program. In addition, there are alternative methods of disclosure to comply with the law while avoiding the harsh penalty framework of these voluntary programs. If you have unreported assets overseas and are concerned that you may have outstanding FBAR or other offshore asset filing requirements, schedule a consultation with us (303) 626-7000.

Please note that Offshore Voluntary Disclosure cases are typically handled by IRS Criminal Investigation.  A CPA or Accountant does not have a privilege as to criminal tax investigation or tax prosecution.  As such, if you are considering or currently using a CPA, the CPA could be used as a witness against you.  We have had existing clients who were using CPA’s to represent them during the Offshore Disclosure who were unaware of this fact.

Our Blog entries on OVDP /OVDI, FBAR and Streamline:

  1. We now provide an FBAR filing service.
  2. The Meaning of “Willful” Failure to Disclosure Foreign Accounts.
  3. 2012 Offshore Voluntary Disclosure Initiative Program (OVDP).
  4. See our post on June 18th, 2014 on the reduction of OVDP penalty to 5% dubbed 2014 OVDP here: Breaking News: IRS Changes to the Offshore Voluntary Disclosure Program (OVDP)

When you retain Philip Falco, Attorney (NY), CPA (CO), he will also file all of the necessary amendments to your tax returns as required by OVDP.  We do not farm out the hard work.

With a deep knowledge of your finances, he is able to determine whether an OPT-OUT of OVDP is appropriate.  Only a deep understanding of your tax preparation can enable a surgical decision.

Incidentally, the 5% penalty is assessed pursuant to Internal Revenue Code section 6038 and is referred to as the Streamlined Filing Compliance Procedure Five Percent Penalty.

You will also receive notices regarding your tax return amendments as to their processing.

You may also receive various levels of audit including statements, prior returns, willfulness audits, and potentially other audits in connection with your filing.

Foreign Banks and affiliates we have worked with:

  • Banque Cantonale Neuchatelouise (BCN), Switzerland
  • Cayman National Bank, Cayman Islands
  • Appleby
  • Bank Leumi, Israel
  • Citibank, Columbia
  • Skandia
  • Handelsbanken, Sweden
  • UBS, Switzerland
  • Bank of India
  • HypoVereinsbank Coburg, Germany
  • Dresdner Bank
  • and many more..

Coordination with Streamline:

Once a taxpayer makes a submission under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, the taxpayer may not participate in OVDP.  Similarly, a taxpayer who submits an OVDP voluntary disclosure on or after July 1, 2014, is not eligible to participate in the streamlined procedures.

The Law Regarding FBAR

31 United States Code 5314(a) authorizes the Secretary of the Treasury to require that U.S. citizens report when they “make[] a transaction or maintain[] a relation for any person with a foreign financial agency.” 31 U.S.C. § 5314(a) (2001). The Secretary has exercised that authority, and requires that individuals “having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a
foreign country shall report such relationship . . . for each year in which such relationship exists,” 31 C.F.R. § 103.24(a) (2001), but only “with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year.” 31 C.F.R. § 103.27(c) (2001). The Secretary may impose penalties upon taxpayers that violate this requirement.
31 U.S.C. § 5321(a)(5) (2001). Section 5321(a)(5) authorized penalties against taxpayers who “willfully” violated Section 5314. See also 31 C.F.R. § 103.57(g)(2).

In order to prevail, the United States must satisfy the following elements:

  1. Taxpayer was a citizen of the United States, or a resident, or a person doing business in the United States;
  2. Taxpayer had a financial interest in, or signatory or other authority over, a bank, securities or other financial account;
  3. the bank, securities or other financial account had a balance that exceeded the applicable threshold;
  4. the bank, securities or other financial account was in a foreign country;
  5. Taxpayer failed to disclose the bank, securities or other financial account;
  6. the failure to report was willful; and
  7. the amounts of the penalties were proper.

“Willfulness” Burden of Proof and Standard

As to civil penalties (not criminal charges), the United States bears the burden of proving that taxpayer willfully failed to file FBARs with respect to the accounts at issue by the Preponderance of the Evidence.  This is a lower standard than beyond a reasonable doubt.

We also provide an FBAR filing service.

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