IRS Tax Amnesty Voluntary Disclosure Program

IRS Amnesty Tax Programs

IRS Amnesty: When a U.S. Person is out of compliance for not disclosing U.S. or foreign income, assets, accounts or investments to the Internal Revenue Service, they may be subject to significant offshore and domestic fines and penalties. While the IRS has shifted their primary focus to offshore compliance, the service is just as willing to penalize you for non-compliance of domestic tax issues as well. When a Taxpayer wants to voluntarily comply with the Internal Revenue Service before they are contacted by the IRS, they may qualify for Tax Amnesty. There are various amnesty or “voluntary disclosure” programs available.

We will briefly summarize the history, along with the current available options.

“Traditional” Voluntary Disclosure

Traditional Voluntary Disclosure has been around for many years (before offshore compliance became a key enforcement priority).

It is used for taxpayers who were willful or non-willful and had either domestic or offshore income (or both). It has become much more popular following the close of OVDP (see below).

2009 OVDI and OVDP

In 2009 the OVDI/OVDP program was introduced.

OVDI (Offshore Voluntary Disclosure Initiative) 

OVDI was introduced at around the same time Swiss Banks were entering into deferred prosecution agreements.

It was used to help taxpayers voluntarily get into compliance. There were set penalty standards to help taxpayers calculate their exact penalty. The penalties were generally less than the standard FBAR penalty.

OVDP (Offshore Voluntary Disclosure Program) 

In 2011/2012, OVDI was morphed into OVDP.

The OVDP program was nearly the same as OVDI, with some additional procedures for taxpayers made available.

As more countries began cooperating with the U.S., coupled with the introduction of FATCA (Foreign Account Tax Compliance Act), the program grew and became more popular.

What if I Was Non-Willful?

There was no stand-alone program for non-willful taxpayers.  Rather, the taxpayer would have to opt-out and risk a smaller penalty against a larger penalty.

The Opt-Out process was timely and costly for the client.

2014 Streamlined Filing Compliance Procedures (SFCP, SDOP & SFOP) 

In 2014, the Streamlined Procedure was introduced.

The technical name is the Streamlined Filing Compliance Procedures.

There are two versions of the program:

• Streamlined Domestic Offshore Procedures (SDOP) and
• Streamlined Foreign Offshore Procedures (SFOP).

The Streamlined Programs were a welcome relief for non-willful taxpayers.  It helped taxpayers limit their exposure. The offshore penalties were significantly reduced and in some cases, completely eliminated.  

The IRS also reduced the number of amended returns required to be filed by the Taxpayers (aka compliance period).

OVDP Post-2014

Following the introduction of Streamlined Procedures, the OVDP was used by two main categories of Taxpayers:

• Taxpayers who were willful and were concerned about criminal exposure (or could not certify under penalty of perjury they were non-willful); and
• Taxpayers who wanted to avoid an audit

In addition the IRS clarified that the Delinquency Procedures may still be used, although DIIRSP has for all intents and purposes been shutdown.

This means that a Taxpayer may no longer opt for Delinquent International Information Procedures in lieu of OVDP or Streamlined.

*There are pros and cons to selecting delinquency over the streamlined or OVDP/VDP which a taxpayer must consider before making the submission.

2018 & the End of OVDP 

On September 28, 2018, the IRS closed OVDP.

With OVDP coming to an end, what was a willful taxpayer to do if they wanted to get compliant — since Streamlined would not be an option.  Moreover, if a Taxpayer willful, went streamlined, and got caught — they would risk Federal Prosecution.

2018/2019 IRS Expanded “Traditional Voluntary Disclosure (VDP)”

In November of 2018, the IRS expanded the traditional voluntary disclosure program, and it continues to morph. The program allows taxpayers who cannot certify under penalty of perjury that they are non-willful to still submit a voluntary disclosure program.

The IRS updated the practice procedures for VDP, and now requires the Taxpayer to prepare and submit a standard “preclearance letter.”

Under the new version of the program, the penalty scheme varies.  In some cases of the better, and in some cases for the worse.

2020 Voluntary Disclosure Options

Currently, there are the following voluntary disclosure programs available:

• VDP (Voluntary Disclosure Program)
• SDOP (Streamlined Domestic Offshore Procedures)
• SFOP (Streamlined Foreign Offshore Procedures)
• DIIRSP (Delinquent International Information Return Submission Procedures)
• RC (Reasonable Cause)

We Specialize in Streamlined & Offshore Voluntary Disclosure

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.