US citizens in foreign countries have until June 15, 2015 to file their federal tax returns with the IRS. (If you reside in the US and missed the deadline, you’ll need to catch up on any filing and paying back taxes as soon as possible.) With tax season still in full swing for Americans living abroad, you can be sure the IRS is paying particularly close attention to foreign income and foreign bank accounts. In addition to filing taxes in time for the June 15 deadline, US taxpayers abroad are urged to report undisclosed foreign assets to the IRS by participating in the Offshore Voluntary Disclosure Program, or OVDP.
Why Consider the Offshore Voluntary Disclosure Program?
If you’re a regular reader of the US Tax Help blog, this isn’t your first time hearing about the OVDP (or its “streamlined” variant). The OVDP — debatably an “amnesty program,” depending on whose definition you use — is a recent IRS initiative designed to help noncompliant taxpayers reduce civil penalties and avoid criminal liability by disclosing unreported foreign income and assets.
Before you dismiss the possibility that your global income could detected by IRS agents, consider the thousands of cases the IRS refers to the Department of Justice for criminal prosecution each year. Not only are the IRS and DOJ scrutinizing noncompliant individuals — they’re also targeting the banks themselves, securing guilty pleas from foreign financial institutions as eminent as Wegelin, the oldest bank in Switzerland. US expats in Switzerland — and indeed, other nations around the globe — are no longer safe from IRS scrutiny.
The bottom line for US citizens abroad is that the IRS and DOJ have become increasingly pervasive in their criminal investigations, and in this climate of heightened vigilance (and prosecution), it simply isn’t worth taking unnecessary legal and financial risks. Therefore, taxpayers are strongly advised to consider enrollment in the OVDP.
Which Forms Are OVDP Participants Required to Submit to the IRS?
In order to complete the program successfully, you’ll need to satisfy the IRS’ numerous OVDP requirements by submitting all pertinent documentation. Depending on your unique financial situation, required OVDP forms may include the following:
- Copies of any relevant income tax returns.
- The Offshore Voluntary Disclosure Letter, which is not valid without a signature.
- Form 14452 (Foreign Account or Asset Statement).
- Form 14453 (Penalty Computation Worksheet).
- Any documentation pertaining to FBAR (Report of Foreign Bank and Financial Accounts). You must file FBAR electronically by using FinCEN Report 114 via FinCEN’s BSA E-Filing System.
- All pertinent financial statements, such as bank account statements.
- Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts).
- Form 3520-A (Annual Information Return of Foreign Trust with a US Owner).
- Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations).
- Form 5472 (Information Return of a 25% Foreign-Owned US Corporation or a
Foreign Corporation Engaged in a US Trade or Business).
- Form 926 (Return by a US Transferor of Property to a Foreign Corporation).
- Form 8865 (Return of US Persons with Respect to Certain Foreign Partnerships).
- Form 8938 (Statement of Specified Foreign Financial Assets).
If you plan to submit any of your forms in a digital format, such as with a CD or USB drive, you must follow special IRS submission procedures. Notably, these types of submissions will be accepted by the IRS only via “professional firms with established record retention policies.”
If you are an RRSP account holder, you will additionally need to provide the following:
- A formal request for an extension to delay or defer income tax.
- Form 8891 (US Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans).
- A signed statement detailing the background circumstances leading up to your submission. Be advised that lying on this statement can expose you to criminal charges related to perjury.
The specific form submission requirements will vary from person to person. Your CPA can help you understand exactly which forms and statements you must submit to the IRS.
One final word of caution: you cannot participate in the OVDP if you are already under investigation by the IRS. Therefore, it is imperative that you contact an experienced CPA for tax assistance as soon as possible. If you wait for too long, you could lose your disclosure opportunity altogether — meaning you will be forced to face the full penalties without any form of relief.
It’s understandable to feel nervous about confronting the IRS, but prolonged procrastination will simply make your situation worse. Rather than gambling on a game of perpetual tax avoidance, you should consider taking proactive measures to limit your financial and criminal liability. Don’t let procrastination or anxiety about facing the IRS deprive you of the legal means to protect yourself from serious consequences. To set up a free, completely confidential consultation, call Ted Kleinman of US Tax Help right away at (800) 810-9312.