On June 18, 2014, the IRS announced two major changes to its Offshore Voluntary Compliance Programs, which offer taxpayers with undisclosed income from offshore accounts an opportunity to correct their tax reporting. A Streamlined Procedure is now offered to taxpayers residing inside and outside of the U.S. if their failure to report was non-willful. The Offshore Voluntary Disclosure penalty on accounts in foreign banks and financial institutions under criminal investigation is now almost double the usual penalty.
The Streamlined Procedure is now available to both “non-resident” and “resident” (as defined specially for this purpose) U.S. taxpayers who certify under penalties of perjury that their failure to report income, pay tax, and submit required information returns was non-willful. Non-residents will pay no penalties; a penalty of 5% of the highest aggregate balance or value of foreign financial assets will apply to residents. Unlike Offshore Voluntary Disclosure Programs, the Streamlined Program does not provide protection against criminal prosecution.
Taxpayers who are currently participating in an Offshore Voluntary Disclosure Program or who apply prior to July 1, 2014, and who otherwise meet the Streamlined Procedure’s eligibility requirements, may request the IRS to apply the Streamlined Procedure’s reduced or eliminated offshore penalty to them. If the IRS approves a request, all other terms of the Offshore Voluntary Disclosure Program will continue to apply.
The Offshore Voluntary Disclosure Program remains largely the same for most taxpayers. However, the offshore penalty, 27.5%, will increase to 50% if it becomes public that a financial institution in which the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice. The 50% penalty will take effect with respect to financial institutions and facilitators who are specifically identified by the Department of Justice on or after August 4, 2014.
The current list of such financial institutions and facilitators is:
- UBS AG
- Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
- Wegelin & Co.
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
- CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
- Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
- The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
- The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates