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2020 Offshore Voluntary Disclosure Options | US International Tax Lawyers

As the new year 2020 begins, it is important for US taxpayers with undisclosed foreign assets to consider their 2020 offshore voluntary disclosure options. Unlike last year, there have not been any drastic changes to the voluntary disclosure options since 2019. In this article, I would like to generally explore the 2020 offshore voluntary disclosure options available to US taxpayers who wish to reduce their IRS penalties by voluntarily resolving their prior US tax noncompliance concerning foreign assets and foreign income.

2020 Offshore Voluntary Disclosure Options: Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures (“SDOP”) is currently the flagship voluntary disclosure option for US taxpayers who reside in the United States. SDOP is a highly beneficial voluntary disclosure option to non-willful taxpayers: it is simple, limited (in terms of the voluntary disclosure period for which tax returns and FBARs must be filed) and mild (in terms of its penalty structure). There are some drawbacks to SDOP, such as the imposition of the Miscellaneous Offshore Penalty on income-tax compliant foreign accounts, but the benefits offered by this option outweigh its deficiencies for most taxpayers.

The main challenge of SDOP is its requirement that a taxpayer certifies under the penalty of perjury that he was non-willful with respect to his prior income tax noncompliance, FBAR noncompliance and noncompliance with any other US international information tax return (such as Form 8938, 3520, 5471, et cetera). This is a huge problem for willful taxpayers and taxpayers who are in the “gray” area between willfulness and non-willfulness. It will be up to your international tax lawyer to make the determination on whether you are able to make this certification.

2020 Offshore Voluntary Disclosure Options: Streamlined Foreign Offshore Procedures

Streamlined Foreign Offshore Procedures (“SFOP”) is very similar to SDOP (in fact, both options were created in 2014), but it is even more beneficial to taxpayers who are able to satisfy SFOP’s eligibility requirements – this is a true amnesty program, because its participants do not pay IRS penalties of any kind, even on income tax due (taxpayers only need to pay the interest on additional tax due). Moreover, SFOP preserves SDOP’s non-invasive and limited scope of voluntary disclosure.

SFOP, however, is available to a much more limited number of US taxpayers who are able to satisfy its eligibility requirements, particularly those related to non-willfulness certification and physical presence outside of the United States. Again, you should contact Sherayzen Law Office to help you determine whether you meet the eligibility requirements of SFOP.

2020 Offshore Voluntary Disclosure Options: Delinquent FBAR Submission Procedures

Delinquent FBAR Submission Procedures (“DFSP”) is another voluntary disclosure option that fully eliminates IRS penalties. This is not a new option; in fact, in one form or another, it has always existed within the IRS procedures. Prior to 2014, it was even written into the OVDP (IRS Offshore Voluntary Disclosure Program) as FAQ#17.

While DFSP is highly beneficial to noncompliant US taxpayers, it is available to even fewer number of taxpayers than those who are eligible for SDOP and SFOP. This is the case due to two factors. First, DFSP has a very narrow scope – it applies only to FBARs. Second, DFSP has extremely strict eligibility requirements; even de minimis income tax noncompliance will deprive a taxpayer of the ability to use this option.

2020 Offshore Voluntary Disclosure Options: Delinquent International Information Return Submission Procedures

Delinquent International Information Return Submission Procedures (“DIIRSP”) has a very similar history to DFSP. In fact, it was “codified” into OVDP rules as FAQ#18. Similarly to DFSP, DIIRSP also offers the possibility of escaping IRS Penalties. DIIRSP has a broader scope than DFSP and applies to international information returns other than FBAR, such as Form 8938, 3520, 5471, 8865, 926, et cetera.

Since it turned into an independent voluntary disclosure option in 2014, DIIRSP’s eligibility requirements became much harsher. US taxpayers are now required to provide a reasonable cause explanation in order to escape IRS penalties under this option. On the other hand, the fact that there may be unreported income associated with international information returns is not an impediment by itself to participation in DIIRSP.

2020 Offshore Voluntary Disclosure Options: Modified IRS Traditional Voluntary Disclosure Program

The traditional IRS Offshore Voluntary Disclosure Program (“TVDP”) has existed for a very long time. However, it faded into a complete obscurity once the IRS opened its first major OVDP option in 2009. The closure of 2014 OVDP in September of 2018 has brought TVDP back to life, but in a modified format.

On November 20, 2018, the IRS has completely revamped the TVDP’s procedural structure and clarified the penalty imposition rules. I am almost tempted to call this new version of TVDP as “2018 TVDP”!

The main benefit of TVDP is that it is now the main voluntary disclosure option for taxpayers who willfully violated their US tax obligations. If you are willful taxpayer, contact Sherayzen Law Office to explore your voluntary disclosure option under the TVDP.

2020 Offshore Voluntary Disclosure Options: Reasonable Cause Disclosure

Since 2014, the popularity of Reasonable Cause disclosure (also known as “Noisy Disclosure”) has declined substantially due to the introduction of SDOP and SFOP. Nevertheless, Reasonable Cause disclosure continues to be a highly important voluntary disclosure alternative to official IRS voluntary disclosure options. In fact, the closure of the 2014 OVDP in September of 2018 has led to some resurgence of Reasonable Cause disclosures.

Reasonable Cause disclosure is based on the actual statutory language; it is not part of any official IRS program. Special care must be taken in using this option, because this is a high-risk, high-reward option. If a taxpayer is able to satisfy his high burden of proof, then, he will be able to avoid IRS penalties. If the IRS audits the Reasonable Cause disclosure and disagrees, this taxpayer may face significant IRS penalties and, potentially, years of IRS litigation.

Contact Sherayzen Law Office for Professional Analysis of Your 2020 Offshore Voluntary Disclosure Options

If you have undisclosed foreign assets, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers from over 70 countries with their voluntary disclosures of foreign assets to the IRS, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Post-OVDI Voluntary Disclosure of Foreign Bank and Financial Accounts

Since the enrollment into the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) closed on September 9, 2011, I have been asked repeatedly by new and prospective clients about their post-OVDI options – i.e. is there a voluntary disclosure option for clients who were not able to enroll into the program by the September 9 deadline?

The answer is – Yes! The IRS traditional voluntary disclosure is now an option for clients who wish to come forward with the voluntary disclosure of their foreign assets and foreign income.

Historic Relationship Between Traditional Voluntary Disclosure and Amnesty Initiatives

In order to understand this option, it is important to understand the relationship between the OVDI and the IRS traditional voluntary disclosure. The traditional voluntary disclosure has existed for a very long time, much earlier than the 2011 OVDI or the 2009 Offshore Voluntary Disclosure Program (“OVDP”) or the 2004 Last Chance Compliance Initiative (“LCCI”) or even the very first 2003 Offshore Voluntary Compliance Initiative (“OVCI”).

The four offshore amnesty programs I just mentioned really represent a special type of the voluntary disclosure program that offers advantages to certain individuals who otherwise would be subject to much higher penalties under the traditional voluntary disclosure program. Every time one of the amnesty initiatives. It is important to emphasize, however, that, as the time goes, the advantages for some categories of taxpayers diminish with each subsequent amnesty initiative (while new categories of taxpayers are given additional incentives).

For example, the OVDI offered more penalty categories for the purposes of the offshore penalty calculation (i.e. FBAR penalties) than OVDP. On the other hand, the way OVDI calculates its penalty made the program less advantageous than OVDP for some categories of taxpayers.

Thus, every time there is an amnesty initiative, the traditional voluntary disclosure takes a back seat and limits itself mostly to the domestic voluntary disclosure.

OVDI and Traditional Voluntary Dislcosure

The same story occurred in 2011. Once the OVDI initiative was announced on February 8, 2011, the traditional voluntary disclosure stopped accepting applications involving offshore accounts. Rather, it limited itself to the voluntary disclosures involving U.S.-source income. After a short transitional period of time, all voluntary disclosures involving foreign income were diverted solely to the OVDI program. The updates of June 2, 2011, clarified many such changes, including the opt-out options.

Post-OVDI Voluntary Disclosure

When the OVDI program closed on September 9, 2011, the IRS Traditional Voluntary Disclosure was reinstated to its full size and started to accept the voluntary disclosure applications. However, it is yet to be seen just how much the procedures of the traditional voluntary disclosure have been impacted by the OVDI. At this point, it is clear that the streamlining of applications and the processing structure that existed under the OVDI are impacting the current procedures of the Traditional Voluntary Disclosure program.

On the other hand, substantively, it is also clear that the pre-OVDI FBAR penalty structure has been reinstated with its differentiation between willful and non-willful violations.

Contact Sherayzen Law Office To Conduct Voluntary Disclosure of Foreign Assets and Foreign Income

If you would like to enroll into the IRS Traditional Voluntary Disclosure program or if you would like to consult an attorney about it, contact Sherayzen Law Office by email ([email protected]) or telephone (612-790-7024). Our firm’s core tax compliance practice is to help people like you to properly conduct voluntary disclosures.

Our international tax firm is experienced in these matters and will guide you through every stage of this complex process, from initial acceptance into the program (pre-clearance) to strategy development, document submission (amendment of tax returns, FBAR drafting, and other documents), aggressive ethical advocacy, and penalty negotiation with the IRS.

The IRS has professionals working on its side and so should you. Contact Sherayzen Law Office NOW for experienced and professional legal representation!

Non-Resident Indians Face High Exposure to the FBAR Reporting Requirements

Non-Resident Indian (NRI) is an Indian citizen who has migrated to another country, a person of Indian origin who is born outside India, or a person of Indian origin who resides permanently outside India. A large number of the NRIs left India as a result of a job offer, for example as a software engineer or an IT consultant.

In spite of leaving their country, most NRIs maintain close ties with their homeland and their families. There is a trend among NRIs to purchase rural and semi-rural non-income producing land in India as a retirement investment. A minority of the NRIs also rents out their homes and apartments.

As a result of all of this personal and economic activity, the NRIs have a constant source of foreign income, which is usually deposited either in an NRO bank account. In order to purchase real property in India or help their families, NRIs often open and maintain NRE accounts as well.

Unfortunately, most of the NRIs residing in the United States are completely unaware that these NRO, NRE, and other bank and financial accounts must be reported on the FBAR (the Report on Foreign Bank and Financial Accounts).

This problem is further exacerbated by the fact that a lot of NRIs think that paying taxes in India means that you do not need to report their Indian income in the United States. As a result of this misunderstanding, a lot of NRIs end up in a situation where they are in violation of both FBAR and income tax requirements.

This is an extremely dangerous combination which may result in the imposition of substantial FBAR penalties as well as additional income tax penalties. In the worse case scenarios, where the IRS finds that the violation is willful, a criminal prosecution may be initiated.

Contact Sherayzen Law Office NOW For FBAR Help

If you an NRI who has not disclosed his bank and financial accounts in India, contact Sherayzen Law Office as soon as possible. Eugene Sherayzen is an experienced voluntary disclosure attorney who will guide you through the complex and dangerous maze of U.S. tax compliance laws and regulations, and help you find the right solution to your FBAR problems.

OVDI Deadline: August 31, 2011

This is a reminder that the  2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on August 31, 2011. The 2011 OVDI was announced on February 8, 2011, and follows the 2009 Offshore Disclosure Program (OVDP). The 2011 initiative offers clear benefits to certain taxpayers who currently face far higher penalties along with potential criminal charges if their hidden offshore assets are detected by the IRS.  Whether your case falls within this category of taxpayers should be determined by an international tax attorney who is familiar with the FBAR penalty structure.

Those taxpayers who have not disclosed their foreign accounts and income are unlikely to sustain this for much longer without violating additional tax reporting requirements.  This is because the new foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore.  Moreover, the IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas, putting the pressure on the foreign financial institutions to report noncompliant taxpayers.

The 2011 OVDI program is designed to bring taxpayers back into compliance with the U.S. tax system.  Under the initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties in certain narrow circumstances.  It is likely that your foreign assets, such as rental real estate the income from which has not been disclosed or which was purchased with illegal funds, will be included in the 25-percent penalty calculation.

Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. All original and amended tax returns must be filed by the deadline.

If a taxpayer is interested in going through the 2011 OVDI, he must hurry.  He has to be accepted into the program before he can take advantage of it.  Therefore, these last few weeks left before the August 31, 2011 deadline is the last opportunity to apply to the program.

Contact Sherayzen Law Office NOW to Discuss Your Voluntary Disclosure Case

If you have undisclosed foreign financial accounts and have not reported your foreign income to the IRS, call Sherayzen Law Office immediately to discuss your case.  Our experienced voluntary disclosure tax firm will determine whether the 2011 OVDI program fits well your particular case, discuss with you the alternatives, and guide you through this highly complex voluntary disclosure process.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!