The IRS has provided new guidance on its Offshore Voluntary Disclosure Program (OVDP) (IR-2012-64) and announced a new voluntary compliance program for U.S. taxpayers living overseas (IR-2012-65).

The IRS reopened the OVDP in 2012 after offering earlier versions in 2009 and 2011. The new version is open for an indefinite period until otherwise announced and is designed to enable taxpayers to get current with their U.S. taxes related to undisclosed offshore accounts. (See Tax Flash 2012-02 for more information.)

Participants must file all original and amended tax returns and include payment for back taxes and interest for up to eight years, as well as pay accuracy-related and/or delinquency penalties. The IRS has updated the program's frequently asked questions, with the updates providing new guidance in several areas – including rules that:

  • require taxpayers to submit all required disclosures within 90 days of receiving preliminary acceptance from the IRS Criminal Investigation Division;
  • revoke eligibility for taxpayers who challenge the disclosure of tax information in a foreign court and fail to notify the Department of Justice as required under Section 3506; and
  • provide that eligibility for the program can be terminated for certain taxpayer groups with accounts at specific institutions subject to U.S. government actions.

The IRS also announced a new program for "low compliance risk" U.S. taxpayers living abroad. Generally the program will be available for U.S. taxpayers living abroad, such as dual citizens, if they have simple returns and owe less than $1,500 in tax for any covered year. To participate, taxpayers will need to file delinquent tax returns for the past three years and file Reports of Foreign Bank and Financial Accounts (FBARs) for the past six years. All submissions will be reviewed, and for taxpayers qualifying as low compliance risks, the IRS will not assert penalties or pursue follow-up actions.

Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review and possibly a full examination. Tax, interest and penalties may be imposed based on a review of the submission. The procedure does not provide protection from criminal prosecution if the IRS and the Department of Justice determine the circumstances warrant it.

In addition, the program will allow for taxpayers to resolve missed elections for deferring income from certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). The IRS will make details available before the program launches.

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