United States: IRS Announces Changes To The Offshore Voluntary Disclosure Program

As you may have read, the Internal Revenue Service ("IRS") recently announced changes to its offshore voluntary disclosure programs and announced new options for taxpayers to come into compliance with their U.S. tax obligations.

This alert summarizes some of the significant modifications made to the program and summarizes the new, expanded Streamlined Filing Compliance Procedures Program, which is now available for taxpayers who previously filed U.S. tax returns and for taxpayers who reside in the U.S. (as long as the other eligibility requirements are satisfied).

I. Changes to the Offshore Voluntary Disclosure Program (the "offshore program" or "OVDP")

In many respects, the offshore program remains the same – generally, taxpayers who participate in the program must submit, with respect to the prior eight years, amended or delinquent tax returns, applicable information returns and the Report of Foreign Bank and Financial Accounts (the "FBAR") and submit payment of tax, interest, applicable tax return penalties and the offshore penalty (which is now either 27.5% or 50%, as noted below). As in the 2012 OVDP, the offshore penalty is based on highest aggregate value of the taxpayer's undisclosed foreign accounts and assets.

In exchange for coming forward under the offshore program, the IRS will not recommend criminal prosecution to the U.S. Department of Justice for any issue relating to tax noncompliance or to the failure to file FBARs and will not assess the penalties that could otherwise be assessed in a standard audit.

The recent modifications made to the program, effective July 1, 2014, include the following:

  • New 50% offshore penalty.

    • Beginning on August 4, 2014, a taxpayer will be subject to a 50% offshore penalty (rather than the 27.5% offshore penalty) if prior to the taxpayer's submission of the "pre-clearance letter" either (i) a foreign financial institution at which the taxpayer has or had an account or (ii) a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.
    • The IRS has published a list of foreign financial institutions or facilitators meeting the criteria described above. See the link at the bottom of this alert for the most up-to-date list. The current list (which is subject to change) is copied immediately below. Note that the list is not the same as the 14 "category 1" banks under criminal investigation by the U.S. Department of Justice.

      1. UBS AG;
      2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.;
      3. Wegelin & Co.;
      4. Liechtensteinische Landesbank AG;
      5. Zürcher Kantonalbank;
      6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG;
      7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates;
      8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.;
      9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India); and
      10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates.
    • Although the current IRS list contains only the institutions noted above, the list may expand significantly in the coming weeks; thus, we would expect that the August 4th deadline will be a key date for taxpayers with accounts at many Swiss institutions. Taxpayers who wish to participate in the offshore program and who hold undisclosed foreign financial accounts at any institutions under criminal investigation should consider submitting pre-clearance letters prior to August 4th, 2014. In addition, taxpayers should closely monitor the IRS list for any changes.
  • Elimination of reduced offshore penalties. The 5% and 12.5% offshore penalties, which were available for certain taxpayers in 2012 OVDP, have been eliminated in light of the new, expanded Streamlined Program (discussed below).
  • Additional information requested in "pre-clearance" letter. In addition to identifying information about the taxpayer and an executed power of attorney, taxpayers must also submit identifying information about the foreign financial institutions where the taxpayer held an undisclosed foreign account and identifying information about the foreign and domestic entities through which the taxpayer held the undisclosed OVDP assets.
  • Account statements and payment of offshore penalty. All taxpayers now must submit all account statements for the undisclosed foreign account(s) and must submit payment of the offshore penalty at the time of the application.
  • Electronic submission of some documents. Taxpayers may submit voluminous documents that do not require original taxpayer signatures on a compact disc or a USB removable storage device (flash drive). See the links at the end of this alert for more information about the offshore program.

II. Expanded Streamlined Filing Compliance Procedures ("Streamlined Program")

A. In general

Generally, the new Streamlined Program is available for taxpayers who certify that their failure to report foreign financial assets and pay all tax due with respect to those assets did not result from willful conduct on their part. Unlike the OVDP, the Streamlined Program does not provide any protection from criminal prosecution.

The key changes made to the Streamlined Program are the following:

  • U.S. taxpayers residing in the U.S. are now eligible.
  • U.S. taxpayers who previously filed U.S. tax returns are now eligible.
  • The $1,500 tax threshold has been eliminated. Under the prior program, a taxpayer who owed more than $1,500 of tax during any of the three prior tax years was not eligible for the program.
  • The "risk assessment" process and Streamlined questionnaire have been eliminated. As noted below, an eligible taxpayer now must submit a certification where he or she certifies that non-compliance was not willful.

The expansion of the Streamlined Program to include a wider base of taxpayers – and the new requirement that participating taxpayers must certify that their non-compliance was not willful – suggests that the IRS views the Streamlined Program as the mechanism that such taxpayers should use to come into compliance and pay little or no penalties. It seems likely that if an eligible taxpayer decides not to take advantage of the program and instead submits a "quiet disclosure" that is subsequently audited, the IRS will be less sympathetic to the taxpayer and less willing to abate FBAR penalties during the audit due to "reasonable cause."

To participate in the program, eligible taxpayers must submit (among other things) delinquent or amended tax returns for the previous three years, FBARs for the previous six years, a certification that the taxpayer's non-compliance was not willful and payment of tax, interest and (for taxpayers residing inside the United States) the 5% offshore penalty. Taxpayers must send all the submission materials in paper form to a special IRS office in Austin, Texas. All returns submitted through the program must have a valid Taxpayer Identification Number ("TIN"). See link at the end of this alert for more details about the program.

B. Taxpayers residing outside the U.S.

Other key features of the Streamlined Program with respect to taxpayers residing outside the U.S. include the following:

  • No offshore penalty. Eligible taxpayers who reside outside the U.S. and participate in the Streamlined Program are not required to pay any offshore penalty.
  • Taxpayers must have a TIN. As noted above, all returns submitted under the Streamlined Program must include a valid TIN (generally, a social security number or, for taxpayers who are not eligible for a social security number, an Individual Taxpayer Identification Number ("ITIN")). This requirement will be particularly important for taxpayers living outside the U.S. Taxpayers who must apply for an ITIN may submit an ITIN application (IRS Form W-7) with their submission to the Streamlined Program.

C. Taxpayers residing inside the U.S.

Other key features of the Streamlined Program with respect to taxpayers residing inside the U.S. include the following:

  • 5% offshore penalty. Eligible taxpayers who reside inside the U.S. and participate in the Streamlined Program are required to pay a 5% offshore penalty.
  • Payment of penalty. Eligible taxpayers must pay the 5% penalty at the time that the taxpayer submits its other submission materials (e.g., tax returns, FBARs, etc.).

III. Delinquent FBAR and/or international information return submission procedures

The IRS has maintained a procedure for certain taxpayers to file delinquent FBARs or international information returns (such as Form 5471 and Form 3520) without participating in OVDP or the Streamlined Program. The procedure is available only for taxpayers who do not need to file delinquent or amended tax returns to report and pay additional tax and who meet certain other requirements. See the links at the end of this alert for more information about the procedures.

IV. Transition Procedures

Generally, taxpayers who are currently participating in an earlier offshore voluntary disclosure program may remain in the program and still take advantage of the new penalty structure of the Streamlined Program. To receive transitional treatment, a taxpayer must submit the non-willful certification (described above) and must otherwise be eligible for the Streamlined Program. The IRS has provided guidance on how a taxpayer applies for transitional treatment. See the link at the end of this alert.

V. Links

The IRS news release regarding the changes to the offshore program and the new, expanded Streamlined Program is available here: http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance

A summary of the options available for U.S. taxpayers with undisclosed foreign financial assets is available here: http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S--Taxpayers-with-Undisclosed-Foreign-Financial-Assets

A summary of the new, expanded Streamlined Filing Compliance Procedures is available here: http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

The updated 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions is available here: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised

The IRS list of the Foreign Financial Institutions or Facilitators that meet the criteria for the new 50% penalty is available here: http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators

A description of the Delinquent FBAR Submission Procedures is available here: http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures

A description of the Delinquent International Information Return Submission Procedures is available here: http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures

The frequently asked questions for the transition rules is available here: http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions