OVDP Streamlined

Under the 2012 OVDP programs and prior OVDI programs, there was a streamlined procedure allowing a complete waiver of all offshore penalties, but it was only available to non-residents who met certain conditions. This prior Streamlined OVDP program was replaced with the 2014 Streamlined Filing Compliance Procedures. In addition to eliminating some of the stringent conditions for qualifying under the original streamlined program, the 2014 OVDP changes also announced another variation of the streamlined OVDP program: the Streamlined Domestic Offshore Procedures.

Streamlined Domestic Offshore Procedures: An Alternative to 2014 OVDI/OVDP

Under the 2014 OVDI Streamlined procedure, U.S. residents who meet certain requirements have the option of using the Streamlined Domestic Offshore Procedures to address their unreported income and/or undisclosed foreign bank accounts.

Key Highlights:

• Taxpayers simply have to pay any tax due on unreported income from the past three years, plus interest.

• An offshore penalty of 5% of their maximum aggregate balance in unreported foreign accounts over the past six years applies.

• The 5% penalty calculation excludes certain assets, like directly-held offshore real estate.

• Only assets that should have been reported are included in the penalty computation.

Streamlined Domestic Offshore Procedure Qualification Requirements

To qualify under the Streamlined Domestic Offshore Procedure, the following four eligibility requirements must be met:

1. Fail to Meet Non-Residency Requirements for the Foreign Offshore Procedure

If you otherwise qualify for the Streamlined Domestic Offshore Procedures but were a non-resident for any of the past three years, you will qualify instead for the Streamlined Foreign Offshore Procedures, which imposes no offshore penalties.

2. Previously Filed All Required U.S. Tax Returns for Each of the Last Three Years

The relevant years are the three most recent for which filing deadlines have passed. Extended returns count only after the extension deadline (generally October 15th) passes.

3. Failed to Report Income from a Foreign Financial Asset and Pay Tax on That Income

This requirement exists because taxpayers who properly reported all income but failed only to file forms have a different remedial process with no penalties.

4. Failure to Pay Resulted from Non-Willful Conduct

“Non-willful” means conduct stemming from mistake, misunderstanding, inadvertence, or negligence—not from conscious disregard of legal duty.

Streamlined OVDP / OVDI Submission Requirements

The new streamlined OVDP / OVDI program is far simpler and less burdensome than the standard voluntary disclosure program.

Steps for Submission:

1. Prepare Amended Returns

   • Amend returns for the most recent three years.

   • Include all required information returns (Forms 8938, 8621, 926, 5471, 5472, 3520, 3520-A).

   • Write in red ink: “Streamlined Domestic Offshore” on the first page of each amended return.

   • Mail to the designated service center in Atlanta, GA.

2. Include Payment

   • Include a check for the full tax due plus interest.

   • Errors in interest calculation will be adjusted by refund or balance due notice.

3. Certification Statement

   • Certify under penalty of perjury that:

     1. You qualify for the 2014 OVDP Streamlined Domestic Offshore Procedures.

     2. All FBARs have been filed.

     3. Your non-compliance was non-willful.

     4. Your penalty calculations are accurate. (Attach worksheet.)

4. Late Election for Deferred Income (Optional)

   • Submit a statement for late election with relevant tax treaty provisions.

   • If applicable to Canadian RSP accounts, include Form 8891 for each year.

5. 5% Offshore Penalty Payment

   • Include a separate check for the penalty.

6. File Delinquent FBARs

   • File for the past six years online via the FinCen website.

What If You Don’t Agree That You Should Pay the 5% Offshore Penalty?

For many non-willful violators, paying the 5% penalty offers a clean resolution. However, if the penalty seems too high for your situation, other options exist:

• Enter the voluntary disclosure program and later opt-out during the closing agreement phase.

• Plead your case to seek a warning letter instead of penalties.

• Warning letters and penalty waivers often occur in clear non-willful cases.

Note: Taxpayers entering voluntary disclosure on or after July 1, 2014, cannot use the Streamlined Domestic Offshore Procedures. Evaluate your options carefully.

For more insights, see: Qualified Quiet Disclosures: Opting-out of OVDP.

What About Taxpayers Already in the Offshore Voluntary Disclosure Program?

Although the new Streamlined OVDI didn’t officially take effect until July 1, 2014, those who submitted a voluntary disclosure on or before June 30, 2014, may qualify for transitional treatment if they haven’t signed a closing agreement.

Transitional Treatment Requirements:

• File 8 years of amended tax returns and pay any additional tax owed.

• File 8 years of delinquent FBARs.

• Calculate penalties based on the highest balance over 8 years.

Comparison with Streamlined Domestic Offshore Procedures:

• Transitional treatment maintains the 5% penalty but retains the 20% substantial understatement penalty and potential other penalties (failure to file/pay).

• Streamlined program requires only three years of amended returns and imposes no additional penalties beyond the 5% offshore penalty.

• Streamlined participants are not required to sign consents to extend assessment periods; OVDI participants are.

While transitional treatment is less favorable than the Streamlined Procedures, it is still preferable to paying the full 27.5% or other penalties under the 2012 OVDI rules.

Related Resources:

• Ansari Law Firm BBB Business Review

• IRS Tax Articles

• IRS & State

• OVDP Streamline

• I Am Under A Tax Audit