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Former users of US offshore disclosure programme now at risk of follow-up examinations

Thursday, 1 August, 2019

US taxpayers who have formerly used the Offshore Voluntary Disclosure Program (OVDP) will soon receive letters warning them of possible audits or examinations to check their continued compliance with foreign income and asset reporting requirements.

The letters are part of a new compliance initiative launched by the Internal Revenue Service, which operated the OVDP until its closure last September. Tens of thousands of taxpayers participated in the programme during its ten years of operation. The OVDI ‘streamlined procedure’, introduced in 2014 to encourage disclosures of unintended offshore non-compliance, remains in place for the time being.

Now the IRS intends to find taxpayers who used OVDP, but have since fallen out of compliance, and will use its audit-based tools in order to bring them back into compliance.

The letters are likely to be signed by John Cardone, the IRS’ director of Withholding and International Individual Compliance. Though initially taking a ‘soft’ stance, they still pose the risk to US taxpayers that, once an examination begins, criminal charges could follow, says law firm Dentons.

‘The OVDP was for those taxpayers whose failure to file the proper asset disclosures or file tax returns and pay taxes owed may have been wilful’, say Peter Anthony and Jeffry Erney of Dentons. ‘If a taxpayer came forward before, acknowledged their duties to pay taxes, and reported their foreign-held assets and then stopped doing so, it may suggest that the post-disclosure non-compliance was the result of some sort of wilful intent to evade taxes or reporting obligations. This is particularly so since the taxpayer, by the mere act of making the disclosure, would have been aware of his or her obligation to report foreign assets and income.’

A second compliance programme just launched by the IRS is aimed at US citizens and long-term residents who expatriated after June 2008. These individuals are also about to receive ‘soft letters’ and other methods of ‘outreach’ followed by possible examinations, said Cardone. Furthermore, ‘high income non-filers’ worldwide are to be targeted for non-compliance through an ‘examination treatment stream’, said the IRS.

Sources