Offshore Voluntary Disclosure Program (OVDP)

For US expats with undisclosed foreign financial assets, it’s essential to understand your reporting obligations to the IRS. Reporting late or not at all can come with severe penalties — sometimes even criminal prosecution. While the IRS’s Offshore Voluntary Disclosure Program (OVDP) officially ended in 2018, the IRS provides several other pathways to voluntarily reporting late taxes and foreign financial assets.

What Was the OVDP?

The OVDP was an IRS initiative allowing US taxpayers to voluntarily disclose unreported offshore accounts and income to avoid penalties and criminal prosecution. Due to declining participation, the IRS closed the OVDP in 2018. However, the IRS now offers several new programs to fill the gaps.

Difference Between Willful and Non-Willful Compliance

When dealing with IRS offshore compliance issues, you should be aware of two distinctions: non-willful compliance and willful compliance.

Let’s break it down:

• Non-Willful Compliance is defined by a failure to comply with IRS requirements that were unintentional. This can be due to negligence, inadvertence, or a good-faith misunderstanding of the law. For instance, if you weren’t aware of FBAR or Form 8938 filing requirements. Or if you moved back to the US and weren’t aware, you still needed to report any foreign financial assets.
• Willful Compliance means you were either aware or should have been aware of your IRS obligations and chose to ignore them, which is against the law. Examples include moving money to avoid detection, ignoring IRS correspondence or FBAR instructions, or signing your tax return claiming you had no foreign financial accounts or assets.

Reporting Foreign Financial Assets

US citizens and Green Card holders are legally required to report worldwide income and foreign financial assets to the IRS.

This includes:

• Federal Bank Account Report (FBAR): If you had $10,000 or more combined from all foreign financial accounts at any time during the year, you must file FinCEN Form 114. US Expats receive an automatic filing deadline of October 15th.
• Foreign Account Tax Compliance Act (FATCA): Expats must file Form 8938 along with their annual tax return if certain foreign financial assets rise above a monetary threshold. The threshold is $200k for those filing single, $400k if married filing jointly.
• Foreign-Earned Income: All foreign income must be reported to the IRS, even if you don’t owe.

It’s essential to accurately report any foreign income or financial assets on time. Failure to do so can result in severe penalties, fines, and potentially criminal prosecution — even if your failure to report was unintentional. But what should you do if you must report assets past the tax deadline or even years later?

Current Disclosure Options

Since the IRS ended the Offshore Voluntary Disclosure Program, US expats are now able to voluntarily report foreign financial assets through alternative methods, depending on their circumstances:

1. IRS Voluntary Disclosure Practice (VDP): If you have willfully failed to comply with tax or tax-related obligations, submitting a voluntary disclosure is the best way to avoid criminal prosecution. While VPD may allow taxpayers to avoid criminal prosecution, it does not guarantee immunity from any civil penalties or accrued interest.
2. Streamlined Filing Compliance Procedures: These procedures are designed for non-willful taxpayers. This program allows you to file up to three years of amended returns and six years of FBARs. Taxpayers are not liable for failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties. There are programs for both Foreign and Domestic Taxpayers. However, Domestic taxpayers will face a 5% miscellaneous penalty instead of the FBAR penalties.
3. Delinquent FBAR or FATCA Submission Procedures: Intended for taxpayers who don’t owe additional tax but failed to file an FBAR and/or FATCA. The IRS will accept late submissions if there is reasonable cause for the filing delay.

What to Do If You Need to Report

If you have either willfully or non-willfully failed to report any foreign financial assets to the IRS, you should do so as soon as possible using the applicable procedures above. The FATCA was created to combat offshore tax evasion and money laundering. So the IRS aggressively pursues US taxpayers who fail to comply with foreign disclosure laws, even accidentally.

Need help figuring out the best game plan for reporting assets to the IRS? Our qualified Tax Professionals at MyExpatTaxes can look at your situation. They can assist you in filing overdue paperwork to satisfy any outstanding balances and remain in compliance moving forward. Sign up for a free account, answer some questions, and determine if you qualify for the streamlined filing compliance procedures.

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