The Internal Revenue Service announced this week that it will close the 2014 Offshore Voluntary Disclosure Program on Sept. 28.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” the agency’s acting commissioner, David Kautter, said in a statement. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
The IRS said it would continue to use other methods to combat offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution.
The IRS said a separate program, the Streamlined Filing Compliance Procedures, would remain in place and available to eligible taxpayers, though it too may end at some point.
This program, which is for taxpayers who might not have been aware of their filing obligations, has helped some 65,000 taxpayers come into compliance, the IRS said.
Shannon Retzke Smith, a partner in the Withers Bergman law firm, said in a telephone interview that the self-reporting OVDP is a low-cost program for the government, as the offending taxpayer conducts a self-audit and computes the penalty. The government’s more hands-on tools will be a “waste of taxpayer money.”
Smith noted that the closure of the voluntary disclosure program will leave two groups of taxpayers who will not qualify for the streamlined program out in the cold. One group is those who criminally stashed money overseas, but now want to come clean and pay the IRS what they owe.
The other group comprises taxpayers who want closure, but may not qualify or may be willing to take the risk inherent in the streamlined program. For example, someone may claim that he or she was not aware of the requirement to disclose foreign accounts and who indicated on Schedule B incorrectly not owning a foreign account — perhaps having failed to review a tax return before filing. But how to prove this non-willfulness?
According to Smith, history shows that when the government closes a program, it often has to put back some provisions to account for unintended consequences of the closure, and this may come to pass after the disclosure program ends.
Otherwise, she said, regional disparities tend to crop up in the absence of a set of rules to be applied, as authorities in different areas of the country administer a penalty they think is fair to the taxpayer in front of them, not taking into account that an agent in a different office may have come to a very different conclusion on exactly the same facts.
The IRS said in its announcement that more than 56,000 taxpayers have used one of the programs to comply voluntarily since the OVDP’s initial launch in 2009, and have paid a total of $11.1 billion in back taxes, interest and penalties.
The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.
The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.
According to the announcement, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities since 2009, 671 of whom were indicted on international criminal tax violations.
“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” Don Fort, CI’s chief, said in the statement. “Stopping offshore tax noncompliance remains a top priority of the IRS.”