2014 OVDP PROCEDURE: THE “THREE STEPS”
STEP #1: PRE-CLEARANCE
- REQUEST FOR PRE-CLEARANCE
- IS THE TAXPAYER “CLEAR” TO DISCLOSE?
- I.E., DOES THE IRS ALREADY HAVE TAXPAYER’S NAME?
- FROM THE BANK?
- FROM A TREATY REQUEST?
- FROM A JOHN DOE SUMMONS?
- FROM AN AUDIT OR INVESTIGATION?
- FROM A WHISTLEBLOWER?
- FROM SOMEONE ELSE’S VOLUNTARY DISCLOSURE?
FAX TO IRS CRIMINAL INVESTIGATIONS (CI): (267) 941-1115
NEW TO OVDP: PRE-CLEARANCE FAX TO IRS DISCLOSES INCRIMINATING INFORMATION, E.G., NAME OF BANK.
APPROX. 30-60 DAYS FOR PRE-CLEARANCE RESPONSE FROM IRS
Step #2: Criminal Investigations (CI)
- VOLUNTARY DISCLOSURE LETTER AND ATTACHMENT(S)
- NEW FORMS: IRS FORM 14457, OFFSHORE VOLUNTARY DISCLOSURE LETTER, AND IRS FORM 14454, ATTACHMENT TO OFFSHORE VOLUNTARY DISCLOSURE LETTER.
- TO CRIMINAL INVESTIGATIONS (CI)
- SIGNED BY THE TAXPAYER UNDER PENALTY OF PERJURY
- IN-DEPTH QUESTIONNAIRE: SOURCE OF FUNDS, INTERACTION WITH ACCOUNT, WHO ASSISTED (FACILITATORS), TRANSFERS, ESTIMATE OF ACCOUNT VALUES, TAXABLE INCOME
- EACH ACCOUNT REQUIRES A SEPARATE ATTACHMENT
- DUE 45 DAYS AFTER PRE-CLEARANCE
- 2-3 MONTH RESPONSE TIME FROM CI
- “PRELIMINARY ACCEPTANCE”
STEP #3: THE CIVIL PROCESS
- ORIGINAL FILED TAX RETURNS (LAST EIGHT YEARS)
- AMENDED RETURNS NOW REPORTING PREVIOUSLY UNREPORTED FOREIGN INCOME
- CAPITAL GAINS
- 20% “ACCURACY” PENALTY
- FAILURE TO PAY (FTP), FAILURE TO FILE (FTF), IF APPLICABLE.
- 27.5% (OR 50% FOR ACCOUNTS AT CERTAIN BANKS)
2014 OVDP SUBMISSION PACKAGE
- PENALTY CHECK (27.5% OR 50%)
- SEPARATE CHECKS FOR EACH YEAR: TAX, INTEREST, 20% “ACCURACY” PENALTY (+FTF, FTP, IF APPLICABLE)
- AMENDED TAX RETURNS (1040X) SHOWING FOREIGN INCOME
- COPIES OF ORIGINALLY FILED TAX RETURNS
- COPY OF VOLUNTARY DISCLOSURE LETTER AND ATTACHMENTS TO CRIMINAL INVESTIGATIONS (CI)
- FOREIGN ACCOUNT OR ASSET STATEMENT FOR EACH ACCOUNT/ASSET (FORM 14452)
- FOREIGN BANK STATEMENTS, DOCUMENTS RE: OTHER FOREIGN ASSETS
- FBARS (FINCEN FORM 114)
- WAIVERS OF STATUTE OF LIMITATIONS, FOR FBARS AND IRS FORM 872
- STATEMENT RE: FOREIGN ENTITIES (CORPORATIONS, TRUSTS, ETC.)
- IF DISCLOSING FOREIGN ENTITIES, THE APPLICABLE IRS FORMS (E.G. IRS FORM 3520/A FOR TRUSTS, 5471 FOR CORPORATIONS, ETC.)
- RRSPS? [FAQ 54]
- DOCUMENTS MAY BE SUBMITTED ON CD/USB [FAQ 25.2]
- Documentary submissions are in 2014 OVDP FAQ 25
Voluntary Disclosure - Offshore Voluntary Disclosure Program (OVDP)
You can file a voluntary disclosure, assuming that you receive pre-clearance from IRS to do so. This allows the taxpayer to pay the under reported taxes, a 20% accuracy penalty and an additional 27.5% penalty for failure to file your previous FBAR reports. The values of foreign accounts and other foreign assets are aggregated for each year and the penalty is calculated at 27.5 percent of the highest year‘s aggregate value during the period covered by the voluntary disclosure for applicable years between 2004-2012. The offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset.
The penalty applies to all assets wherever located, directly or indirectly owned by the taxpayer, including financial accounts holding cash, securities or other custodial assets; tangible assets such as real estate or art; and intangible assets such as patents or stock or other interests in a U.S. or foreign business.
If such assets are indirectly held or controlled by the taxpayer through an entity, the penalty may be applied to the taxpayer’s interest in the entity or, if the Service determines that the entity is an alter ego or nominee of the taxpayer, to the taxpayer’s interest in the underlying assets.
Tax noncompliance includes failure to report income from the assets, as well as failure to pay U.S. tax that was due with respect to the funds used to acquire the asset.
The FBAR Penalty applies regardless of the actual amount of underpayment of taxes on any delinquent US form 1040 income tax returns. Generally speaking, IRS examiners, in the program, have no discretion to reduce or waive this penalty.
Increased penalty in certain situations. After August 4, 2014 a 50% penalty applies if either a foreign financial institution (FFI) at which the taxpayer has or had an account, or 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. IRS has published a list of those foreign financial institutions or facilitators. The complete list is as follows:
The complete list of Offshore Banks which are turning over the names of their US Account Holders, who are now subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP) is as of 3/9/16:
1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher 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)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
13. BSI SA (effective 3/30/15)
14. Vadian Bank AG (effective 5/8/15)
15. Finter Bank Zurich AG (effective 5/15/15)
16. Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
17. MediBank AG (effective 5/28/15)
18. LBBW (Schweiz) AG (effective 5/28/15)
19. Scobag Privatbank AG (effective 5/28/15)
20. Rothschild Bank AG (effective 6/3/15)
21. Banca Credinvest SA (effective 6/3/15)
22. Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
23. Berner Kantonalbank AG (effective 6/9/15)
24. Bank Linth LLB AG (effective 6/19/15)
25. Bank Sparhafen Zurich AG (effective 6/19/15)
26. Ersparniskasse Schaffhausen AG (effective 6/26/15)
27. Privatbank Von Graffenried AG (effective 7/2/15)
28. Banque Pasche SA (effective 7/9/15)
29. ARVEST Privatbank AG (effective 7/9/15)
30. Mercantil Bank (Schweiz) AG (effective 7/16/15)
31. Banque Cantonale Neuchateloise (effective 7/16/15)
32. Nidwaldner Kantonalbank (effective 7/16/15)
33. SB Saanen Bank AG (effective 7/23/15)
34. Privatbank Bellerive AG (effective 7/23/15)
35. PKB Privatbank AG (effective 7/30/15)
36. Falcon Private Bank AG (effective 7/30/15)
37. Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
38. Bank EKI Genossenschaft (effective 8/3/15)
39. Privatbank Reichmuth & Co. (effective 8/6/15)
40. Banque Cantonale du Jura SA (effective 8/6/15)
41. Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
42. bank zweiplus ag (effective 8/20/15)
43. Banca dello Stato del Cantone Ticino (effective 8/20/15)
44. Hypothekarbank Lenzburg AG (effective 8/27/15)
45. Schroder & Co. Bank AG (effective 9/3/15)
46. Valiant Bank AG (effective 9/10/15)
47. Bank La Roche & Co AG (effective 9/15/15)
48. Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)
49. St. Galler Kantonalbank AG (effective 9/17/15)
50. E. Gutzwiller & Cie, Banquiers (effective 9/17/15)
51. Migros Bank AG (effective 9/25/15)
52. Graubundner Katonalbank (effective 9/25/15)
53. BHF-Bank (Schweiz) AG (effective 10/1/15)
54. Finacor SA (effective 10/6/15)
55. Schaffhauser Kantonalbank (effective 10/8/15)
56. BBVA Suiza S.A. (effective 10/16/15)
57. Piguet Galland & Cie SA (effective 10/23/15)
58. Luzerner Kantonalbank AG (effective 10/29/15)
59. Habib Bank AG Zurich (effective 10/29/15)
60. Banque Heritage SA (effective 10/29/15)
61. Hyposwiss Private Bank Genève S.A. (effective 10/29/15)
62. Banque Bonhôte & Cie SA (effective 11/3/15)
63. Banque Internationale a Luxembourg (Suisse) SA (effective 11/12/15)
64. Zuger Kantonalbank (effective 11/12/15)
65. Standard Chartered Bank (Switzerland) SA, en liquidation (effective 11/13/15)
66. Maerki Baumann & Co. AG (effective 11/17/15)
67. BNP Paribas (Suisse) SA (effective 11/19/15)
68. KBL (Switzerland) Ltd. (effective 11/19/15)
69. Bank CIC (Switzerland) Ltd. (effective 11/19/15)
70. Privatbank IHAG Zürich AG (effective 11/24/15)
71. Deutsche Bank (Suisse) SA (effective 11/24/15)
72. EFG Bank AG (effective 12/3/15)
73. EFG Bank European Financial Group SA, Geneva (effective 12/3/15)
74. Aargauische Kantonalbank (effective 12/8/15)
75. Cornèr Banca SA (effective 12/10/15)
76. Bank Coop AG (effective 12/10/15)
77. Crédit Agricole (Suisse) SA (effective 12/15/15)
78. Dreyfus Sons & Co Ltd, Banquiers (effective 12/15/15)
79. Baumann & Cie, Banquiers (effective 12/15/15)
80. Bordier & Cie Switzerland (effective 12/17/15)
81. PBZ Verwaltungs AG (effective 12/17/15)
82. PostFinance AG (effective 12/17/15)
83. Edmond de Rothschild (Suisse) SA (effective 12/18/15)
84. Edmond de Rothschild (Lugano) SA (effective 12/18/15)
85. Bank J. Safra Sarasin AG (effective 12/23/15)
86. Coutts & Co Ltd (effective 12/23/15)
87. Gonet & Cie (effective 12/23/15)
88. Banque Cantonal du Valais (effective 12/23/15)
89. Banque Cantonale Vaudoise (effective 12/23/15)
90. Bank Lombard Odier & Co Ltd (effective 12/31/15)
91. DZ Privatbank (Schweiz) AG (effective 12/31/15)
92. Union Bancaire Privée , USP SA (effective 1/6/16)
93. PHZ Privat - und Handelsbank Zürich AG reorganized as Leodan Privatbank AG (effective 1/25/16)
94. Hyposwiss Privatbank AG reorganized as HSZH Verwaltungs AG (effective 1/27/16)
95. Bank Julius Baer & Co., Ltd (effective 2/4/16)
96. Cayman National Securities Ltd. (effective 3/9/16)
97. Cayman National Trust Co. Ltd. (effective 3/9/16)
Of course, the IRS may add names to that list at any time, and whole groups of taxpayers will then be cut-off from OVDP without prior notice.
The same goes for taxpayers who worked with a "facilitator" who helped the taxpayer establish or maintain an offshore arrangement if the facilitator has been publicly identified as being under investigation or as cooperating with a government investigation.
They will still be eligible to enter the OVDP, but they will be subject to a 50% offshore penalty, rather than the existing 27.5 percent penalty.
Of course if the IRS already has a particular taxpayer's name, then that person will not be eligible to enter the OVDP, and could be subject to multiple FBAR penalties.
2014 OVDP: WHAT’S DIFFERENT?
1. TAXPAYER TO DISCLOSE NAME AND CONTACT INFO OF BANK WHERE ACCOUNT IS/WAS HELD, IN THE REQUEST FOR PRE-CLEARANCE.
- YOU PROVIDE SELF-INCRIMINATING INFORMATION INITIALLY, EVEN BEFORE PRECLEARANCE.
2. TAXPAYER TO DISCLOSE IDENTIFYING INFORMATION FOR ALL DOMESTIC AND FOREIGN ENTITIES (CORPORATIONS, PARTNERSHIPS, TRUSTS, FOUNDATIONS) THROUGH WHICH UNDISCLOSED FOREIGN ASSETS ARE HELD.
- YOU PROVIDE SELF-INCRIMINATING INFORMATION INITIALLY, EVEN BEFORE PRECLEARANCE.
- CAN/WILL BE USED BY IRS/DOJ IF PRE-CLEARANCE DENIED
3. INCREASED PENALTIES: 50% (NOT 27.5%) IF ACCOUNT IS AT A FOREIGN FINANCIAL INSTITUTION (FFI) WHERE AN EVENT OCCURS WHICH IS A “PUBLIC DISCLOSURE" (FAQ 7.2. [SEE LIST ABOVE]):
4. WHAT CONSTITUTES “PUBLIC DISCLOSURE”?
- ANNOUNCEMENT BY BANK?
- ARTICLE IN PUBLIC MEDIA (NEWSPAPER, RADIO, ECT.)?
5. PENALTY (50%) APPLIES TO ALL FOREIGN ASSETS DISCLOSED, NOT ONLY TO ACCOUNTS SUBJECT TO FAQ 7.2.
6. IF ONE ACCOUNT IS AT A 50% BANK LISTED ABOVE, AND SECOND ACCOUNT IS AT A BANK NOT ON THE LIST, BOTH ACCOUNTS SUBJECT TO 50% PENALTY.
7. 12.5% AND 5% PENALTIES ARE ELIMINATED
- BUT NOTE STREAMLINED 5%
8. OFFSHORE PENALTY CHECK (27.5% OR 50%) IS NOW DUE WITH THE OVDP SUBMISSION. (IN PREVIOUS OVDP, IT WAS DUE UPON SIGNING THE FORM 906, CLOSING AGREEMENT)
9.NEW VOLUNTARY DISCLOSURE LETTER AND ATTACHMENTS VOLUNTARY DISCLOSURE LETTER, FORM 14457 VOLUNTARY DISCLOSURE ATTACHMENT, FORM 14454
10. NEW PENALTY CALCULATION WORKSHEET
- NEW FORM 14453
11. NEW FORM 14452- FOREIGN ACCOUNT AND ASSET STATEMENT