The 2015 OVDP Playbook
The 2015 OVDP is essentially the same game but the goalposts have been moved in a big way. FATCA (The Foreign Account Tax Compliance Act) came into effect last July and has been gradually building ahead of steam as it is implemented around the world.
Interested in finding out more about FATCA? You don’t really need to bother. It finds you.
In fact, FATCA itself doesn’t actually require U.S. citizens to do anything. Its hundreds of pages worth of regulatory burdens falls directly on non-U.S. financial institutions who need to “phone home” to the U.S. government about their U.S. citizen clients (if they still have any).
Make the First Move with the 2015 OVDP
You may have already been touched by FATCA in the form of a “thanks but no thanks” from institutions that simply don’t want the compliance liability that a U.S. citizen causes them now.
You may be also be touched (more like roughed up) by FATCA if you have not stayed on top of your annual reporting requirements regarding foreign assets. Finding out about your international financial affairs “the hard way” just got a lot easier. In January the IRS released an “International Data Exchange Service” that looks an awful lot like Google for undisclosed assets.
You can actually do something about that, though. You go to them before they come to you. Sounds simple but it is very, very far from being so.
I’ve been putting clients through the IRS’ Offshore Voluntary Disclosure Program (OVDP) since the original version back in 2009 and while they have been making efforts to simplify it over the years, there are some very complex details to consider, options to weigh, and judgment calls to make. I wrote a detailed article on the matter here.
This article gives an overview of the 5 key points to keep in mind for the OVDP in 2015.
Before we start, though, let’s go through a quick historical overview of the OVDP / OVDI..
Then and Now: 4 Things to Know about the OVDP / OVDI between 2009 – 2015
OVDP or OVDI? What is it in 2015?
The OVD (“Offshore Voluntary Disclosure”) is always the same. Whether it is called a “Program” or “Initiative” doesn’t really make a practical difference. It’s the thought that counts.
The IRS called it a “Program” in 2009, took a year off in 2010, called it an “Initiative” in 2011, and then went back to “Program” in 2012. They’ve stuck with “Program” since 2012 and that’s what we’re working with today in 2015.
Why all the OVDP/ OVDI policy shifts and adjustments prior to 2015?
The main objective of the OVDP / OVDI is to reel in the non-compliant “big fish” who fit the classic profile of a tax evader that politicians love to hate. Crossborder taxation happens to be such a complex subject, though, that the OVDP / OVDI started turning up quite a number of “non-willful” violators a.k.a. innocent bystanders who had made honest mistakes. The policy adjustments are trying to seek out a common ground.
How does the OVDP look now, in 2015?
The OVDP in 2009 and the OVDI in 2011 were one-shot (and relatively unsuccessful) deals.
The OVDP we know today kicked off in 2012 with no time limits or deadlines but the IRS reserved the right to move the goalposts as they saw fit. In other words, changing the rules, conditions, or penalties do not require a whole new program or initiative and they can just stick with this one.
The goalposts did move significantly in favor of non-willful violators in 2014 with the introduction of streamlined OVDP procedures with new, lower penalties set at 5% of amounts held in offshore accounts for domestic residents and even 0% for foreign residents. I did a full article about it here.
(Note that things got better for non-willful violators and a lot worse for willful violators with a 50% penalty on the account balance for the last eight years.)
What are the Streamlined Disclosure OVDP Options for 2015?
There are two types of streamlined OVDP disclosures depending on whether the violator was a resident or non-resident when the filings should have been made. You can see a more detailed overview here and some specifics for residents and non-residents here and here.
That means that today we have the 2014 version (with streamlined disclosure procedure options, if you qualify) of the OVDP originally introduced in 2012. If you don’t qualify for the streamlined procedures you may proceed with the “full” version that has been in effect since 2012 and has a whopping 27.5% penalty.
The 2015 OVDP Gameplan
There are 5 points you need to keep in mind when it comes to the OVDP in 2015:
If you already entered the OVDP before last year
1) Transitional treatment. If you had already entered the OVDP prior to June 30, 2014 and have not yet signed a closing agreement, you may qualify for “transitional treatment.” This is not technically the same as the streamlined procedures but the penalty will be 5% (the same as the streamlined procedures). See more information in my article here.
If you have not already entered the OVDP
2) The “Go Dark” 2015 OVDP opt-out.
In other words, bury your head in the sand and/or try to hide. Don’t do it. It is unlikely to work very much longer. The writing is on the wall.
3) The “Quiet Disclosure,” a 2015 OVDP opt-out.
“Quiet” as in not announced formally under the OVDP. The thing to remember here is that there has been a “parallel universe” of late disclosure revenue procedures in place since before the OVDP / OVDI was introduced in 2009. Under those procedures auditors have the authority to impose harsh penalties on late-filers but have traditionally imposed none at all (provided that the circumstances surrounding the case appeared reasonable).
I wrote all about quiet disclosures in more detail here.
Think of it as “hiding in plain sight.” The risk is that if you get spotted you are, well, in plain sight. You are at the mercy of the auditor, and auditors have recently been instructed to crack down on quiet disclosures. Your odds haven’t been looking too good recently.
4) The 2015 OVDP opt-in.
Just do it. Hopefully you qualify for the streamlined OVDP procedures for 2015. I wrote an article here with more info describing the general requirements that are currently in effect. You can also see more specifics on the streamlined procedures for Americans living abroad or at home.
5) The “Qualified Quiet Disclosure,” a 2015 OVDP opt-in and subsequent opt-out.
“Qualified” as in explained or justified and “quiet” as in formally unannounced under the OVDP. You start by entering the OVDP and then, before the process is complete, you opt-out again, saying that you believe, for certain qualified reasons, that your case belongs in the “parallel universe” of quiet disclosure rules where auditors are known to assess 0% instead of 5% as in the OVDP.
Isn’t that complex and risky? Wouldn’t auditors frown on that? In most cases it is just a question of numbers. If someone has a relatively small amount of money overseas, paying 5% to be over and done with the issue seems like a reasonable idea. If the amount is quite high and 5% is in fact a large figure, it makes sense to roll the dice in the hopes of reducing the penalty. You can see a full write-up I did on the subject here
In Conclusion: What is the Best OVDP route in 2015?
Each case is different. It is highly recommended that you seek the advice of a trained tax lawyer with experience not only in the laws surrounding the 2015 OVDP / OVDI but also how they are enforced in real life.