AMERICANS IN CANADA: CAN YOU QUALIFY FOR THE STREAMLINED OVDP?
The New Streamlined Offshore Voluntary Disclosure Program
In an action that many interpret as (partial) recognition of the complexity of the Internal Revenue Code, the Internal Revenue Service (IRS) has created the streamlined OVDP to give low compliance risk taxpayers that are resident outside of the United States (often living in Canada) an opportunity to “come clean” for not filing US tax returns.
If you are an American citizen living in Canada or anywhere else outside the United States, please read more to find out about the streamlined offshore voluntary disclosure program and whether you can benefit from it.
IMPORTANT UPDATE: Major changes to Streamlined OVDP program effective July 1, 2014. Read about them here:
What is the Streamlined OVDP Program?
The Offshore Voluntary Disclosure Initiative (“OVDI) and later the Offshore Voluntary Disclosure Program (“OVDP”) are IRS programs established to incentivize US citizens with undisclosed foreign bank accounts to disclose them to the IRS. To accomplish this feat, the IRS requires that anyone using the voluntary disclosure program must submit prior year returns along with any tax due, massive penalties, and interest. In exchange, the IRS generally will not pursue criminal charges.
So far, the programs have been a success and have helped the IRS to collect more than $4 billion in tax revenue since their implementation. However, while the intention of the program was to target high-net worth families and individuals intentionally hiding assets in banking secrecy jurisdictions such as Switzerland and Luxembourg, it has also ensnared many “innocent” US citizens, specifically those living in Canada, that either did not know of their tax filing obligations and had little (if any) taxes due.
The streamlined OVDP procedures were created to address this problem by helping low compliance risk taxpayers to catch up with their obligations without the massive penalties and interest charged to those using the other programs.
Through the streamlined OVDP procedures, the IRS is willing to waive the hefty failure to file and failure to pay penalties, as well as the substantial FBAR (Foreign Bank Account Reporting) penalties, for qualifying taxpayers in exchange for the following: – Filing delinquent returns, including all forms and schedules for the last 3 years; – Filing delinquent FBARs for the last 6 years; – Remitting all tax due, including interest, with the submission of the returns
In addition, should you be assessed penalties for contributions to a thrift or retirement plan, the IRS might grant forgiveness should you be able to qualify under the streamlined procedures.
Who is Eligible for the Streamlined OVDP?
The “target audience” for the streamlined voluntary disclosure procedures are US citizens and permanent residents that have been residing outside of the United States for a significant period of time, often without knowledge of US filing obligations when living abroad. The taxpayer is likely to be employed, paying taxes in their home country, and owe very little US taxes.
The following points must be met in order to benefit from the streamlined procedures: – Must have lived outside of the United States since 2009; – Must not have filed a tax return during the same period; – Must owe $1,500 or less in tax (excluding penalties and interest) for each of the covered years.
Even though US citizens are taxed on all their worldwide income, a majority of Americans living and working abroad would owe little or no U.S. tax because of the way the foreign earned income exclusion and foreign tax credits work.
Importantly, a key element to eligibility is that the taxpayer must pass a subjective test that classifies them as low compliance risk. Considerations that can impact this classification include having earned US source income, claiming a tax refund, previous or ongoing IRS audits or investigations, and whether the filer has a financial interest in an account or entity located in a third country.
If you don’t think you are eligible for the Streamlined OVDP Program, read about the standard OVDP program
What the new Streamlined OVDP Means?
It is important to have solid knowledge of the streamlined OVDP before attempting to qualify. The streamlined procedures can be beneficial for many people living in Canada, but an inaccurate assessment of whether your situation is “low compliance risk” in the beginning can open you to a host of potential penalties and a requirement to file additional tax returns.
In addition, and perhaps most important, is that the IRS does not waive the right to pursue criminal charges under the streamlined procedures in the same manner as the other programs.
If you think you might qualify for the streamlined OVDP , we highly recommend that to avoid potential complications and even criminal liability resulting from your submission, that you should speak in advance with a qualified tax attorney. Ayar Law is experienced in IRS compliance programs and can give its best efforts to not only ensure that the streamlined option is the best choice, but help guide you through the complex process associated with it. We are located right outside of Detroit, and have helped many US citizens living in Canada navigate their way through the OVDP program and its many variations. Contact us today to speak with an OVDP tax attorney about your case.