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IRS OVDP Vs. STREAMLINED

IRS OVDP Vs. STREAMLINED

Tax payers who have failed to disclose offshore accounts and properties on their tax returns received a “pass” in 2009 when the Offshore Voluntary Disclosure Program was introduced. Under this program, individuals who choose to voluntarily disclose their assets from prior years will receive a penalty, but not criminal charges. It is important to file for this program quickly as anyone who is currently under investigation or receives news of an audit will not be eligible for the program. In 2014, some changes were made which included the streamlined filing option.

OVDP

Starting with the OVDP program, individuals who file under this will receive a penalty of up to 50% of their unclaimed assets. There are several forms which need to be filled out including documentation of when the properties/accounts were purchased or opened. To file for OVDP, there are three steps to follow:

  1. File a Pre-Clearance Request. This form will let the tax payer know if they are eligible for the program and what steps are required. Although it is not necessary to do this, it is recommended. As, once a tax payer establishes this request, it alerts the IRS that he is looking to rectify the situation. In turn, this can halt any investigations or audits that are underway.
  2. Submit OVDP Disclosure and Attachments. Form 14457 is used as the disclosure agreement. It will be necessary to have one form for ever financial institution which the tax payer has an account with. Attachments to this document include previously filed tax records, penalty calculation worksheet, signed agreements for tax penalties, and copies of statements from financial institutions. The packet must be complete upon submitting it to the IRS.
  3. Execute Closing Agreement. After the IRS has completed their assessment of your packet, you will be presented with Form 906. This closing agreement will make permanent the decision of the IRS regarding penalties on the tax payer. Tax payers may choose to opt out at this point if they feel the penalty is too high. However, they will need to undergo an official IRS audit to receive a new penalty assessment.

Streamlined Filing

Streamlined filing procedures were announced in 2014. Under this program, individuals can fast track the entire claims process to rectify their standing with the IRS. The program is only available to certain eligible tax payers. Those that are eligible and live outside of the United States may be exempt from any penalties under this new filing process. Those that are eligible and live within the U.S. will be subject to much lower penalty rates – roughly 5% of the foreign asset value.

Whether you want to take the streamlined filing approach or endure the long process of the Overshore Voluntary Disclosure Program, you can always benefit from having a tax lawyer by your side. With the right tools and information, these professionals can help reduce your tax penalty while still helping you accurately disclose what is owed to the Internal Revenue Service.

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