Streamlined OVDP Expanded To Resident US Taxpayers

On June 18, 2014, the IRS announced that it will permit resident US taxpayers to participate in its streamline OVDP filing compliance program. Taxpayers currently participating in OVDP who meet certain eligibility requirements for the expanded Streamline Filing Compliance Procedures will benefit from a more favorable penalty structure under the Streamline Program - a 5 percent offshore penalty, rather than the current penalty of 27.5 percent.

In June 2012, effective September 1, 2012, the IRS announced the streamlined program ("Program"), which was limited to US taxpayers living abroad. Eligibility was limited to non-resident non-filer taxpayers who could demonstrate a low level of compliance risk and who did not owe more than $1,500 of tax for each of the three years covered by the Program. Resident US taxpayers were not eligible for the Program. Non-resident US taxpayers who utilized the Program were required to file delinquent tax returns for the past three years and to file delinquent FBARs for the past six years. To be eligible, the non-resident US taxpayer must have resided outside the US since January 1, 2009 and who did not file a US tax return during the same period, and who presented a low level of compliance risk. Low risk was predicated on simple returns with little or no US tax due. The IRS considered risk to be high if, in part, (i) the taxpayer demonstrated material activity in the United States; (ii) the taxpayer was under audit or investigation by the IRS, or (iii) if the taxpayer had US source income, or any indication of sophisticated US tax planning or avoidance.

For taxpayers who presented low compliance risk, the IRS agreed to expedite the review and no penalties were asserted. Non-resident US taxpayers who sought to file amended tax returns were not accepted into the program. Notably, the streamlined program did not provide protection from criminal prosecution if the IRS and the DOJ determined that the taxpayer's particular circumstances warrant such prosecution.

Under the IRS's recent announcement, US resident taxpayers living in the United States who qualify may apply to the streamlined program rather than the traditional Offshore Voluntary Disclosure Program ("OVDP"). The Program's expansion also includes changes, which includes eliminating the cap on outstanding taxes owned (formerly $1,500 or less unpaid each year), doing away with the risk questionnaire, and adding a requirement that participants certify that...