Should I file a Streamlined Submission or use the Full OVDP?
by: Anthony Parent
Too many people, realizing they have a problem with issing FBARs, Form 8938 and income overseas panic. They go to irs.gov and become convinced that they need to enter into the full Offshore Voluntary Disclosure Program (OVDP) --- or else. The problem is that once you go full OVDP, you can't go back, even if the Streamlined program was the most appropriate choice. In this article we will add some perspective on who should use the full OVDP and those who should use the Streamlined program.
Streamlined Filing vs. Full OVDP: The "Full" Offshore Voluntary Disclosure Program reduces criminal exposure
Are you at actual risk of criminal prosecution for tax evasion? Is there evidence that you intentionally hid assets even though you knew better AND the potential penalties could ruin you? Yes to either one of these questions would indicate you should really be looking into the Full OVDP.
The Offshore Voluntary Disclosure Program (OVDP) is an opportunity for people with income from offshore accounts to get into compliance on their tax returns. If they volunteer the information there may still be penalties, but the consequences are much less than if they continue to fail to report. Failing to report means there are much higher penalties and the risk of criminal prosecution. If you have many years of unfiled returns with high amounts of tax due, the OVDP might be the correct option for you.
Streamlined Filing vs. Full OVDP: The Streamlined procedures are for those with little criminal exposure
The pre-2014 Streamlined rules were onerous and confusing. The changs that occoured in June of 2014 opened the program open to most taxpayers who made anyhing between an innocent mistake and a negligent mistake. The most important disqualifying factor is if you did something intentional to hide or conceal income or assets.
The new rules impose a 5% penalty of year-end asset balance for filers who live in the US. There is a 0% penalty for those living overseas.
Streamlined Filing vs. Full OVDP: High risk factor test eliminated
Pre-2014, the IRS had a convoluted test for streamlined qualification. If someone was a "high risk" for an audit, then that would make them innappropriate their participation in the Streamlined program.
But who is at "high risk" for an audit? As tax practioners we have general ideas. But the truth is we know there are billion dollar businesses that haven't been audited in years, yet have large international transactions. Meanwhile, we know of "minnows" who are audited on rather small amounts.
The IRS practices and secrcy about audit triggers made the "high risk" test obsolete upon publication.
Luckily the new Streamlined rules got rid of this confusing, highly restricitve test.
Getting a professional opinion on Streamlined Filing, Full OVDP, or maybe nothing at all
If you're unsure of what route to take, contact us. As the leading offshore disclosure firm in the country, we can certainly help.
This article was originally published September 2013. It has been edited extensively to reflect the 2014 Streamlined Offshore Disclosure program changes. And was last updatd September 14, 2017.