On October 16, 2015, the Internal Revenue Service posted a news release (No. 2015-116) touting both the collection of $8 billion from the Offshore Voluntary Disclosure Program (OVDP) and the program’s increasing popularity with non-compliant taxpayers. Indeed, the IRS cites “more than 54,000 disclosures” since OVDP began in 2009. In addition, the new release maintains that “more than 30,000 taxpayers” have utilized the streamlined procedures since eligibility requirements were expanded in June 2014.
However, focusing on collection data and popularity distracts from the underlying tone of the new release –a warning to non-compliant taxpayers. Under the Foreign Account Tax Compliance Act (FATCA), the IRS has begun a new era of data collection and information exchange with other countries. With a growing network of intergovernmental agreements (IGAs) between the United States and such other countries resulting from FATCA cooperation, the IRS and the United States Treasury are becoming better at finding undisclosed foreign bank accounts and assets. Indeed, between IGAs and information obtained pursuant to IRS investigations, “the IRS has conducted thousands of offshore-related civil audits that have produced tens of millions of dollars . . . (and) pursued criminal charges leading to billions of dollars in criminal fines and restitutions” (emphasis added). As such, the IRS is strongly encouraging previously non-compliant taxpayers to participate in disclosure programs – before it is too late – once non-compliance is detected, such non-compliant taxpayers are ineligible to participate in the disclosure programs.
While the IRS has not introduced any groundbreaking developments, it continues to reiterate the urgency for many non-compliant taxpayers. With the implementation of FATCA, more and more foreign financial institutions located in cooperating countries are supplying the United States with data and information that will identify those individuals and corporations. While collecting such data, processing it, and then using it to identify non-compliance will undoubtedly be time-consuming, the IRS and the Department of Justice have both the time and resources to pursue criminal prosecutions and impose civil penalties. In sum, while taxpayers may have flown under the radar, the proverbial day of reckoning is fast upon us.
We believe that the IRS will continue to make significant announcements as to major foreign financial institutions in the upcoming months, thus, narrowing eligibility in the disclosure programs. At some point, we believe that the penalty structures under both OVDP and the streamlined procedures will increase for all remaining non-compliant taxpayers. Accordingly, prudent taxpayers should not delay their decisions to come forward under OVDP or the streamlined procedures.