The IRS announced on June 18, 2014 substantial changes for those with undisclosed offshore accounts. Realizing that there may be many individuals whose conduct was not willful, the IRS expanded its streamlined reporting procedures so that nonwillful individuals will not have to pay the harsh penalties imposed under the offshore voluntary disclosure program (ovdp). The penalty under this type of disclosure is 5% for U.S. taxpayers, rather than the 27.5% penalty under the ovdp. You must qualify for
this program and then take specific steps to enter into the program. There are also timing rules if you have already begun the ovdp process. Please see a tax professional for details and assistance. If an offshore account holder does not qualify for the streamlined process because of willful behavior, he or she must enter the ovdp to potentially avoid criminal prosecution. In the current iteration of the program, the penalty is 27.5% of the foreign assets. A big change, however, is that if the IRS has in some way made public the fact that they are investigating the financial institution where the account is held or that they are investigating a facilitator that helped the account owner establish the account, the penalty will be 50% of the foreign assets if the investigation is announced prior to the account holder coming forward.
There were many more technical changes to the offshore account reporting rules and the situation is very fluid. If you have an offshore account and have not yet dealt with it, now is the time to come forward to try to avoid the draconian penalties that might apply if you wait. See a tax professional for assistance.