Understanding the Basics of OVDP 2012

The IRS started an open-ended Offshore Voluntary Disclosure Program (OVDP) back in January 2012 and may end it at any given time in the future. The IRS is providing individuals with undisclosed income from overseas accounts a chance to get current with their tax returns. The 2012 OVDP comes with a higher penalty rate than any other programs but provides benefits to encourage taxpayers to disclose foreign accounts instead of risk detection by the IRS and probable criminal prosecution.

Objective of OVDP

The objective of OVDP 2012 is the same as 2009 and 2011 i.e. to bring those taxpayers who have utilized undisclosed foreign accounts and foreign entities to evade taxes into compliance with the U.S tax laws.

Reasons to make a Voluntary disclosure

Taxpayers having undisclosed foreign incomes must make a voluntary disclosure as it helps them to stay compliant, avert substantial civil penalties and eradicate the chances of criminal prosecution and other penalties. An overseas voluntary disclosure also offers the scope to estimate with a logical degree of certainty, the total expense of resolving all overseas tax concerns. Today the IRS is proactively involved in searching out individuals who have undisclosed foreign accounts and the information is available to the IRS under tax treaties.

In order to aid the situation tax planning agencies today offer taxpayers with a comprehensive insight into the tax codes that is applicable to resident individuals in the U.S comprising US Citizens and Green Card Holders. It also helps the taxpayers and other individuals with the following:

• Complete compliance
• Consultation and impact analysis
• Planning and analysis to minimize FBAR Penalty
• AMT Strategies
• Foreign Tax Credit
• A review of 2009, and 2010 OVDI cases
• Mutual Fund or PFIC computations
• Form preparations that are required to take part in the OVDP program
• Preparation associated with Tax Amendments and Delinquent FBAR
  

United States residents, citizens and certain other individuals need to annually report their direct or indirect financial interest in or signature authority or any other authority that can be compared to signature authority over a financial account that a financial institution maintains located in a foreign country, in case in a calendar year the total value of all the foreign accounts surpass $10,000 at any time during the year. Typically, the civil penalty for willingly failing FBAR reporting can be as high as $100,000 or 50 percent of the total balance of the foreign account per violation.

Resolve Tax Issues with Overseas Voluntary Disclosure Programs

Tax relief programs are meant to help the public servant, business enterprises and every working individual pay their taxes  to the government without fail.  Taxpayers irrespective of them being an individual or a business enterprise,  in their busy schedule fail to follow  according to the norms of filing their tax returns. The income tax departments have designed and developed various amnesty and  voluntary disclosure programs allow these tax defaulters  to come forward to pay their taxes in full.

Effective tax planning on the part of the of the taxpayer will help them avoid the penalties that come with  delayed filing of taxes .  Today's  globalized  work environment has led to a large number of distantly distributed and offshore teams. With such a  mobile workspace, it becomes quite easy for individuals to avoid tax payments. However, Internal Revenue Service and U.S. Government organizations have  engaged themselves through various practices to  bring the taxpayer with  undisclosed foreign bank accounts meet the  tax regulations in compliance with the U.S requirements. This is so because under the U.S. Department of Treasury and FBAR policies, any  citizen of the United States  needs to file an annual FBAR if he has any  financial account that is situated outside U.S or the value of the account surpasses $10,000 during the financial year.

The Overseas Voluntary Disclosure Program developed by the IRS is meant to  assist people  who have unintentionally or intentionally failed to pay and report the taxes on their foreign income and instead tend to cancel their offshore accounts. With  less penalty added,  this program aims to help those individuals or business enterprises to  willingly admit their missing tax dues and report voluntary disclosures.  Similar   IRS amnesty programs implemented earlier helped the government generate more than $4.4 billion.

In the era of globalization, the US IRS tax code requires every US citizen irrespective of presently residing or being a non-resident to declare their global income,  failure of which may lead to penalties. The penalties however depend on the tax evasion activities. However, the OVDP penalty framework  for the present year requires defaulters  too

Pay a penalty up to the maximum of 27.5% of the highest aggregate balance in any undisclosed  foreign accounts for  eight full tax years prior to the disclosure

File all tax returns including  payment of  back-taxes and interest for up to eight years, as well as any penalties incurred.

Though effective  tax planning by efficient service providers and tax professionals will  help the tax payers, the defaulters who file their tax returns under the Overseas voluntary disclosure Program  are also benefited. The voluntary disclosure provides them total compliance with US tax laws, analysis and planning to reduce FBAR penalty,  AMT strategies and foreign tax credit besides other benefits.

Understanding Foreign Bank and Financial Account Report (FBAR)

With the governments acting tough, the tax evaders look at different means to evade taxes. One such way is to maintain foreign bank account/accounts. Such a move helps people to hide income generated or maintained abroad. However, today the federal government has made it mandatory for every U.S. citizen or resident and every entity (organized under U.S. law) to file foreign bank and financial accounts report with the U.S. Treasury annually.

Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country must file FBAR. IN FBAR, there are certain terms that need to be understood clearly in order to avoid confusion. Hence, given below is a glossary of such terms to understand FBAR clearly.

FBAR

Foreign Bank and Financial Account Report (in short FBAR) is a form that IRS requires taxpayers to file to comply with the requirements of reporting Foreign Bank and Financial Accounts to tax authorities in the United States.

United States Person

A United States person is a citizen or resident of the United States, a domestic partnership, a domestic corporation or a domestic estate or trust.

Foreign country

A “foreign country” includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Financial Account

A “financial account” includes any bank, securities, securities derivatives, or other financial instruments accounts. The term includes any savings, demand, checking, deposit, or any other account maintained with a financial institution. Financial account also generally includes any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

Foreign Financial Account

Any account that includes checking, savings, demand, brokerage, securities accounts, or other accounts maintained with a financial institution or other institution or person performing the services of a financial institution that is physically located outside of the United States is a foreign financial account.

Like these, several other terms are there that need to be properly comprehended to understand the importance and requirements of FBAR.