OVDP closes soon: What is it and why should expats know about it?

If you are an expat that hasn't told the IRS about your foreign holdings, now is the best time to let them know.

Per the IRS, The Offshore Voluntary Disclosure Program (OVDP) will soon be closing on September 28, 2018. The program was specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect to those assets. It shielded them from criminal liability and provided terms for civil tax and penalty obligations.  

While most corporately sponsored expats receive tax consulting and even tax preparation (filing) support, "1 in 5 are unfamiliar the Foreign Account Tax Compliance Act (FATCA)." The FATCA, created in 2010 required all financial institutions and foreign entities to report American-owned assets held abroad. The penalties for not reporting these financial assets are no laughing matter: a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40% penalty on an understatement of tax attributable to non-disclosed assets.

Per a recent Tax Alert from GTN: "The streamlined program has been very useful in the mobility industry for individuals moving to the US who discover, once they attain US tax residency status, that they have reporting requirements they were not aware of. This has also been the case for many foreign nationals who have US reporting requirements due to their attainment of US citizenship through parentage or from being born in the US (even though they may never have lived in the US.)" Checkout their previous newsletter with more detail on OVDP.

"These requirements can carry some life-changing penalties for people," said David McKeegan, co-founder of Expat Tax Services. "If your pension is in the wrong vehicle, the government can take as much as 50% for not reporting it."

It is highly encouraged to take advantage of the OVDP while it is still in effect.

Click here for additional FAQs from the IRS.