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New U.S. Voluntary Disclosure Program for Americans Abroad


Regular readers of my blogs have long heard me arguing that the current voluntary disclosure programs for Americans abroad are overly complex and can involve penalties that are far in excess of what is reasonable.


The problem is that in recent years the U.S. government has been going after Americans - usually living in the United States - who are hiding money and income offshore. They have been doing so by pressuring foreign (non-U.S.) banks to cough up their American depositors.


The thing is, most of those American depositors are U.S. citizens living in the countries where those banks are located. Most of these people haven’t filed U.S. returns, but in many cases the reason is they didn’t know they had to, plus they rarely have much U.S. tax to pay. These people are not the targets - they are collateral damage in the pursuit of tax cheaters.


Finally, the IRS seems to be getting the message. John Koskinen, IRS Commissioner, announced on June 3, 2014, that the IRS will be bringing in a new program. He said: “We are considering whether our voluntary programs have been too focused on those wilfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-wilful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were wilfully hiding their investments overseas.” 

This new initiative would be an expansion of the Offshore Voluntary Disclosure Program (OVDP), which launched in 2009 and was extended in 2011 and 2012, Koskinen said. “We've modified the program a couple of times already and so this will be an extension of it, but we won't be starting from scratch,” he said.


Koskinen told reporters that details on the program would be issued in a matter of weeks, potentially by the end of June or in July.


This is a welcome development. However, it does make it a bit difficult for people who were considering coming forward at this time, as June 16 is an important 2013 filing deadline for Americans living abroad. They have to make decisions about filing before that date. Koskinen’s advice was to file an extension for the tax return by that date and a  Foreign Bank Account Report by June 30, but that won’t meet all taxpayers' needs.