The timeline is closer to where American citizens can no longer apply for relief under the Offshore Disclosure Program (OVDP). The OVDP, which has been running for 10 years, is due to shut down on Sep. 28.
We have spoken in the past about the consequences that face taxpayers who do not take advantage of the OVDP. But after it shuts down, there is a chance that more and more citizens with offshore accounts will face civil penalties and even criminal prosecution.
What are the penalties for offshore reporting violations?
To begin with, offshore reporting requirements apply to anyone with over $10,000 in offshore accounts. The IRS has six years to investigate a matter if it suspects noncompliance.
However, the six-year statute of limitations only applies if there are no allegations of tax fraud. If the IRS suspects the involvement of tax fraud, there is no statute of limitations. This means the IRS can continue to pursue you for such a matter for the remainder of your life.
The penalties you face are severe. A failure to report can result in a significant accuracy-related penalty and a civil fraud penalty which could eat up a large portion of your assets.
But the penalties for filing a false tax return are even worse. It could mean a fine of $250,000 and a felony conviction leading to five-years imprisonment.
At least until the OVDP closes, taxpayers can take advantage of this program and avail themselves of a certain amount of relief. Taxpayers can use the OVDP to avoid the application of certain penalties.
How to avoid penalties?
It is important to understand your options when it comes to offshore reporting requirements and what you can do when charged with noncompliance. Unfortunately, the requirements are complex. A skilled tax attorney can help you figure out what steps to take. The penalties are too severe to not take such charges seriously.