ARCHIVED PAGE - DOES NOT SHOW ON SITE MAP: How does the OVDP differ from Streamlined?

The Offshore Voluntary Disclosure Program and the Streamlined process both offer taxpayers with unreported foreign assets options to become current on taxes.

Many Florida residents choose to hold some assets in other countries. This decision may be made for a variety of reasons not the least of which may be the financial advantages associated with this approach. If these assets have not been reported on domestic tax returns, however, these taxpayers may be at risk for civil or criminal prosecution by the Internal Revenue Service.

In recent years, the IRS has launched different programs designed specifically to allow taxpayers with unreported foreign assets to get current on any tax liabilities. The Offshore Voluntary Disclosure Program was the first to be launched and has been followed by the Streamlined approach which offers both domestic and foreign options. Each program is unique and understanding the differences is important for anyone with undisclosed foreign assets.

The OVDP and willful non-reporting

The IRS established the Offshore Voluntary Disclosure Program specifically for people who knowingly did not disclose their offshore assets in an attempt to prevent paying taxes on them. Typically this action could subject people to criminal as well as civil penalties.

The OVDP protects taxpayers from criminal prosecution altogether. As for civil penalties, the OVDP outlines a path to pay taxes along with interest and penalties. Together, the interest and penalties may be steep but for some are worth it in order to avoid criminal penalties. Forbes adds that another benefit of the OVDP is the absolution of any other facts that may be uncovered during the process.

Streamlined and mistaken non-reporting

The Streamlined process is for people who mistakenly failed to report foreign assets. Part of the process requires taxpayers to testify under oath that the non-reporting was not willful. The IRS is able to investigate if a person's testimony is not believed to be true. The penalties in these situations may be extremely harsh if a person is later deemed to have lied under oath.

The Streamlined process also does not protect taxpayers from criminal prosecution but it does offer dramatically lower penalty rates. It also does not absolve people from liability if other facts come to light during the process.

Penalty assessment

The Offshore Voluntary Disclosure Program includes penalties of 27.5 percent or even up to 50 percent on the highest account balance in addition to a 20 percent overall penalty. Penalties are based on the highest value for an account at any point in a given year. Accounts that are tax compliant will not be included.

The Domestic Streamlined program assesses a five percent penalty on the highest account balance based on the balance at the end of the year. However, all accounts including those that are tax compliant will be included.

Making the right choice

Floridians who need to address outstanding foreign asset tax liabilities should always work with an attorney. There are many intricacies in the IRS' programs and getting the proper guidance is essential when high financial penalties and potential criminal prosecution are on the line.