On March 13, 2018, the IRS announced that the 2014 Offshore Voluntary Disclosure Program (OVDP) is set to close on Sept. 28, 2018. It gives the U.S. taxpayers who did not disclose their foreign financial assets only six months to come forward.


U.S. taxpayers who have ownership in and/or signature authority over certain foreign financial assets (e.g., bank account, securities accounts) with an aggregate year-end balance greater than $10,000 are required to disclose such information by filing Reports of Foreign Bank and Financial Accounts (FBAR). Failure to file an FBAR could result in significant civil penalties and/or criminal charges. For example, a US tax resident who owns a foreign bank account with an aggregate year-end balance of $1 million has never filed an FBAR. If this individual is found to have willfully failed to file the FBAR, the penalty could be the greater of $100,000 or 50 percent of the highest aggregate balance of the foreign bank account during the years under examination (i.e., $500,000 = 50% x 1 million) plus interest. The total penalty for all of the years will be limited to 50 percent of the highest aggregate balance for all unreported foreign financial accounts during the years an FBAR was not filed.

Current OVDP

To provide U.S. taxpayers with undisclosed foreign financial assets some relief from severe penalties, the IRS initially launched the OVDP in 2009 which allows those U.S. taxpayers to retroactively report their foreign financial assets with significantly reduced penalties. With a few revisions of the procedure and penalty rates, the current OVDP (as revised in 2014) generally requires the noncompliant U.S. taxpayers to file amended returns (or original returns if not previously filed) and any delinquent FBARs for the previous eight years. In addition to tax and interest on the unreported income, OVDP generally imposes a 27.5 percent penalty on the aggregate year-end balance of the taxpayer’s foreign assets. Assuming the same example as above, the U.S. tax resident may only be subject to a $275,000 penalty (27.5% x 1 million) plus interest with respect to the undisclosed foreign bank account. In addition to FBAR, OVDP also includes delinquent filings regarding ownership in certain foreign corporations, foreign partnerships and foreign trusts, which also carry significant penalties for non-filing. There are certain restrictions for admission into this program, such as the IRS not having the taxpayer’s name on their list from foreign bank information exchange program as well as other sources.

Streamlined Procedure

In an effort to encourage U.S. taxpayers to become compliant with the foreign financial assets disclosure requirements and mitigate the impact of penalties, the IRS rolled out the Streamlined Procedure in 2012 (further revised in 2014). The penalties and administration burden of compliance under the Streamlined Procedure are significantly lower than under OVDP. Instead of filing the last eight years of amended tax returns under OVDP, the Streamlined Procedure only requires filing the last three years of amended tax returns and six years of FBARs. A noncompliant U.S. taxpayer who lives outside of the U.S. could file with Streamlined Foreign Offshore Procedure, under which the penalties regarding the undisclosed foreign financial assets could be as low as zero. A noncompliant U.S. taxpayer residing in the U.S. could file with Streamlined Domestic Offshore Procedure, under which the penalties regarding the undisclosed foreign financial assets could be 5 percent of the aggregate balance of the foreign financial assets. However, the Streamlined Procedures (both Foreign Offshore Procedure and Domestic Offshore Procedure) are only available to U.S. taxpayers who were not willful in nondisclosure of foreign financial assets. Certain other restrictions apply to the definition of who can enter into the program. In addition, the Streamlined Procedures are subject to IRS approval and, if rejected, the OVDP would not be available. There is not a clear definition of “willful” in the code or regulations. According to the Internal Revenue Manual[1], the failure to learn of the filing requirements, coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved, may lead to a conclusion that the violation was due to willful blindness. The mere fact that a person checked the wrong box, or no box, on Schedule B (of Form 1040 US Individual Income Tax Return) is not sufficient, in itself, to establish that the FBAR violation was attributable to willful blindness.

In the same announcement regarding the closing OVDP, the IRS noted that the Streamlined Procedure would remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.

Delinquent FBAR submission procedures (“Quiet Filing”)

A noncompliance U.S. taxpayer who does not need to use either the OVDP or the Streamlined Procedure is able to file the delinquent FABR according to the FBAR instruction. However, such taxpayers are limited to those who (1) have not filed an FBAR, (2) are not under a civil examination or a criminal investigation by the IRS, and (3) have not already been contacted by the IRS about the delinquent FBARs. However, the IRS has frequently stated that they do not want taxpayers to make “Quiet” disclosures.


As the IRS is terminating the OVDP program and the Streamlined Procedure may not be far behind, individuals with undisclosed foreign financial assets should contact their tax advisors for assistance.

[1] IRM section November 6, 2015