Canada: IRS Reports On The Success Of Its Voluntary Disclosure Programs

Since the initiation of the U.S.Internal Revenue Service’s (IRS) Offshore Voluntary Disclosure Program (OVDP) which originally began in 2009 and the Streamlined Filing Compliance Procedures first offered on September 1, 2012, the IRS recently reported that more than 54,000 taxpayers have come forward and the result is more than $8 billion in tax collections.

The Streamlined Filing Compliance Procedures are available to both U.S. individual taxpayers residing outside the U.S. and U.S. individual taxpayers residing in the U.S. and is premised upon the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114) being due to non-willful conduct.

Moreover, while returns submitted under the Streamlined Filing Compliance Procedures would not be subject to IRS audit automatically, the IRS points out that:

“[t]hey may be selected for audit under existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers.

After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.”

Considering the IRS’ efforts to combat offshore tax evasion through the Foreign Account Tax Compliance Act coupled with the automatic exchange of information between various governmental tax authorities (including the Canada Revenue Agency) and the IRS under numerous intergovernmental agreements, the IRS has reiterated that:

“OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution”