Media


07/06/12


IRS Issues Guidance on Extension of Offshore Voluntary Disclosure Initiative (OVDI)

Related Attorney(s): David S. De JongEric J. RollingerMark W. SchweighoferDavid B. Torchinsky

Media Type: Alert

The IRS has recently issued guidance on the extension of the OVDI program, which provides additional information about the current OVDI program.  A key facet of this new guidance is the clarification on how certain foreign retirement accounts and pension plans will be treated for the purposes of the program.

Specifically, the IRS has stated that if a taxpayer has a Canadian registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or other similar Canadian plan, the OVDI program will now permit a late election pursuant to the U.S.-Canada income tax treaty. This allows the taxpayer to defer U.S. income tax on the income earned by the RRSP or RRIF, so long as the income has not been distributed. Importantly, the allowance of the late election works to exclude the value of these retirement and pension plans from the OVDI penalty base.

Further, the recent guidance intimates that this relief may not be limited to Canadian retirement and pension plans. The IRS has stated that it will entertain inquiries as to whether certain foreign retirement and pension plans from other countries should be excluded from the OVDI penalty base.

As a reminder, in order to participate in the OVDI, taxpayers must complete the following steps:

  • File original and/or amended tax returns including any income that was not reported from the overseas assets for the all years from 2003-2010 (or in some cases 2004-2011);
  • Pay any back income tax plus a 20% accuracy penalty and interest on such amounts;
  • File FBARs for all years from 2003-2010 (or in some cases 2004-2011); and
  • Pay or make acceptable arrangements to pay an amount equal to 27.5% of the highest aggregate balance in the foreign bank accounts for the period spanning 2003-2010 (or in some cases 2004-2011). Some taxpayers may qualify for a reduced penalty of 12.5% or 5%.

View Stein Sperling’s February 2012 alert on this topic: IRS Extends Offshore Voluntary Disclosure Initiative (OVDI)

 


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