IRS Voluntary Offshore Disclose Program

Last updated on April 29, 2014

The U.S. Treasury loses billion of dollars to tax evasion annually. Many individuals, businesses, and organizations hide their income overseas to avoid paying taxes on it. Tax evasion by keeping assets hidden overseas is the most common method used by taxpayers. Tax frauds also use fake organizations to dupe taxpayers into hiding income in tax havens.

To encourage taxpayers to comply with tax laws, the IRS introduced the Offshore Voluntary Disclose Program (OVDP), under which taxpayers can disclose their hidden assets overseas without paying a heavy or imprisonment.

The program recovered $5.5 billion since 2009, with the number of taxpayers reporting their hidden income to the IRS increasing. Along with asking taxpayers to reveal their hidden assets, the IRS is also making it mandatory for foreign banks to report details of bank accounts of American taxpayers under the Foreign Account Tax Compliance Act (FATCA).

Under FATCA, taxpayers are required to report their assets overseas if they cross a certain threshold. Under the act, financial institutions in foreign countries are required to report directly to the IRS about financial accounts held by U.S. taxpayers and about U.S. taxpayers who hold substantial interest in financial accounts.

With various tax laws, it is becoming increasingly difficult for taxpayers to evade taxes by hiding their asset overseas. That is another major reason why the OVDP is gaining popularity among taxpayers. It is the only opportunity for taxpayers to get into compliance without paying a heavy price for previous tax evasion.