AICPA Suggests Improvements to IRS’s Offshore Voluntary Disclosure Program

The American Institute of CPAs (AICPA) has made recommendations to the U.S. Department of the Treasury and the Internal Revenue Service (IRS) that it believes would improve the 2014 Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures.  The programs allow U.S. taxpayers to voluntarily disclose their previously unreported offshore assets and become fully compliant with U.S. tax law on a continuing basis.

In the March 9 letter, Troy K. Lewis, CPA, CGMA, chair of the AICPA Tax Executive Committee, wrote, “The remarkable success of these programs is greatly attributable to their fairness and the absence of unnecessarily punitive penalties on those taxpayers eligible to participate.”

Lewis stated in the letter that the AICPA believes making certain minor revisions to the terms of the OVDP and the Streamlined Filing Compliance Procedures would both increase the number of taxpayers participating and improve the fairness and equity of the programs.

For the OVDP, the AICPA recommended that the IRS: 

1. Restore the previous practice of not requiring an upfront payment of the miscellaneous offshore penalty by taxpayers;
2. Apply the 50 percent miscellaneous “Super” penalty only to accounts held at institutions listed on the Foreign Financial Facilitators List; and
3. Allow the waiver of the passive foreign investment company (PFIC) computations for small account cases.

For the Streamlined Filing Compliance Procedures, the AICPA recommended that the IRS:

1. Modify the penalty base to include only those assets associated with tax non-compliance;
2. Expand the Streamlined Filing Compliance Procedures to include certain classes of non-willful individuals who are currently ineligible for either the Streamlined Foreign Offshore Procedures (SFOP) or the Streamlined Domestic Offshore Procedures (SDOP); and
3. Provide additional guidance in the SFOP and SDOP filing instructions to taxpayers on the specific factors the IRS will consider in judging whether their non-compliance was willful.

In the letter, Lewis provided a detailed description for each of the six recommendations, as well as the AICPA’s rationale for supporting them.