Navigating Through U.S. Voluntary Disclosure Programs for Your International Business

Understanding the Voluntary Disclosure Program (VDP) may be an essential part of filing your taxes if you have an international business.

The VDP is an Internal Revenue Service (IRS) program that taxpayers can use to reduce or eliminate the Foreign Bank and Financial Accounts (FBAR) Violation Penalties. The VDP is an updated version of the Offshore Voluntary Disclosure Program (OVDP). However, the OVDP is now closed, and taxpayers must now go through the VDP.

What is the FBAR Violation Penalty?

You must submit an FBAR if the amount in a foreign bank and financial account exceeds $10,000 at any time during the calendar year. If you fail to report assets in a foreign bank account over this amount, you can get penalized.

The VDP is an alternative to the streamlined process of reporting. It is ideal for people who are unable to certify non-willfulness under the penalty of perjury.

In the new VDP, the FBAR Penalty goes by the Internal Revenue Manual (IRM). This states that the penalty will be 50 percent of the maximum value or $100,000 (whichever is highest). The $100,000 adjusts with inflation, so there is no way to know exactly what the penalty will be.

Other Penalties

Under the new VDP, late information reporting penalties may be waived. There is also a fraud penalty on tax liability up to 75 percent.

Which International Business is Eligible for the Voluntary Disclosure Program?

There are three essential criteria for eligibility to the VDP:

1. The funds are legally sourced. This means you cannot use the VDP to launder money.
2. There is no placeholder submission. A placeholder is a spot held open for the taxpayer. This is not permitted.
3. The taxpayer provides full disclosure. The taxpayer must report all assets, investments, and income from their foreign accounts.

Once the taxpayer files with the VDP, taxes will be treated the same as if the taxpayer filed on time. For example, interest income will be taxed as interest income and employment income as employment income.

Find Out More Information

We understand that examining the financial data of your business is complicated, especially overseas. If you have an international business and would like further information on the VDP or FBAR penalties, please visit our International Accounting services page.

If you would like to speak with an expert, contact an MKS&H advisor for additional information and services.