We have extensively covered the Offshore Voluntary Disclosure Initiative Program in previous posts. The OVDI program is coming to an end and it is a great opportunity for United States citizens with assets abroad to voluntarily report those assets to the IRS and avoid criminal tax evasion charges. The OVDI offers amnesty but it is not a free pass because those who participate in the program are subjected to penalties of varying severity levels.
Although one of the primary targets of the OVDI program is wealthy Californians who are hiding money in offshore bank accounts, there are individuals who may be unintentionally violating U.S. tax law unreported overseas income. Many people become dual citizens of the United States because they are born to foreign parents who are briefly in the United States or Puerto Rico. These dual citizens are required to report their income even if they primarily live and work in another country. Individuals who do not hold U.S. passports but spend over 183 days in the U.S. may also be subject to U.S. tax law.
The IRS has recently announced that it will provide significantly reduced penalties to dual citizens under the following circumstances:
- The taxpayer lives in another country.
- The taxpayer made a good faith showing that he or she complies with the tax law of that foreign country.
- The taxpayer has under $10,000 of U.S. income each year.
This is an important opportunity for unwitting dual citizens to avoid hefty fines and criminal prosecution. The IRS program will also help prevent the dual citizens from incurring tax evasion related issues when they travel the U.S.
Source: Forbes, "IRS OVDI Offers Penalty Relief for Dual Citizens," Josh Ungerman, Aug. 19, 2011