IRS Resurrects Offshore Voluntary Disclosure Program (OVDP)
The IRS recently announced the resurrecting of the Offshore Voluntary Disclosure Program (OVDP) after its collection of more than $4.4 billion in back taxes from those programs in 2009 and 2011. The third offshore program is similar to its 2009 and 2011 predecessors with a few key differences:
- The new program does not have an application deadline.
- Under the new penalty structure, individuals are required to pay a penalty of 27.5% (up from 20% in 2009 and 25% in 2011) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during each of the eight full tax years prior to their disclosure.
- Taxpayers must file all original and amended tax returns and information returns, including the Report of Foreign Bank and Financial Accounts (FBAR) and pay all back-taxes and interest for up to eight years as well as any accuracy-related and/or delinquency penalties. Installment payouts of the liability or an offer in compromise may be available in some cases.
- Taxpayers may “opt out” subjecting themselves to an audit if they deem the penalty structure to be either disproportionate or unwarranted in their situation.
A taxpayer considering making a voluntary disclosure should consult with experienced legal counsel, which is privileged communication under the attorney-client privilege. Please note that a disclosure made to a taxpayer’s accountant is not a privileged communication and the IRS could later use the taxpayer’s accountant as a witness against the taxpayer.
The decision whether to make a voluntary disclosure must consider the differences in the financial consequences of participating in the new program, opting out of the new program or making a traditional, potentially less-rigid voluntary disclosure. A careful analysis of the case should establish exactly what years are open under the statute of limitations; the extent of additional tax and interest due; what tax penalties are appropriate; and what other information-return penalties may apply in cases involving corporations, trusts, gifts, foreign accounts, and other business entities.
For assistance in determining whether participating in the Offshore Voluntary Disclosure Program, opting out of the new program or making a traditional voluntary disclosure is best for you contact Hone Maxwell LLP today.