Reader’s note: the Offshore Voluntary Disclosure Program closed in September 2018. Individuals considering a voluntary disclosure of foreign account or asset noncompliance to the IRS should consider options including the Streamlined Foreign Offshore Procedures, the Streamlined Domestic Offshore Procedures, or (less-commonly) a non-program disclosure arguing reasonable cause as a defense to all penalties.
OVDP – A Chance for Tax Amnesty
The 2012 Offshore Voluntary Disclosure Program of the IRS is not a program that exists in the Tax Code. It was established administratively by the IRS to take advantage of the flood of disclosures by foreign banks, and speed up collection of revenue. Without the program, the IRS would have to contact each taxpayer, demand an audit, and then levy unpaid taxes, interest, the usual penalties for non-payment, any other penalties (the potentially-breathtaking ones), and also refer the case for prosecution. That would have been a time-consuming process, and the resulting revenue would have been slow to arrive.
Instead, the IRS decided on a “carrot and stick” approach that would appeal to most taxpayers with offshore accounts. If the taxpayer voluntarily came to the IRS, there would be no criminal prosecution. That is a huge motivator for most taxpayers. Another “carrot” is that the penalties are far less severe than those the IRS could collect if it went through the formal audit process. The “stick,” of course, is that not coming in voluntarily could and likely would carry much more severe consequences. As it stands, a taxpayer who voluntarily discloses such accounts will have to pay back taxes for six years, interest, and penalties. In most cases, the taxpayer will have some of the account left after paying all those levies.
In contrast, a taxpayer who waits for the IRS to schedule an audit could easily end up owing far more than the value of the account, and be facing (unlikely but possible) a criminal charge, trial and even imprisonment.
OVDP Ensures That Foreign Bank Accounts May Be Disclosed Without Criminal Risk
A taxpayer with such an account is eligible to participate as long as he/she makes the contact voluntary. Once the IRS has made an inquiry or a subpoena, the taxpayer is no longer making the disclosure voluntarily and is ineligible for the OVDP. Many taxpayers have used the OVDP once the foreign bank warned them that its US account holders were being requested by the IRS. It would behoove anyone with such an account to make an OVDP filing sooner, rather than waiting. Waiting to make contact could have disastrous consequences.
Your OVDP Tax Attorney Will Review Whether Opt-Out Will Give You Better Results
There is some possible additional relief for certain taxpayers in the OVDP where a case can be made that the conduct of the taxpayer was not willful. Generally, the IRS assumes that taxpayers who failed to disclose ownership or control of a foreign account in Part III of Schedule B of the annual Form 1040 did so knowingly and willfully. But that isn’t applied in all cases, and the penalties can be far less severe if the IRS can be convinced that the omission was not willful. There is also the matter of the requirement to file the Foreign Bank Account Report (FBAR). Only if the total value of all foreign accounts was below $10,000, can you avoid the legal requirement to make those disclosures.
OVDP Is More Than Paperwork and Fines – Choose a Skilled OVDP Tax Attorney As Your Guide
For a taxpayer with a fairly uncomplicated situation involving an offshore account, doing a voluntary filing under OVDP might seem to be a simple matter, and something that could be done by the taxpayer and/or the taxpayer’s accountant. After all, the filing of tax returns each year usually does not require the services and advice of an attorney. It must be noted that annual returns are a routine activity, and that OVDP is definitely not routine. Trying to utilize the OVDP without expert advice is fraught with pitfalls, and real, expert advice and assistance is mandatory, even if the amounts seem relatively small. An attorney can assist in seeking relief from the IRS. You need to consult with an attorney who specializes in these filings before you do anything else.
To finish our three-part series, you can move forward to Offshore Account Disclosure Basics – Part 3: Why You Should Hire a Tax Attorney to Guide You Through OVDP.
For US individuals with an undisclosed foreign account, now is the time for action. Call (415) 745-1924 to speak immediately with experienced Offshore Voluntary Disclosure Program tax attorney Andrew L. Jones. You will receive an immediate, free, thorough, and completely confidential consultation. We are available by phone nationwide or in person at your choice of 6 different offices throughout California. We answer your calls from 9 am-9 pm PST, 7 days a week. After hours, please leave a message or visit our contact form and we will reply the next morning.
Attorney Andrew L. Jones practices in tax law, business law, and estate planning from offices in San Francisco, Palo Alto, Walnut Creek, Los Angeles, Irvine, and San Diego. Jones received his J.D. and LL.M. in Taxation from Loyola Law School, and posts regular updates and analysis on OVDI and OVDP at www.AndrewLJones.com. He can be reached at Google+.