A review of the Offshore Voluntary Disclosure Program

It is no surprise that the Internal Revenue Service (IRS) is cracking down on those who have failed to become compliant with tax obligations for foreign assets. In fact, the federal agency continues to list attempts to hide assets through the use of foreign bank accounts as one of its “Dirty Dozen” tax scams for 2017.

Taxpayers that hold these accounts, or even have signatory authority over such accounts, are required to report the accounts and come into compliance with the IRS. The federal agency has provided various options in an effort to increase the ability of taxpayers to meet their obligations. Two options to bring offshore accounts into compliance are the Offshore Voluntary Disclosure Program (OVDP) and filing through the Streamlined Filing Compliance Procedure.

How many taxpayers choose to come into compliance using the OVDP?

As of October, 2016, the Internal Revenue Service (IRS) reports that 55,800 taxpayers have used the OVDP to come into compliance with tax obligations. This resulted in almost $10 billion in taxes and penalties paid to the IRS since 2009.

Those taking part in this program generally file amended tax returns for the last eight years. The IRS encourages participation to “avoid substantial civil penalties and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs.”

In some cases, applicants have chosen to opt out of the OVDP. This option is available after the taxpayer has received a Closing Agreement from the IRS. A taxpayer must then provide a “reasonable cause letter” to the IRS that explains why the taxpayer should be subject to a smaller penalty than that used by the OVDP. A recent publication by Forbes discussed this process, noting that those who chose to move forward with an opt out attempt in 2009 waited for approximately 590 days before the case was closed. The agency became a bit more efficient with the process over the next year, with applicants in 2010 waiting an average of 129 days for a resolution.

What about the use of separate streamlined procedures?

The IRS further reports that 48,000 taxpayers have used separate streamlined procedures to update their taxes and disclose the presence of foreign assets. This is a viable option as long as the taxpayer can establish that these omissions were non-willful as this option “does not eliminate the risk of criminal prosecution.”

What about taxpayers who fail to disclose these assets?

Those who fail to disclose foreign assets are at risk of having these assets discovered through an investigation by the IRS. This can increase the likelihood of hefty fines and potential imprisonment. As such, it is wise for those with foreign assets to seek legal counsel. An experienced offshore account compliance attorney can review the details of your situation and discuss which options are best to better ensure your interests are protected