Money Hidden Offshore? IRS Offering Limited Amnesty

With the rollout of the 2011 Offshore Voluntary Disclosure Initiative (OVDI), the Internal Revenue Service is offering “incentives” through reduced penalties to those who have either knowingly or unknowingly failed to report income from monies in foreign bank accounts. This is the second such initiative in the last few years by the IRS to recover unpaid taxes. The Miami Herald reports that $345 billion in taxes is not paid to the federal government each year because of foreign bank accounts.

Voluntary Disclosure

The 2011 OVDI is a voluntary disclosure program. Voluntary disclosure means that the taxpayer makes it known to the IRS that he or she knows and understands that he or she is delinquent on certain taxes. The IRS states that the current voluntary disclosure program, 2011 OVDI, allows the taxpayer to calculate with near certainty the costs associated (back taxes, interest and penalties) with the unpaid taxes.

Quiet Disclosure

There is another way that delinquent tax payers can attempt to pay what is owed – called “quiet disclosure.” A quiet disclosure is made by filing amended returns and paying back taxes and interest on what is owed. However, this is known as quiet because the taxpayer does not notify the IRS that this is what they are doing. Those that have made a quiet disclosure may still qualify for the 2011 OVDI program, which, at the very least, may allow that taxpayer to avoid jail time for tax evasion.

The 2011 OVDI Process

There are a few steps for participation in the 2011 OVDI program. The IRS lays out the three-step process as:

1. Pre-clearance – a taxpayer needs to find out if they are able to apply for the 2011 OVDI program by sending/faxing information (name, date of birth, social security number and address) to the IRS Criminal Investigation Lead Development Center. Participation in the program is limited to those who are not currently being audited or under criminal investigation by the IRS or whose account information is already known by the IRS (such as those whose account information was handed over to the IRS by UBS).
2. Offshore Voluntary Disclosure Letter – once the taxpayer is cleared to participate, he or she needs to complete the Offshore Voluntary Disclosure Letter within 30 days. Once the letter is received, the IRS will review it and let the taxpayer know if the letter has been accepted or denied.
3. Voluntary disclosure package – if the disclosure letter is accepted, the taxpayer will need to complete and send the completed voluntary disclosure package to the IRS by August 31, 2011.

There are several steps to the process, which take time. If you are considering participating in the 2011 OVDI program, speak with an experienced tax attorney sooner rather than later.