IRS Opens Second Voluntary Disclosure Period for Offshore Accounts
The Internal Revenue Service (IRS) announced a second voluntary disclosure period for persons with unreported income in offshore accounts. The new program is called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and has been initiated in response to the continued interest following the 2009 Offshore Voluntary Disclosure Program (OVDP), which closed October 15, 2009.
The OVDP was the first voluntary disclosure program and the IRS reported 15,000 voluntary disclosures during the program period. Since that program ended 3,000 taxpayers with foreign accounts have come forward. As the IRS continues to focus on investigating offshore accounts and hidden assets, the new initiative is intended to help foreign account holders reach a resolution with the IRS over their tax issues before the ongoing investigation leads the IRS to their door.
Differences Associated with the New Voluntary Disclosure Initiative.
The OVDI is similar to the OVDP in that it is meant to allow U.S. taxpayers to become current with their taxes and restore offshore funds to the U.S. tax system. However, there are differences between the first disclosure program and the current initiative. The main differences are the penalties.
Principally, under the OVDI, there is a larger penalty (25 percent of the offshore account balance) and a longer look-back period (eight years). Under the new initiative there are also reduced penalty rates for smaller offshore accounts (12.5 percent) and account holders under certain qualifying circumstances (penalties of 12.5 or 5 percent). The reasons noted for these changes are to encourage foreign account holders to come forward, but also not to reward any taxpayers who chose not to come forward during the 2009 disclosure program.
OVDI Eligibility and Participation.
OVDI participation is available to individuals or business entities who have undisclosed offshore accounts with unpaid taxes. Persons or entities currently under IRS investigation are not eligible to participate under the current initiative.
An eligible party may apply to the IRS by submitting a voluntary disclosure letter, copies of past tax returns, foreign account asset statements and payment that includes taxes, interest and the appropriate penalties. More information can be found at www.irs.gov.
Those who choose not to participate in the OVDI may be at risk for increased penalties and criminal charges, such as tax evasion, tax fraud, failure to file a tax return and other tax violations . It is important to be aware that the IRS has increased their efforts in investigating and pursuing unreported offshore account holders in recent years. This is main priority and the ongoing investigations into foreign assets will continue.
If you have any questions about disclosing an offshore account or would like to participate in the current voluntary disclosure initiative, it is imperative to consult with an attorney experienced in international tax matters, such as Attorney Lawrence Brown, of Brown, PC. A knowledgeable attorney can assist you with the complex application process and answer any questions you may have.