On January 9, 2012 the Internal Revenue Service announced it is
reopening its Offshore Voluntary Disclosure Program (OVDP),
designed to allow U.S. taxpayers with unreported offshore income
and assets to come into compliance with their tax obligations. This
is being done because of continued strong interest after the
completion of the 2009 and 2011 programs, which together brought in
33,000 voluntary disclosures and the collection of more than $4.4
billion to date. Since the 2011 OVDP closed in September, hundreds
of additional taxpayers have come forward to make voluntary
disclosures. These taxpayers will be eligible to be treated under
the provisions of the new OVDP.
The penalty framework for the new OVDP is similar to that for the
2011 OVDP except the penalty is 27.5 percent of the highest
aggregate balance in foreign bank accounts/entities or value of
foreign assets during the eight full tax years before the
disclosure. The 2011 OVDP imposed a 25 percent penalty of the
amount in the foreign bank accounts in the year with the highest
aggregate account balance. Participants must also pay taxes and
interest for the last eight years and accuracy-related and/or
delinquency penalties. There is virtual assurance, though no
guarantee, that the IRS will forgo criminal prosecution and will
not assert other civil penalties, including FBAR penalties, for
taxpayers who enter the new OVDP.
As under the 2011 OVDP, some taxpayers may be eligible for a
reduced 5 percent penalty for inherited accounts they have never
accessed. Also as under the 2011 OVDP, the new OVDP will impose a
reduced penalty of 12.5 percent for offshore accounts or assets
that did not exceed $75,000 during the applicable tax years.
Unlike the 2011 OVDP, the new program asserts no fixed deadline for
enrollment in or completion of the program. However, the IRS
cautions, the terms of the new OVDP, including the penalty
framework and taxpayer eligibility, may change at any time and may
be terminated at any time. The IRS will be providing additional
information about the new OVDP over the course of the next month
and will continue to update the OVDP FAQs on the IRS website.
Both the IRS and the Justice Department have significantly
increased their efforts to pursue the criminal prosecution of
international tax evasion cases, making it more important than ever
for taxpayers to review carefully the tax and legal status of any
undisclosed offshore accounts or business activities. Our firm can
advise clients on whether the OVDP is the best option for them and,
in appropriate cases, on alternative methods for becoming
tax-compliant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
