Participation In The Offshore Voluntary Disclosure Program

How To Participate In The IRS Offshore Voluntary Disclosure Program (OVDP)?

To participate in the IRS Offshore Voluntary Disclosure Program (OVDP), applicants generally must provide the IRS information on all foreign accounts and assets for the eight-year voluntary disclosure period. The IRS also requires that you provide copies of previously filed original returns for all tax years covered by the program and file complete and accurate amended returns (or, if unfiled, all original returns), to account for the taxes, interest and accuracy penalties. In addition to the penalties, you will have to pay back taxes and interest on any income generated by your undisclosed foreign accounts and any other foreign income. Under certain circumstances, taxpayers may be eligible for the streamlined filing compliance procedures.

Why Enter The Current Offshore Voluntary Disclosure Program?

  • The advantages of voluntary disclosure include enabling you to become compliant, thereby avoiding substantial civil penalties such as a 75 percent fraud penalty and generally eliminating the risk of criminal prosecution.
  • With each voluntary disclosure the IRS receives, it gathers information, which, when combined with the information available under tax treaties, submissions of whistleblowers, the enactment of the Foreign Account Tax Compliance Act (FATCA) and Foreign Asset Reporting, dramatically increases the likelihood the IRS will seek out the identities of other foreign account holders.
  • The IRS Offshore Voluntary Disclosure Program offers taxpayers incentives to disclose foreign accounts and assets. Undisclosed income sometimes results in harsh penalties, and this initiative may save many taxpayers from this treatment if they come forward voluntarily and take action to correct their offshore tax problems.
  • Criminal prosecution for tax evasion is among the possible consequences associated with remaining silent or attempting "silent disclosures" or "quiet disclosures" by simply filing amended tax returns and late Foreign Bank Accounts (FBARs), Financial Crimes Enforcement Network (FinCEN) Form 114 (formerly Form TD F 90-221) and Report of Foreign Bank and Financial Accounts(the current FBAR form).
  • Voluntarily disclosing offshore accounts is much more favorable than risking detection by the IRS, in which case the IRS is less likely to show leniency, additional tax years are subject to examination and penalty relief or other program benefits may not be available.
  • The IRS Offshore Voluntary Disclosure Program can end at any time! The IRS has not officially announced a specific expiration date, but it has reserved the right to change the terms of OVDP at any time. The voluntary disclosure process is complex and requires significant preparation. It is, therefore, in your best interest to begin the process immediately. Even though the IRS may issue a new program in the future, the terms will likely not be as favorable as demonstrated by the "miscellaneous offshore penalty" — from 20 percent in 2009 to 25 percent in 2011 to 27.5 percent and even as high as 50 percent for certain banks, foreign financial institutions and facilitators. This is a particularly opportune time to act because, as always, there are no guarantees as to what the future holds.
  • Taxpayers can minimize the risk of criminal prosecution and the painful consequences of extraordinarily harsh penalties imposed by the IRS upon discovery of tax evasion.
  • Taxpayers with undisclosed offshore accounts and foreign assets have options. They can enter the OVDP and pay the prescribed penalty rate. Otherwise, they can enter the OVDP and choose to "opt out."
  • Being currently compliant without correcting the past may have consequences. Seek counsel before taking any actions that may have a negative impact.

Who Benefits From Entering The IRS Offshore Voluntary Disclosure Program?

The OVDP may benefit a wide range of taxpayers, including, but not limited to, the following:

  1. People who inherited money from a relative in another country
  2. People who have money offshore
  3. The "Accidental" U.S. Citizen
  4. People who willfully hid money offshore to purposefully avoid paying taxes