Sam Brotman, JD, LLM, MBA August 24, 2014 4 min read

Offshore Voluntary Disclosure Introduction - Part One

The Department of Treasury and the Department of Justice have a new mandate – stop offshore tax cheating and bring in billions of dollars of additional tax revenue from non-disclosed foreign accounts. The Internal Revenue Services’ Offshore Voluntary Tax Disclosure Program is designed to encourage non-compliant taxpayers to come clean and bring their tax liabilities current. The IRS began this initiative in 2009 with the Offshore Voluntary Disclosure Program. The Service has now sponsored three voluntary programs. The IRS reports that the efforts have yielded $6.5 billion in back taxes and brought 45,000 tax payers back into the law abiding fold.[1] It is estimated that this represents only a fraction of funds held offshore by U.S. citizens and other required U.S. income tax filers. [2]

The approach is classic carrot-and-stick. The carrot is possible criminal amnesty for a voluntary report along with a reduction in civil penalties. The stick is the Foreign Account Tax Compliance Act (FATCA.) FATCA[3] became law in March of 2010. Loopholes previously enjoyed by noncompliant taxpayers will soon become nooses which will tighten as the United States demands and bullies foreign countries and financial institutions into complying with reporting requirements.

The process started when the IRS announced the Offshore Voluntary Disclosure Program (OVDP) in March 2009. This first-time effort offered taxpayers a chance to avoid criminal and enhanced civil penalties in the form of a single diminished penalty for previous failure to report offshore income. The IRS based the program upon existing voluntary disclosure processes used by the IRS Criminal Investigative Unit. Under the 2009 program, the offshore penalty was 20% of the highest aggregate value of the unreported offshore account from 2003 until 2008. Anyone electing to participate also had to file amended or late Report of Foreign Bank and Financial Accounts (FBAR) returns for those years. In the second prong of the IRS attack, the U.S. sought enforcement against foreign banks for failure to report the offshore income of U.S. citizens and required reporters. Under the 2009 OVDP, the IRS reports it received 15,000 disclosures.[4] The result was the collection $3.4 billion dollars of back taxes, interest and penalties. An additional 3,000 disclosures came in after October 15 closing date of the program.

 

[1] IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate FS-2014-6, June 2014. http://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate

[2] The Global Elite Are Hiding 18 Trillion Dollars In Offshore Banks. http://www.globalresearch.ca/the-global-elite-are-hiding-18-trillion-dollars-in-offshore-banks/5317691

 

[3] 26 USC § 6038D

[4] 2009 Offshore Voluntary Disclosure Program. http://www.irs.gov/uac/2009-Offshore-Voluntary-Disclosure-Program

 

 

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
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