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

Offshore Voluntary Disclosure Introduction - Part Two

The IRS used much of the information it accumulated under the 2009 OVDP to continue investigations into individuals and financial institutions that facilitated the non-compliance with U.S. tax laws. With the investigations ongoing, many tax practitioners pressed the IRS on behalf of concerned non-complaint clients to continue the voluntary disclosure program. In February of 2011 the IRS responded. It announced the 2011 Offshore Voluntary Disclosure Initiative (OVDI.) The program lasted from February 2011 until September 9, 2011. The terms of the 2011 OVDI differed from that of the 2009 OVDP. Participants in the 2011 program paid a 25% miscellaneous offshore penalty on the highest aggregate value of the unreported offshore accounts from 2003 until 2010. In addition, depending on the severity of their noncompliance, they were also exposed to a 5% or 12.5% penalty. The IRS was able to close 70% of the voluntary disclosed cases that year which resulted in 15,000 additional disclosures the collection of $1.6 billion dollars in back taxes, penalties, and interest.

Tax professionals and taxpayers continued to show a strong interest in the voluntary disclosure programs after the end of the OVDI on September 9, 2011. As a result, the IRS revised the terms of the 2011 OVDI program and made it permanent until further notice.[1] The 2012 Offshore Voluntary Disclosure Program (OVDP) requires participants to pay a penalty of 27.5% of the highest aggregate balance or value of the offshore assets during the previous eight years. Again depending upon the severity of the noncompliance, certain taxpayers still face a 5% or a 12.5% percent enhanced penalty. The IRS expanded the program in June of 2012 and added an option which enabled some U.S. citizens and other mandatory filers living abroad to catch up on their delinquent filings and avoid penalties if they owed little or no back taxes by using its Streamlined Filing Compliance Procedures. Since this option took effect in September of 2012, the program has received 12,000 voluntary disclosures.

As the program has proved popular among noncompliant tax payers and profitable to the IRS, it has continued to change and develop. In June of 2014, the IRS announced additional major changes to the 2012 programs. The new options help taxpayers both domestically and abroad come into compliance with their tax obligations. The IRS has devised new streamlined procedures for non-willful taxpayers. They have also adjusted the terms for taxpayers participating in the OVDP whose conduct rises to the level of willful non-compliance. Even with the modifications to the OVDP program, it remains attractive for taxpayers seeking protection from possible criminal prosecution and penalties.

 

[1]IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens IR-2012-5, Jan. 9, 2012. http://www.irs.gov/uac/IRS-Offshore-Programs-Produce-$4.4-Billion-To-Date-for-Nation’s-Taxpayers;-Offshore-Voluntary-Disclosure-Program-Reopens

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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