The precise procedures under the Offshore Voluntary Disclosure process are murky at best. They resemble loading a revolver and handing it to someone with an itchy trigger finger. As other countries and their foreign financial institution buckle to the pressures of FATCA, the value of self-disclosure is beginning to lose its luster to the federal investigators. The lack of precise protocols and standards can only be an indication of the fact that the Offshore Voluntary Disclosure rocess will have a short life as foreign compliance escalates and the Streamlined programs are taken advantage of those whose conduct was non-willful. Under the current regulations, what is in it for the taxpayer according to the IRS:
Taxpayers holding undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs. In contrast, taxpayers simply filing amended returns or filing through the Streamlined Filing Compliance Procedures do not eliminate the risk of criminal prosecution. Going through the The Offshore Voluntary Disclosure process also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in identifying those with undisclosed foreign financial accounts and assets. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and from other sources and will become more available under the FATCA and Foreign Financial Asset Reporting.
Eligibility for Pre-clearance into the Offshore Voluntary Disclosure Process
The program has clear requirements for preclearance disclosure. In order to gain this preclearance disclosure, the IRS outlines the following procedure:
- Taxpayers or representatives send a facsimile to the IRS – Criminal Investigation Lead Development Center (LDC) with:
(a) Applicant identifying information including complete names, dates of birth (if applicable), tax identification numbers, addresses, and telephone numbers.
(b) Identifying information of all financial institutions at which undisclosed OVDP assets were held. Identifying information for financial institutions includes complete names (including all DBAs and pseudonyms), addresses, and telephone numbers.
(c) Identifying information of all foreign and domestic entities (e.g., corporations, partnerships, limited liability companies, trusts, foundations) through which the undisclosed OVDP assets were held by the taxpayer seeking to participate in the OVDP; this does not include any entities traded on a public stock exchange. Information must be provided for both current and dissolved entities. Identifying information for entities includes complete names (including all DBAs and pseudonyms), employer identification numbers (if applicable), addresses, and the jurisdiction in which the entities were organized.
(d) Executed power of attorney forms (if represented).
(e) In the case of jointly filed returns, if each spouse intends to apply for The Offshore Voluntary Disclosure process, each spouse should request pre clearance. You then fax all of this information to the LDC. After review the Criminal Investigation will notify the taxpayer or their representative whether or not they are eligible to make a voluntary disclosure which in essence they have already done by providing the information requested in the preclearance application. It may take as long as 30 days for the Criminal Investigation unit to provide their decision. If the decision is no, it is almost a sure bet that you are already on their radar and under investigation, and they don’t feel that they need your assistance. Even if preclearance is received, it does not guarantee a taxpayer acceptance into the The Offshore Voluntary Disclosure process. Taxpayers pre-cleared for OVDP must follow the procedure outlined below within 45 days of being notified to make an offshore voluntary disclosure. Taxpayers must truthfully, timely, and completely comply with all provisions of the OVDP.
Have more questions regarding the Offshore Voluntary Disclosure process? Please contact our office.
 IRC § 6038D