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Offshore Accounts: IRS Offers Third Voluntary Disclosure Opportunity

January 13, 2012

On January 9, 2012, the Internal Revenue Service announced that it is offering a third Offshore Voluntary Disclosure Initiative (OVDI). See IR-2012-5. This third OVDI program reportedly will remain open for an indefinite period of time until the IRS determines that sufficient time has been allowed to meet its educational and enforcement objectives. The lack of a stated expiration date is no reason to procrastinate with these serious matters. Once a contact is made by the IRS, the OVDI program is no longer available and taxpayers are subject to full civil and criminal penalties.

Third OVDI Based On Results

According to the IRS, the first two OVDI programs produced approximately $4.4 billion in collections. The government continues to pursue both civil and criminal investigations of parties who did not take advantage of the prior voluntary disclosure programs. Moreover, the IRS is increasing its efforts to investigate foreign banks and their investors.

The 2012 OVDI Program

The new program offers a penalty framework similar to the two prior programs, but with a 27.5 percent one-time penalty based on the highest aggregate balance of all foreign accounts (increased from 25 percent in the 2011 program    and 20 percent in the 2009 program). Certain taxpayers may be eligible for 5 percent or 12.5 percent penalty alternatives in limited instances. The one-time penalty generally is in lieu of all other disclosure penalties, which could exceed 100 percent of the balance in the accounts (and could include criminal charges).

To participate in the 2012 program, taxpayers must file all original and amended tax returns and pay all back taxes plus interest for as many as eight years. Taxpayers must also pay the one-time penalty, plus accuracy-related and delinquency penalties. Taxpayers who enter the program but decide that the OVDI penalty framework is inequitable or disproportionate may opt out of the program and may be subject to an audit.

Evaluation of 2012 Program

Any taxpayer with undisclosed foreign accounts should carefully evaluate the 2012 OVDI program and take action as quickly as possible. Although costly in certain cases, the penalty framework offers some level of certainty, both as to financial exposure and potential exposure to criminal charges. Each case should be evaluated carefully with experienced tax counsel considering the taxpayer's facts and circumstances. Dykema attorneys are experienced with these types of voluntary disclosure matters and can assist with the legal analysis in a privileged environment and, if needed, with coordinating tax compliance and accounting support from qualified tax return preparers.

Taxpayers and interested parties with questions about this, or other matters, may contact any of the listed Dykema tax attorneys. 


As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2012 Dykema Gossett PLLC.



  

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2017 Dykema Gossett PLLC.