What Happened to the Offshore Voluntary Disclosure Program and What Replaced It?

The Offshore Voluntary Disclosure Program (OVDP) was created back in 2009 as a temporary OVDP program for taxpayers that willfully hide funds overseas to become compliant. However, the IRS closed it due to the usage rate for this offshore disclosure program dropping significantly. Read on to find out what this program was all about and the steps you should take if you are found in a similar situation.   

Offshore Voluntary Disclosure Program

What’s The Offshore Voluntary Disclosure Program?

The OVDP was designed for individuals with exposure to potential criminal liability. It was also designed for those who have considerable civil penalties for not reporting their foreign financial assets. This program was used by 56,000 taxpayers since it was first created. Delinquent taxpayers who took advantage of the OVDP program could have been safe from prosecution. While the fines associated with this program were astronomical, you could have avoided some civil penalties and prosecution. So, in a way, this benefit made the OVDP program quite attractive to taxpayers hiding assets in offshore accounts.    

In order to avoid future tax fraud through whistleblower leads, taxpayer education, and criminal prosecution, the IRS still took action against taxpayers hiding assets in foreign bank accounts. Also, the agency continued searching for individuals that had offshore accounts and made it a top priority.

Updated Voluntary Disclosure Practice

Following the termination of the Offshore Disclosure Program, the IRS announced a new system for voluntary disclosures concerning tax noncompliance, which applies to both domestic and offshore voluntary disclosure, and has similar procedures to IRS OVDP.

Taxpayers who use the new IRS voluntary disclosure program may face penalties of 50 percent on their undisclosed assets and a civil fraud penalty of 75 percent. These penalties may be applied for several years. Also, the new procedures will place greater emphasis on cooperation from the taxpayer and noncooperative taxpayers may face greater penalties, which caused the taxpayer to question how effective is the IRS voluntary disclosure program and whether is worth the price of admission, particularly since they still have other options. 

Overall, the goal is that taxpayers who have not committed any tax or tax-related crimes don’t need the OVDP program to be protected from possible criminal prosecution. They may continue to fix past mistakes by using the Streamlined Filing Compliance Procedures or through filing a past due tax or amended return.

IRS-Criminal Investigation Screening

As with the old offshore disclosure program, the IRS-Criminal Investigation will screen volunteer disclosure requests to find out whether a taxpayer is qualified to make a voluntary disclosure by submitting IRS Form 14457. Form 14457 includes a narrative with the facts and circumstances of the noncompliance. Once the voluntary disclosure has been accepted by the IRS, they will notify the taxpayer by letter.

A Six-Year Disclosure Period May Be Required

In most cases, a period of six years may be required to file the corrected tax returns, even if their tax non-compliance took place longer than that. Cooperative taxpayers may be allowed to expand the disclosure period to cover more years for several reasons, including but not limited to correcting issues with tax authorities that may require extra time, unreported taxable gifts, and the acquisition or sale of an entity.

Why The Taxpayer Should Cooperate

It is important the taxpayer cooperates or understands the consequences of not cooperating with the IRS. The IRS voluntary disclosure has historically required taxpayer cooperation. Likewise, the OVDP program required the taxpayer cooperation as a condition for participating in the OVDP program. This includes disclosing all offshore assets, extending the relevant status of limitations, and paying all back taxes, interest, and penalties.

Under the new procedures for the offshore voluntary disclosure program, cooperation takes a new meaning. In other words, cooperation goes beyond making the usual full disclosure of offshore assets, extending time, and arranging payments. But the extent of cooperation will have a direct impact on the kind and magnitude of penalties. Cases that are not resolved by the agreement will face the highest penalties. On the other hand, taxpayers who cooperate will be entitled to civil penalty mitigation.

Request An Appeal

The new offshore voluntary disclosure allows taxpayers to retain the right to request an appeal with the IRS Office of Appeals. With the OVDP taxpayers weren’t allowed to request an appeal notwithstanding the circumstances of their case. Also, under the new voluntary disclosure procedures, the taxpayer could take an appeal. But unfortunately, the taxpayer who exercises his or her appeal of rights will be categorized as non-cooperative and will face greater penalties.  

Other Voluntary Disclosure Options

The new IRS voluntary disclosure program is not the only pathway for non-compliant taxpayers. There are other less expensive voluntary disclosure options available based on your specific circumstances. Such options include the Streamlined Filing Compliance Procedures when the taxpayer’s conduct was non-willful. Also, taxpayers that omitted certain information, the Delinquent FBAR Submission Procedures, and the Delinquent International Information Return Submission Procedures are good options.  

Take Immediate Action

In a nutshell, the new IRS voluntary disclosure is a bit difficult to navigate on your own. However, this practice is welcomed by both taxpayers and tax accountants. Which is a clear indication that the IRS voluntary disclosure program is still working for many taxpayers. The only downside is that when compared to OVDP, the new procedures may significantly increase the penalties.  

For more information and to seek the expert advice of a CPA in Miami or Broward, contact My CPA, PA.  

Legal Disclaimer

Information only / No Legal Advice Intended

This publication is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or another advisor regarding your specific situation.

To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Always seek advice based on your particular circumstances from an independent advisor. Any disclosure, copying, or distribution of this material, or the taking of any action based on it, is strictly prohibited.

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