Offshore Voluntary Disclosure Program

If you are a U.S. citizen, resident or green card holder with foreign income, accounts, or assets, failure to disclose this information to the IRS could subject you to monetary penalties and even jail time.

For many years, the Offshore Voluntary Disclosure Program (OVDP) provided taxpayers with an opportunity to report their previously undisclosed foreign accounts with certainty that they would not face criminal prosecution. Although the OVDP has ended, the Treasury Department recently published new guidance that outlines the current resolution process for domestic and offshore voluntary disclosures.

Why make a voluntary disclosure?

More than 100 countries now participate in multilateral tax cooperation agreements, making the IRS and other tax authorities worldwide better equipped to fight tax evasion and corruption. In addition, foreign banks that have in the past aided their clients in hiding funds are now under fire, and their settlement agreements with the U.S. government include handing over information regarding their U.S. clients. This means that the likelihood of your getting caught with undisclosed foreign assets is increasing – and the penalties are significant.

The IRS considers many factors in its determination of whether it will recommend criminal prosecution for noncompliance with tax laws – although there is no guarantee of immunity, if you make a voluntary disclosure the IRS will give that factor significant weight when making its assessment. As long as you fully cooperate with the civil examiners, your civil penalties (including penalties for failing to file a tax return, civil tax fraud, and willful FBAR noncompliance) will also be mitigated.

How do I make a voluntary disclosure?

The new disclosure process is consistent with Internal Revenue Manual 9.5.11.9, commencing with the submission of a preclearance request that includes a narrative of your noncompliance. Following approval by the IRS Criminal Investigation Division (IRS-CI), the Large Business and International (LB&I) Division in Austin will prepare your case and forward it to the appropriate division for examination. Civil examiners then conduct an audit through standard examination procedures.

Getting into compliance – at a minimal cost

This new guidance for voluntary disclosures provides at least some level of reassurance that taxpayers who come forward with undisclosed domestic and/or foreign income have a greater likelihood of avoiding criminal charges and mitigating applicable civil tax fraud penalties.

Note, however, that other options are available for taxpayers whose noncompliance with international reporting requirements is unlikely to result in criminal prosecution. The California tax attorneys at Moskowitz, LLP can help structure the most effective disclosure strategy for your individual circumstances, at minimal cost to you.

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