Several options exist for individuals with prior undisclosed foreign assets and/or income to become compliant with the IRS. Two of the more commonly used choices are the Qualified Quiet Disclosure and the Offshore Voluntary Disclosure Program (“OVDP”).
Taxpayers entering into the Offshore Voluntary Disclosure Program must agree to several requirements. Those requirements include:
- Waiving their constitutional protection against self-incrimination (5th amendment), unreasonable search and seizure (4th amendment), and excessive fines (8th amendment)
- Disclosing their names, social security numbers, undisclosed income, undisclosed assets, and the names of any advisors/3rd parties that facilitated the alleged “offshore tax evasion”
- Accepting monetary charges as follows – a 27.5% penalty on the value of the undisclosed assets as defined by the IRS, the original tax, a 20% accuracy penalty, a penalty of up to 25% for failure to timely pay, and interest
- Consenting to re-open tax years beyond the statute of limitations
Further, the government is not bound by transaction or use immunity for participants in the OVDP and participants can be removed from the program and prosecuted by the government using the very information provided during the OVDP process, which can be (mis)construed as money laundering, wire fraud, mail fraud, tax evasion, or failing to disclose foreign financial accounts on an FBAR. Therefore, a taxpayer should be fully advised of OVDP advantages and disadvantages before beginning the OVDP process.
Taxpayers whose circumstances do not show willful or reckless intent may find better outcomes opting to report through means other than the Offshore Voluntary Disclosure Program. One of the other options is the Qualified Quiet Disclosure. It is important to note that the Qualified Quiet Disclosure is not the same as a “quiet disclosure”; and the IRS has warned that they will pursue and punish individuals making “quiet disclosures”. For those that qualify, the Qualified Quiet Disclosure offers the same forgiveness as the OVDP without being forced to admit intent to evade taxes, without giving up Constitutional rights, and without heavy penalties. Because the Qualified Quiet Disclosure allows individuals act outside of OVDP restrictions, a taxpayer utilizing this approach is free to contest offshore penalties either administratively and/or judicially.
In conclusion, despite the IRS’s continued threats of prison sentences, monetary penalties and more for those not entering OVDP, individuals making disclosures outside of OVDP have been assessed less in taxes and penalties; have enjoyed a greater ability to contest IRS allegations of criminal and civil wrongdoing; and to date, fared better than their counterparts.
Contact Moskowitz, LLP for more information.