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IRS Posts New Frequently Asked Questions for the 2011 OVDI Program

On June 2, 2011, the IRS posted several new frequently asked questions (FAQ) related to the 2011 Offshore Voluntary Disclosure Initiative (OVDI).

90-Day Extension to Submit Documents

In Q. 25.1, the IRS said that it will allow taxpayers to ask for a 90-day extension for the August 31, 2011, deadline in order to complete their submission of the required documents.  The postponement will apply only if the taxpayer makes a good faith effort to comply with the original deadline.  Taxpayers may request an extension of the deadline to complete their submission if they can demonstrate a good faith attempt to fully comply, on or before August 31, 2011, with the information disclosure required under the 2011 OVDI. The good faith attempt to fully comply must include the properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess Report of Foreign Bank and Financial Accounts (FBAR) penalties.

Written requests for up to a 90-day extension must include a statement of those disclosure items that are missing, why they are not included, and the steps taken to secure them.  The new FAQ does not provide for any extension to enter the 2011 OVDI Program.

Opting Out of OVDI Program

New FAQ 51.1 explains that under certain circumstances a taxpayer may be better off opting out of the civil settlement structure of the 2011 OVDI, and illustrates the point with three examples.  Under the 2011 OVDI, a taxpayer must pay a global offshore penalty of 25% of the highes account balance. The FAQ explains that under certain circumstances electing to opt out would subject the taxpayer to a much smaller FBAR penalty than the penalty that would be due under the 2011 OVDI, or possibly no penalty at all, if the taxpayer’s violation was due to reasonable cause.

New FAQ 51.2, however, carries two examples, which show that certain taxpayers may be disadvantaged by opting out of the 2011 OVDI, and new FAQ 51.3 shows how a taxpayer’s case may be referred to IRS’s Criminal Investigation division if he opts out of the 2011 OVDI, is audited, and is found to have under-reported income and made false statements.

You can find Frequently Asked Questions and Answers here.

Former IRS Tax Attorneys at Holtz Slavett & Drabkin are available to assist you with 2011 OVDI questions and may be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

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