Today, January 9, 2012, the IRS announced that they reopened the Offshore Voluntary Disclosure Program for taxpayers with undeclared foreign accounts. The new program follows two previous Offshore Voluntary Disclosure Initiatives in 2009 and 2011, which were deemed by the IRS as a big success, bringing more than 33,000 taxpayers into compliance and generating $4.4 billion for U.S. Treasury. You can read the full text of the announcement here.
The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the IRS said that the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers, or decide to end the program entirely at any point.
The overall penalty structure for the new program is similar to the 2011 OVDI, except that the taxpayers in the highest penalty category will be required to pay 27.5% of the highest aggregate balance in foreign bank accounts and foreign assets, rather than 25%. Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. As a general rule, the taxpayers participating in the OVDI will face a 27.5% penalty, but taxpayers in limited situations can qualify for a 5% penalty (e.g. inherited accounts). Taxpayers whose offshore accounts and assets do not exceed $75,000 will face a 12.5% penalty. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.
Additional information and Questions & Answers are expected to be posted by the IRS within a month. We will continue to monitor all the announcements and updates. Our tax attorneys at Holtz, Slavett & Drabkin will continue to assist taxpayers with offshore compliance and participation in the voluntary disclosure programs. Please feel free to contact us at (310) 550-6200 with any questions.
Copyright (c) 2012 Igor S. Drabkin. All Rights Reserved.