For the last several years, the IRS has made a concerted push to crackdown on undisclosed offshore accounts and foreign assets. The bottom line is of course to recover unpaid taxes. These efforts have been strengthened recently by agreements reached between the IRS and offshore financial institutions and governments. These agreements largely stem out of the 2010 Foreign Account Tax Compliance Act (FATCA). Swiss banks in particular have made news but the IRS has reached FATCA agreements with several countries, with many more on the way.
Once the IRS begins an investigation into a taxpayer, their options are limited. Failure to disclose assets, even if they wouldn’t have caused tax to be owed, can carry steep penalties. It is in the best interest of taxpayers to review their options before the IRS investigates.
Other than doing nothing and hoping for the best (probably not an advisable course of action) there are broadly three options available to taxpayers. The first, what is oftentimes called a quiet disclosure, might seem the most obvious choice at first glance but is in fact a poor choice. The idea of a quiet disclosure is to simply file amended tax returns and related forms, pay any additional tax and related interest or penalties, and hope the IRS doesn’t look deeper. Although it’s generally true that if you make a mistake on your taxes and later correct it by filing amended returns, that is likely the end of the story, the IRS has repeated said that when it comes to offshore disclosure, a quit disclosure doesn’t cut it. Taxpayers are almost certainly better off going with one of the other two options.
The second option is to participate in the IRS’s Offshore Voluntary Disclosure Program (OVDP). By disclosing their previously undisclosed offshore assets and accounts, paying back taxes and reduced penalties, taxpayers receive protection from criminal prosecution. Early iterations of the OVDP were limited offers with deadlines, but since 2012 the program has been ongoing with no deadline. The IRS, however, reserves the right to alter the terms of the Program at their discretion (for example, increasing the penalties) and if the IRS begins an investigation into a taxpayer, that taxpayer is no longer eligible for the OVDP.
The OVDP, however, has its drawbacks. The penalties, though greatly reduced from what they might be otherwise, are still substantial. For this reason, the IRS has created a sister programmed, what they call the streamlined OVDP. The streamlined program, as the name would suggest, is designed to conclude more quickly than the full OVDP and it entails ever lower penalties while offering the same protection against criminal prosecution. The biggest criterion for the streamlined OVDP is that the misconduct (failing to disclose offshore accounts or assets) was not willful.
Horowitz Law Offices has represented numerous taxpayers through the OVDP since its inception. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org