New for 2016 ->
As of 7/1/14 the IRS changed their 2012 Offshore Voluntary Program in a stealth manner which greatly increased both the costs and the risks.
Effective 7/1/14, the OVDP requires:
1) Payment up-front with the OVDP Application of all Tax, Penalty and Interest due which includes the Offshore Penalty (Title 26 Misc. Penalty), which is either 27.5 % or 50% of account balances of undeclared offshore accounts (based on whether the foreign financial institution is a listed institution by the IRS), tax on unreported earnings (on offshore accounts), a 20% accuracy-related penalty (based on the underpayment of tax), failure to pay penalty/failure to file penalty (up to 25% of tax due). In short the payment up front may wipe out all (or more) of the offshore account balances:
2) The taxpayer must submit all account statements for the offshore accounts since inception;
3) The OVDP requires all tax and other requested information for the prior 8 tax years.
In 2012 the IRS commenced their 3rd voluntary disclosure for U.S. Taxpayers to become tax compliant and avoid penalties for civil tax fraud and criminal tax evasion. In the Bank Leumi case, US taxpayers who held undisclosed foreign bank accounts, with unreported income, made disclosure to the IRS, filed amended tax returns, paid tax, “put a spotlight” on their offshore tax evasion with the understanding that they would be exempted from civil tax fraud and criminal tax evasion penalties.
Without explanation, the IRS disqualified dozens of US taxpayers from the 2012 Offshore Voluntary Disclosure Program, with tax counsel for these affected taxpayers alleging that they were caught in an “IRS trap” to “smoke-out” the tax offenders and the participant banks and advisers.
US taxpayers who consider entry into the 2012 OVDP must now review the following issues: no criminal immunity, waiver of 5th amendment rights against self-incrimination, exposure of non-reported assets & income to civil tax fraud and criminal tax evasion penalties which include monetary fines and prison.
For more information please see the following articles:
I. The IRS Offshore Voluntary Disclosure Program
II. Tax Practitioners
III. IRS/OVDP (2012) (“The Rules”)
IV. IRS/OVDP – International Investor Foreign Persons (Non‐Resident Aliens)
V. IRS/Current Developments