The Offshore Voluntary Disclosure Program is not the only way to come into compliance, opting out of the program may be a better fit
Jeffrey S. Freeman, J.D., LL.M
The IRS has released changed to its Offshore Voluntary Disclosure Program encouraging a broader group of U.S. taxpayers to come into compliance. The streamlined procedures allow for those who were non-willful in their non-compliance to pay a lesser miscellaneous penalty. But, is this the best option?
There are many questions to consider when deciding which avenue to proceed down to clean up your tax closet. For individuals with smaller financial accounts the aggregate offshore penalty for multiple years is less outside of the OVDP. Additionally, those residing in a foreign country and having assets in that country make the OVDP penalty make no sense.
The OVDP does provide protection from numerous additional potential penalties associated with income tax returns and foreign information reports. It limits the number of tax years included and provides certainty about avoidance of criminal tax prosecution from the Department of Justice.
If you are currently in the OVDP you still may be able to opt-out of the program by providing a reasonable cause letter. The letter should explain why you should be subjected to a lesser penalty than those set forth in the OVDP. Opting out of the program could allow the IRS to perform and examination over more than the eight tax years covered under the OVDP, but the facts and circumstances for your situation should be evaluated. For U.S. residents the following criteria should be considered:
- Income source and amount of funds
- How long the account has been maintained
- Were there withdraws or deposits?
- Was the account moved from another institution?
- Was the account concealed from advisors?
- Did the foreign financial institution hold mail outside the U.S. for the account
- Sophistication and education level of the taxpayer
This is just the surface, but the decision to enter or leave the OVDP should be thoroughly considered before deciding the best avenue to pursue.
About Freeman Tax Law
Freeman Tax Law is equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.
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