OVDP Lawyer Guide
The Definitive Guide to the 2018 IRS Offshore Voluntary Disclosure Program
The IRS Offshore Voluntary Disclosure Program (OVDP) is geared towards helping taxpayers come into compliance with U.S. tax laws. Under the IRS OVDP, eligible taxpayers who voluntarily come forward to report their previously undisclosed “offshore” or foreign accounts may receive reduced monetary penalties and the opportunity to avoid criminal prosecution. With the IRS OVDP slated to end on September 28, 2018, taxpayers need to act quickly to participate in the program. While the IRS OVDP can offer advantages, the program is complicated and not suited for everyone. It is in your best interest to work with an experienced IRS OVDP lawyer who can explain your options and navigate you through each step of the process. Thorn Law Group has developed the following guide to help you understand key aspects of the IRS Offshore Voluntary Disclosure Program. Our OVDP lawyers are also readily available to assist you with individual questions. Call 202-349-4033 to speak confidentially with Managing Partner Kevin E. Thorn. He has helped hundreds of clients disclose offshore assets and come into compliance with US tax law. He will do the same for you as well.
Summary of the IRS Offshore Voluntary Disclosure Program
The IRS’ Offshore Voluntary Disclosure Program (OVDP) is a voluntary program designed to encourage taxpayers with undisclosed offshore financial accounts to come forward and disclose their accounts to the IRS. The IRS began the IRS OVDP in 2009 as part of its efforts to crack down on offshore tax evasion. Taxpayers who meet the program’s participation requirements and choose to voluntarily come into IRS compliance can generally avoid criminal prosecution and are promised lesser financial penalties than they would face if the IRS discovered their offshore accounts through other means.
The IRS OVDP has gone through several iterations since it was first launched in 2009. The most recent version of the program - the 2014 IRS Offshore Voluntary Disclosure Program – is set to end on September 28, 2018. If you have offshore accounts that have not been disclosed to the IRS, it is critical to discuss your situation with an experienced IRS OVDP lawyer. Managing Partner Kevin E. Thorn of the Thorn Law Group is a former IRS attorney who understands the nuances and challenges involved in resolving complicated tax matters. He can advise you of your options and help you take the necessary steps to bring your foreign assets and accounts into full compliance with federal tax obligations.
Brief History of the IRS' Amnesty Programs for Offshore Accounts
As discussed above, the 2014 IRS OVDP was a sequel to other offshore tax amnesty programs initiated by the IRS. While the various programs may have had different terms and conditions over the years, they all had a common goal in mind – encouraging taxpayers to “come clean” with the IRS and follow the rules for reporting their income from offshore accounts and assets.
2009 IRS OVDP
The IRS rolled out its first tax amnesty program for offshore accounts in March 2009. This program was part of the IRS' efforts to combat tax evasion occurring among taxpayers with undeclared foreign accounts and crack down on the Swiss banks that had helped to facilitate the evasion. Under the IRS’ 2009 OVDP, taxpayers who voluntarily came forward to report their undeclared offshore funds would be required to pay their back taxes and interest for six years, along with an accuracy-related penalty. Taxpayers would also have to pay a “miscellaneous” offshore penalty calculated at 20 percent of the highest aggregate balance on their undeclared funds between 2003 and 2008. The program was in effect until October of 2009 and generated approximately 15,000 voluntary offshore disclosures in total.
2011 IRS OVDP
Based upon the success of the 2009 program, the IRS decided to launch a second IRS offshore voluntary disclosure program in 2011. Like the 2009 IRS OVDP, under this program (which is known as the IRS’ 2011 Offshore Voluntary Disclosure Initiative (OVDI)), individuals with undisclosed offshore accounts had the opportunity to avoid harsh civil penalties and potential criminal prosecution in exchange for fully cooperating in the voluntary disclosure process. Participants in the program were required to submit payment of all taxes and interest owed, along with a miscellaneous offshore penalty calculated at 25 percent of the highest year’s aggregate value for the period covered by the voluntary disclosure (generally tax years 2003-2010). Where an individual’s offshore accounts totaled less than $75,000, the penalty was reduced to 12. 5 percent.
2012 IRS OVDP
After the close of the 2011 IRS OVDI, the IRS rolled out another offshore voluntary disclosure program - the IRS’ 2012 OVDP. This program, which was launched in January 2012, raised the maximum miscellaneous offshore penalty from 25 percent to 27.5 percent. Unlike its earlier programs, which provided a specific end date, the IRS stated that the program was open-ended and could be closed at any point in time.
2014 IRS OVDP
In June 2014, the IRS modified the IRS’ 2012 OVDP program to offer new options to help taxpayers with offshore accounts come into compliance with tax laws. The revised program expanded the eligibility criteria for participation in the streamlined filing process and eliminated the reduced penalty structures available under past IRS OVDP versions. While the streamlined filing process offers qualified taxpayers, who attest that their violations were not willful in nature a simpler filing process and lesser penalties than the full IRS OVDP program, the program is not necessarily the right option for everyone. If you are considering the streamlined program, a skilled IRS OVDP attorney at Thorn Law Group can assess your situation to determine whether the streamlined process or the full IRS OVDP is the best path for you to resolve your tax issues.
In its 2014 version of the IRS’ offshore voluntary disclosure program, the IRS also continued its trend of increasing penalties for willful taxpayers. Under this program, the reduced penalty structures available under past IRS OVDP programs were eliminated and taxpayers could face a 50 percent offshore penalty if the foreign financial institution at which their accounts were held had been publicly identified as being under investigation by the IRS or as cooperating with an IRS investigation.
Kevin E. Thorn, the founder and Managing Partner of Thorn Law Group, has had experience representing clients within every stage of the IRS’ Offshore Voluntary disclosure programs. These programs are complicated and require extensive knowledge to be completed properly. Those with undisclosed assets face massive penalties and even potential jail time. Do not wait to contact Managing Partner Kevin E. Thorn today to help resolve complicated tax matters, too much is at stake!
Why Did the IRS Decide to Close the IRS OVDP?
In its March 13, 2018 announcement (IR-2018-52), the IRS explained that its decision to close the offshore tax amnesty program this fall was in part due to the steady decline in participants over the years. According to the IRS, only 600 voluntary disclosures took place in 2017 as compared to a high of 18,000 in 2011. Acting IRS Commissioner David Kautter further explained that the IRS has always made it known that the IRS OVDP would end at an “appropriate time” and that the increased awareness of taxpayer reporting obligations associated with foreign accounts and “advances in third-party reporting” made now the “appropriate time” to end the IRS’ OVDP.
With the IRS’ OVDP ending in September, taxpayers with undisclosed offshore accounts have a very limited window of opportunity to take advantage of this IRS tax amnesty initiative. If you do not make a voluntary disclosure before the IRS’ 2014 OVDP closes, you will not be able to take advantage of the reduced penalties and safe haven from criminal prosecution. At Thorn Law Group, our international tax attorneys are familiar with all aspects of the IRS OVDP. When you work with our firm, an experienced IRS OVDP attorney will explain each step of the process to make certain that you are taking the appropriate steps to complete the program and execute IRS Form 906 - Closing Agreement on Final Determination Covering Specific Matters.
Why Should a Taxpayer Consider Making a Voluntary Disclosure?
If you voluntarily come forward to disclose your offshore account information under the IRS OVDP, you can avoid some of the harshest penalties you might face without the program. For instance, if you don’t participate in the program and the IRS discovers that you willfully failed to file an FBAR (Report of Foreign Bank and Financial Accounts), the civil penalty could be as high as the greater of $100,000 or 50 percent of the total balance of your account for each violation. Even if the IRS determines that your violation was not willful, you could still face a $10,000 penalty per violation. Failure to file an FBAR is just one type of offshore account violation that comes with severe consequences. Depending upon the facts and circumstances of your case, the IRS could impose additional civil fines and penalties.
Beyond the civil penalties, taxpayers who don’t participate in the IRS OVDP are also at risk for criminal charges, including charges for tax evasion, filing a false return and failure to file a tax return. Moreover, both willfully failing to file an FBAR or filing a false FBAR are violations that can subject a taxpayer to criminal prosecution. The fines and penalties for these types of crimes can be very severe. For instance, the monetary penalty for failing to file your FBAR could be as high as $500,000 and you could also face up to 10 years in prison.
The IRS OVDP offers taxpayers with undisclosed offshore accounts the opportunity to come into compliance with U.S. tax laws. While participants must still pay back taxes and substantial fees, they may be able to drastically reduce their tax penalties and avoid criminal charges. Determining whether the IRS OVDP is right for you requires a skilled tax attorney with an extensive understanding of IRS processes and procedures. When you work with Thorn Law Group, you can be trust that Managing Partner Kevin E. Thorn, a highly experienced IRS OVDP attorney, will review your situation from every angle to determine whether the IRS’ offshore voluntary disclosure program offers the best option for resolving your tax issues.
What is the Difference Between the Full IRS OVDP and the Streamlined Program?
The IRS streamlined filing compliance program is very different from the full IRS OVDP. While participating in the streamlined program is generally faster and easier than the full IRS OVDP, taxpayers with undisclosed offshore accounts would be wise to talk with a skilled IRS OVDP attorney who can explain how the two programs compare. Some of the most notable differences between the full IRS OVDP and the streamlined program include:
- Willful violators cannot participate in the streamlined program. Unlike the full IRS OVDP, the streamlined filing compliance procedures are limited to “non-willful” violators. To participate in this program, taxpayers must certify, under penalty of perjury, that their failure to report and pay taxes on their foreign financial assets was not willful in nature, rather it was due to a negligence or a misunderstanding of the law. The IRS will then evaluate the certification to determine whether the violation was intentional or a mistake. It is also important to note that like the full IRS OVDP, taxpayers who are currently under investigation by the IRS are not eligible to participate in this program.
- Streamlined procedures are limited to certain categories of taxpayers. Only individual taxpayers (residing inside or outside the United States) and the estates of individual taxpayers are eligible to participate in the streamlined compliance filing program. The full IRS OVDP, however, is open to entities including corporations, partnerships and trusts.
- Monetary penalties can be far less stringent under the streamlined program. If you are a U.S. taxpayer who lives in the U.S. and is eligible for the streamlined program, the penalties will be limited to five percent of your offshore assets that gave rise to the tax compliance problem. Moreover, if you are a U.S. taxpayer who lives outside of the U.S., the IRS will waive all penalties for your undeclared income from foreign sources. However, it is important to understand that even if you successfully complete the streamlined process, you could still face civil penalties associated with reporting income from U.S. sources.
- Streamlined program participants are not necessarily protected from criminal prosecution. While the financial penalties imposed under the full IRS OVDP are generally much more severe than those in the streamlined program, streamlined compliance does not always shield taxpayers from possible criminal prosecution. Taxpayers who elect to participate in the streamlined program can still face criminal prosecution if their actions are found to be in violation of the law.
Because you could be putting yourself at risk for serious penalties and possible criminal exposure, you should discuss your situation with Kevin E. Thorn, Managing Partner of the Thorn Law Group. Mr. Thorn is a highly-knowledgeable IRS OVDP lawyer and former IRS attorney who has vast experience helping taxpayers come into compliance with U.S. tax laws. He can answer your questions and advise you as to whether the streamlined program, the full IRS OVDP or another option is the best way to settle your tax issues.
Frequently Asked Questions About IRS’ Offshore Voluntary Disclosures
Taxpayers who are considering making a voluntary disclosure of previously unreported offshore accounts would be wise to consult with qualified tax counsel before they start the process. At Thorn Law Group, our tax attorneys have extensive experience helping taxpayers resolve all types of complex domestic and international tax issues, including matters involving undisclosed foreign accounts and assets. We understand that dealing with the IRS can be overwhelming and our attorneys are here to guide you through every step of the process. While we encourage you to schedule an appointment with our IRS OVDP law firm, we wanted to provide you with answers to some of the most frequently asked questions that we receive about the IRS offshore voluntary disclosure programs.
1. How do I know if the IRS OVDP is right for me?
Every taxpayer and tax matter are unique, so it is important to discuss your situation with an attorney skilled in handling IRS offshore voluntary disclosures. Managing Partner of Thorn Law Group Kevin E. Thorn has helped hundreds of taxpayers participate in various offshore tax amnesty initiatives offered by the IRS. Whether you are considering the full IRS OVDP or the streamlined compliance process, Thorn Law Group will carefully review your offshore accounts and assets to find the best solution for you.
2. What if the IRS OVDP is not an option?
If you do not meet the IRS OVDP eligibility criteria or if there are other reasons why the IRS OVDP is not appropriate for your situation, there may still be other offshore account compliance options available to you. Thorn Law Group will examine your situation to identify other possible alternatives, including participating in the streamlined program or the IRS Criminal Investigation Voluntary Disclosure Program, or completing the Delinquent International Information Return Submission Procedures or the Delinquent FBAR Submission Procedures.
3. How long do I have to decide if I want to participate in the IRS OVDP?
The IRS has announced that it will be closing the full IRS OVDP on September 28, 2018. This means that you need to act immediately if you want to take advantage of the safe haven from criminal prosecution afforded by the program. Participation in the IRS OVDP is multi-step process, so it is critical to start working with an IRS OVDP lawyer now if you want to meet the quickly approaching September deadline.
4. Does the IRS Offer a Domestic Voluntary Disclosure Program?
If you have unreported “domestic” income (income that is U.S.-based), you can make an IRS Domestic Voluntary Disclosure provided that your unreported income is not from an illegal source. Unlike the IRS’ Offshore Voluntary Disclosure Program, the IRS has not established a formal set of procedures for making a domestic voluntary disclosure. Rather, there are different ways to go about the disclosure process and an attorney at our firm can help you take the appropriate steps for your individual situation. It is also important to understand that even if you make a full voluntary disclosure of your unreported domestic income to the IRS, there is no guarantee that you will be immune from criminal prosecution. Due to the potential risks and penalties involved, you should always speak with a skilled IRS voluntary disclosure attorney before taking any actions.
Steps Involved in the IRS’ OVDP Process
If you are considering participation in the IRS OVDP, you should be aware that there are numerous reporting and procedural requirements that you will be required to meet to complete the program. Because the IRS’ OVDP is ending soon, it is imperative for taxpayers with undisclosed offshore accounts to seek immediate guidance from an IRS OVDP attorney, like Managing Partner of Thorn Law Group Kevin E. Thorn, who can guide them through this complex IRS process. The four primary steps involved in making a voluntary disclosure under the full IRS OVDP are set discussed below:
- Filing a Pre-Clearance Request: If you decide to participate in the IRS Offshore Voluntary Disclosure Program, an IRS OVDP lawyer at our firm will file a pre-clearance request with the IRS Criminal Investigation Division. The Criminal Investigation Division will review the request and send a notification as to whether you are eligible to make a voluntary disclosure. Once you have been pre-cleared for the IRS OVDP, you must submit an offshore voluntary disclosure letter to the IRS.
- Submitting an Offshore Voluntary Disclosure Letter: After receiving pre-clearance from the IRS, our firm will work with you to prepare and submit an offshore voluntary disclosure letter and required attachments to the IRS. The Criminal Investigation Division of the IRS will review this letter and all the information in your attachments to determine whether your offshore voluntary disclosure will be preliminarily accepted as timely or declined.
- Making a Full Voluntary Disclosure Submission: Once you have been notified of your preliminary acceptance into the IRS OVDP, Thorn Law Group will submit a “full voluntary disclosure submission” to the IRS. The requirements at this stage of the process can be very difficult to navigate on your own. Our IRS OVDP tax attorneys will ensure that you are providing all of the documents and information the IRS requires to qualify for the program. Should an IRS examiner contact you requesting additional information, our attorneys will help you respond with the appropriate documentation. Once your submission is deemed to be complete, a civil examiner at the IRS will certify the accuracy and completeness of your voluntary disclosure. At this stage in the process, the IRS will also verify the amount of back taxes, interest and civil penalties owed to the government.
- Executing the Closing Agreement: To complete the IRS OVDP process, you must sign a closing agreement with the IRS (Form 906- Closing Agreement on Final Determination Covering Specific Matters). The closing agreement will delineate your specific responsibilities and obligations under the IRS’ offshore voluntary disclosure program. Before you sign this document, it is important to carefully review and discuss all of the terms with an experienced voluntary disclosure attorney at our firm.
Do not try to navigate this process alone. Trying to negotiate with the IRS without the help of a trained attorney can result in larger penalties and IRS prosecution. By speaking to Managing Partner Kevin E. Thorn, you can have a serious advantage in this complicated process.
Potential Civil Penalties For Failure to Comply with IRS Offshore Reporting Requirements
There are many different penalties that taxpayers with undisclosed offshore accounts can be subject to if they fail to make a voluntary disclosure to the IRS. While the specific penalties will depend upon the taxpayer’s individual facts and circumstances, below is a list of some of the civil penalties that a taxpayer could face for failure to comply with IRS filing requirements:
- Form 114 (Report of Foreign Bank and Financial Accounts – FBAR). The civil penalty for the “willful” failure to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the offshore financial account for each violation. If the failure to file is found to be “non-willful,” the government can impose a $10,000 penalty for each violation.
- Form 8938 (Statement of Specified Foreign Assets). Starting with the 2011 tax year, the penalty for failing to file IRS Form 8938 is $10,000 per each form. Beginning 90 days after you are notified of your delinquency, the IRS can also add on an additional $10,000 penalty for every month that your failure continues, up to a maximum total of $50,000 per return.
- Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). The penalty for failing to file Form 3520 or filing an incomplete form is calculated at the greater of $10,000 or 35 percent of the gross reportable amount. If the returns involved the reporting of a gift, the penalty is calculated at five percent of the gift for every month, up to a maximum of 25 percent of the gift.
- Form 3520-A (Information Return of Foreign Trust With a U.S. Owner). Taxpayers who fail to file information returns related to a foreign trust with a U.S. owner, or file incomplete returns, can face a penalty that is the greater of $10,000 or 5 percent of the gross value of trust assets owned by the United States individual.
- Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations). The penalty for failing to file information returns is calculated at $10,000 per each return. Beginning 90 days after notification of the delinquency, the government can tack on an additional $10,000 for each month the failure is not corrected, up to a maximum of $50,000 per return.
- Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business). The IRS can impose a $10,000 penalty for each informational return that a taxpayer fails to file or fails to keep certain records regarding reportable transactions. Beginning 90 days after notification of the delinquency, the taxpayer can face an additional $10,000 for each month the delinquency continues.
- Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation). The penalty for failing to file an informational return reporting transfers of property to a foreign corporation is calculated at 10 percent of the value of the property transferred, up to a maximum of $100,000 per return. In situations where the failure to report is deemed to be intentional, there is no limit placed on the penalty.
- Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships). United States persons who fail to comply with IRS reporting requirements and the filing of Form 8865 can face a $10,000 penalty per each return. Starting 90 days after the taxpayer receives notification of the delinquency, the government can add on an additional $10,000 for each month that failure continues, subject to a maximum of $50,000 per return, and 10 percent of the value of any transferred property that is not reported, up to a $100,000 limit.
Calculating IRS Offshore Voluntary Disclosure Program Penalties
Determining the amount of the offshore penalty applied to IRS OVDP assets often involves complex calculations. Under the existing IRS OVDP, the IRS explains that the offshore penalty is equal to 27.5 percent of the “highest year’s aggregate value during the period covered by the offshore voluntary disclosure” balance of the taxpayer’s offshore financial accounts. In situations where the taxpayer has multiple offshore assets under the program where the highest value of some assets is in different years, the values of the assets will be aggregated for each year and the IRS will impose a single offshore penalty calculated at the “applicable rate of the highest year’s aggregate value.” It is also important to recognize that if the IRS OVDP assets were held in a bank included on the IRS list of “bad banks” ( Foreign Financial Institutions or Facilitators), the regular offshore penalty percentage will be increased from 27.5 percent to 50 percent.
The IRS OVDP Penalty Computation Worksheet
Depending upon your situation, calculating the amount of the IRS OVDP penalty can be a challenging process. The IRS has provided an IRS OVDP Penalty Computation Worksheet that an experienced tax attorney at our firm can take you though step by step. Our IRS OVDP attorneys can also answer any questions that you may have and help you determine if making a voluntary disclosure is the right avenue for resolving your tax law issues.
Criminal Charges for Failure to Comply With Offshore Account Reporting Obligations
If you don’t participate in the IRS offshore voluntary disclosure program and the IRS initiates an examination of your activities, you could face a variety of potential criminal charges, including tax evasion, filing a false return and failing to file an income tax return. If your failure to file an FBAR was willful in nature, or if you willfully filed a false FBAR, you could also be subject to criminal penalties. The IRS also cautions that you could also face additional criminal charges such as conspiracy to defraud the government with respect to claims and conspiracy to commit an offense or defraud the U.S.
Depending upon the charges you are facing, the monetary fines and prison sentence could be severe. For instance, taxpayers who fail to file an FBAR are subject to criminal penalties of up to $500,000 and a maximum prison term of 10 years. An individual convicted of tax evasion could be sentenced to a prison term of up to five years and a $250,000 fine. With so much at stake, you cannot afford to go it alone. At Thorn Law Group, our tax attorneys are skilled in handling all types of serious IRS matters, including cases involving criminal prosecutions. When you work with us, you can trust that an experienced attorney will work with you to resolve your offshore account issues while fighting for your rights every step of the way.
Resolve Outstanding Tax Issues Swiftly and Successfully With an IRS OVDP Lawyer at Thorn Law Group
If have undisclosed offshore accounts and are wondering what you should do, Thorn Law Group can help. Our experienced tax law professionals will undertake a complete assessment of your situation and discuss all options that may be available to you. The revised program expanded the eligibility criteria for participation in the streamlined filing process for qualified taxpayers. We know just how difficult unresolved tax issues can be and we are here to help you find the best avenue to bring your offshore accounts into full compliance with the law. Because the IRS OVDP program is ending on September 28th of this year, it is critical to start the process now if you want to take advantage of the potential haven from criminal prosecution. Even if the IRS OVDP is not the right process for you, our experienced tax attorneys can advise you on other programs that may be appropriate for your situation. Call Kevin E. Thorn, Managing Partner of Thorn Law Group, at 202-349-4033 or email firstname.lastname@example.org today.