Tax Law Center Blog

The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced.

The overall penalty structure for the new program is the same for 2011 OVDI program, except for taxpayers in the highest penalty category. 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.

Under the new program, there’s a 27.5% penalty, up from 25% in the 2011 program, on the highest aggregate balance in a taxpayer’s overseas accounts in the eight years before disclosure. But those whose overseas account balances did not top $75,000 in any year face a lower penalty of 12.5%. Like the previous program, some taxpayers are eligible for an even lower penalty rate of 5%. Taxpayers also owe back taxes and interest. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS said the new program’s terms and penalties could change at any time, and the IRS may opt to end the program at any time.

“As we’ve said all along, people need to come in and get right with us before we find you,” said IRS Commissioner Doug Shulman, in the release. “We are following more leads and the risk for people who do not come in continues to increase.”

The IRS said its two previous disclosure programs — one ended in 2011 and one in 2009 — netted the agency about $4.4 billion so far in tax revenue, and the agency is still processing disclosures to the 2011 program.

The IRS received some 33,000 disclosures under the previous programs, and “hundreds of taxpayers” have come forward since the 2011 program closed in September, the IRS said in its release Monday. Those people will be treated under the terms of the new, third program, the IRS said.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” Shulman said. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

Also, the IRS made note of American citizens living in other countries who did not realize they had run afoul of U.S. law by failing to report certain assets. “The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations,” the release said. “This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law.”

In light of the numerous probes and summonses against several foreign banks, including HSBC, it is imperative that U.S. accountholders seriously consider entering the new IRS OVDP program for protection against civil (and criminal) penalties.

Patel Law Offices has assisted numerous taxpayers with offshore asset planning and filed dozens of OVDI applications last year. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.