2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions (FAQs) and Answers

We have reviewed the new 2011 OVDI FAQs and noticed that the Service has refined and streamlined the voluntary disclosure process. Our firm prepared dozens of voluntary disclosure applications in 2009 and the new 2011 FAQs seem to resolve some of the issues that arose during the 2009 voluntary disclosure process.

For instance, the PFIC issue is now set forth at the outset. Also, tax and penalty has to be paid upfront and not at the conclusion of the process. There also appears to be greater centralization, as opposed to the prior program which saw disclosures spread to agents and field offices across the country, as well as re-assignments and transfer to new agents midway through the process.

The first step for a taxpayer making an offshore voluntary disclosure is the submission of the Offshore Voluntary Disclosures Letter. This letter will be reviewed by IRS Criminal Investigation (CI), and taxpayers will be notified whether the disclosures have been preliminarily accepted or declined. Upon acceptance into the OVDI, taxpayers will be instructed to submit their full voluntary disclosure package, which must be received on or before the August 31, 2011 deadline.

The full voluntary disclosure package generally includes:

  • Copies of previously filed tax returns for all tax years covered by the voluntary disclosure;
  • Amended tax returns for all years covered by the voluntary disclosure;
  • Specific forms, available from the IRS website, for each previously undisclosed foreign account and asset, and for all offshore financial accounts of a taxpayer with an aggregate highest account balance in any year of $1 million or more;
  • A completed “Taxpayer Account Summary with Penalty Calculation”;
  • Payment of tax, interest, and all penalties;
  • Copies of offshore financial account statements reflecting all account activity for each of the tax years covered by the voluntary disclosure; and
  • Extensions of the statute of limitations for assessing tax (including tax penalties) and to assess FBAR penalties.

For additional information, contact Parag Patel of Patel Law Offices at 732-623-9800 or visit us at www.PatelLawOffices.com. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems.

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