Offshore Voluntary Disclosure Program Returns


By Nishant Patel

The IRS announced on January 9, 2012 in a news release that it will reopen the offshore voluntary disclosure initiative (OVDI) program for the third time since 2009. The program is intended for taxpayers who have previously failed to report interests in foreign financial accounts (i.e., banks, securities, etc.) or income generated from those accounts. According to the IRS, the first two versions of the OVDI program were met with great success in achieving greater transparency to foreign financial accounts held offshore by U.S. taxpayers. The two previous programs brought in an estimated $4.4 billion in revenues to the federal government. The IRS hopes that the new program similarly continues to encourage taxpayers to come forward and disclose foreign financial accounts.

The new version is similar in many ways to the 2011 OVDI program. For example, the new program will still require taxpayers who wish to come forward to disclose the last 8 tax years of information with respect to the foreign financial accounts and assets. Also, the taxpayers will still be required to file original and/or amended returns and include payment for all prior taxes, interest and penalties for up to 8 years of tax returns.

However, taxpayers should note some key differences between the new OVDI program and the 2011 version. For instance, the top tier in the penalty framework has been increased to 27.5% (compared to 25% under the 2011 OVDI program) on the highest aggregate balance of foreign financial accounts during any of the last 8 tax years. The other penalty tiers, which depend on meeting specific circumstances, remain unchanged. Another significant variation is that the IRS plans to keep the new program around indefinitely while the old 2009 and 2011 OVDI programs were temporary. However, the IRS has cautioned that it reserves the right to change the terms at any point, including ending the program or increasing penalties for all or certain classes of taxpayers.

The IRS is currently working on developing further details and procedures and will issue further guidance in the near future. In the meantime, taxpayers who hold foreign financial accounts and who have not previously filed returns or disclosed accounts should consider whether the new OVDI program is right for them or whether other methods can be utilized to come into compliance. Regardless of the situation, a careful review of the facts and circumstances is almost always required on a case-by-case basis. Schneider Downs’ International Tax team has the expertise to help clients understand and navigate through the complex rules and reporting requirements.

Contact a member of the Schneider Downs International Tax team for more information.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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