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January 5, 2012
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February 2, 2012

IRS Reopens Offshore Voluntary Disclosure Program (OVDP)

Previously, we posted a blog detailing the announcement by Credit Suisse Group AG, Switzerland’s second-biggest bank, that it intended to disclose confidential client account data to the Swiss tax authorities, who would then decide whether to disclose it to the IRS.  At that time, we examined the closure of the 2011 “voluntary disclosure” program, wherein those with offshore undisclosed accounts are given the opportunity to report their holdings without fear of criminal prosecution, and speculated as to whether the IRS would extend another opportunity for Credit Suisse clients to make a full and voluntary disclosure.

Now it appears that the IRS has done just that.  On Monday, January 9, the IRS announced that it had reopened the offshore voluntary disclosure program, “following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.”  The IRS also announced the recovery of more than $4.4 billion, so far, from the two previous international programs.

This most recent program is similar to the 2011 program, with a few key differences.  Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers, or decide to end the program entirely at any point.

Overall, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives.  Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures and they will now be able to be treated under the provisions of the new program.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts or entities, or the value of foreign assets, during the eight full tax years prior to the disclosure.  That is up from the 25% penalty in the 2011 program; although some taxpayers may be eligible to receive reduced 5% or 12.5 % penalties if they meet certain qualifications.  Participants must also file all original and amended tax returns and include payment for back-taxes and interest for up to eight years, as well as pay all accuracy-related and delinquency penalties.

Taxpayers who do not submit to any sort of voluntary disclosure continue to run the risk of detection by the IRS and may face the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and, most importantly, an increased risk of criminal prosecution.  There is no statute of limitations for fraud of failure to report income.  If the taxpayer fails to file a return or files a return that is false or fraudulent then an audit or collection procedure may begin at any time.

As the IRS is continues to make progress in its aggressive attack against offshore tax havens, taxpayers who have utilized offshore accounts to hide income from the IRS may wish to contact an experienced tax attorney, in order to discuss whether it makes sense for them to make a voluntary disclosure.  If you have questions about your tax situation, contact an Attorney in Jacksonville who can assist you today.