IRS Reopens Offshore Voluntary Disclosure Program

The IRS has reopened the offshore voluntary disclosure program (OVDP) for an indefinite time period.

OVDP is a program where we can correct filing deficiencies related to our offshore assets.  These programs allow us to pay a penalty for our non-compliance as opposed to the more stringent penalties associates with IRS initiated actions. The new program is similar to last year’s program in many ways. Unlike last year, there is no set deadline under the new program to apply. However, the IRS could change the terms of the program at any time. For example, it could increase penalties for all or some taxpayers or defined classes of taxpayers. In addition, it may end the program entirely at any point.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. Under the new program, individuals must pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years before the disclosure (up from 25%). As under the 2011 program, some taxpayers will be eligible for 5% or 12.5% penalties under the new program.

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.

Participants face a 27.5% penalty, but taxpayers in limited situations may qualify for a 5% penalty. Smaller offshore accounts face a 12.5% penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP qualify for this lower rate. Taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

If you have any questions regarding the new offshore voluntary disclosure program or need assistance in applying under this program, please do not hesitate to contact us.

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