The IRS launched its first offshore voluntary disclosure program in 2009. Since then, the program has been reintroduced in 2011 and again in 2012 following strong interest. The IRS has collected more $5 billion in back taxes, interest and penalties from over 33,000 taxpayers who have disclosed their offshore accounts under the first two programs. Another 1,500 voluntary disclosures have been disclosed since the new 2012 program announcement in January 2012. The high number of continued voluntary disclosures persuaded the IRS to create the 2012 OVDP. These numbers will continue to grow as the IRS keeps the program open for an indefinite period. Estimates are that at least 65,000 people will have participated by 2013.
The IRS believes that the focus on offshore tax evasion is continuing to produce great results with the nation’s taxpayers. The IRS has increased its efforts to identify offshore tax evasion, and there has been an increase in information sharing with other countries following the OECD guidelines. The IRS is now making better use of third-party information and data from the 2009 and 2011 programs. The IRS expects to launch new offshore investigations and expand these investigations into countries other than Switzerland and Liechtenstein. All of these actions are giving offshore taxpayers an incentive to come forward. Thus, the 2012 program gives people wanting to come in and get it right with the government a chance to do so. The program covers the most recent eight tax years for which the due date has already passed. It gives the taxpayers a chance to avoid substantial civil penalties and eliminate the risk of criminal prosecution.
Participants in the new program (2012 OVDP) face a 27.5% penalty, and some accounts will be eligible for reduced 5% or 12.5% penalties instead. A taxpayer with offshore accounts or assets that did not exceed $75,000 in any calendar year during the eight year look-back period will quality for a reduced 12.5% rate. The reduced 5% rate will apply in certain limited circumstances. These circumstances include: taxpayers who did not open or cause the account to be opened, have exercised minimal and infrequent contact with the account, who have transferred the funds to an account in the United States and can establish that all applicable U.S. taxes have been paid on funds deposited to the account, taxpayers who are foreign residents and who were unaware they were U.S. citizens, taxpayers who are foreign residents and who meet all conditions specified. Those who feel that the penalty is disproportionate may opt instead to be examined. Taxpayers have options and the process of voluntary disclosure can become complicated and costly. It is highly recommended that the taxpayer speak to a tax professional or tax attorney.
If the offshore penalty is unacceptable to a taxpayer, they must indicate in writing the decision to withdraw from or opt out of the 2012 OVDP. Once this is made, it is irrevocable. An opt out is a decision by the taxpayer to have the matter handled under the standard audit procedure. However, the taxpayer must be certain the returns filed in compliance with the 2012 OVDP are complete and nothing that should have been reported was omitted because this may lead to criminal prosecution. It is very important to speak to a tax professional or a tax attorney for serious matters like opting out. Please visit our FAQs for a more detailed analysis of the 2012 OVDP. Vic Abajian, a former IRS tax attorney, continues to assist taxpayers with foreign account and asset issues before the IRS. He currently represents dozens of clients with foreign accounts both within the IRS offshore voluntary disclosure program and those that are involved in civil audits. He also represents several clients who have received grand jury subpoenas requesting information related to offshore bank accounts. To learn more about options and how to make a voluntary disclosure of an offshore bank account, please contact Los Angeles Tax Attorney Vic at 818-396-5059. We have offices in Irvine and Glendale, California and represent taxpayers throughout the nation and those located in foreign countries.