[International Tax Compliance]
Do you know how to minimize the chances of criminal prosecution if you are willfully out of U.S. international compliance?
By Stanley I. Foodman
The Offshore Voluntary Disclosure Program (OVDP) is a partial tax amnesty program whereby IRS permits noncompliant taxpayers to disclose willfully unreported offshore accounts, entities and related income.
Taxpayers who do not submit an OVDP filing run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty, foreign information return penalties, and an increased risk of criminal prosecution.
The “key” word for OVDP is willful. Unlike the Streamlined Filing Compliance Procedures program, which is intended for taxpayers that have acted non-willfully, OVDP enables willfully non-compliant taxpayers to resolve tax liabilities and minimize chances of criminal prosecution.
OVDP requires taxpayers to cooperate with IRS and Department of Justice offshore enforcement efforts, through providing information about financial institutions and other facilitators who helped the taxpayer establish or maintain an offshore arrangement.
Here is what a taxpayer making an Offshore Voluntary Disclosure is minimally required to do:
- Pre-clearance: The Pre-Clearance Process is optional to the taxpayer. If the taxpayer chooses Pre-Clearance, then the taxpayer or taxpayer’s representative may fax a letter containing certain information to IRS Criminal Investigation.
- Voluntary Disclosure Letter: If the taxpayer chooses the Pre-Clearance process, and receives a Pre-Clearance Notification, then the taxpayer has 45 days from the date of the notification to submit the Offshore Voluntary Disclosure letter and required attachment. Note that the taxpayer may bypass the Pre-Clearance process, and mail the Offshore Voluntary Disclosure letter and attachment directly to IRS Criminal Investigation.Upon receipt, IRS reviews the letter and the attachment and proceeds to notify the taxpayer (and the representative) by fax whether the voluntary disclosure has been preliminarily accepted or declined.
- Complete the Voluntary Disclosure Package: If the voluntary disclosure is preliminarily accepted, then the taxpayer has a prescribed number of days to mail in the full voluntary disclosure package to the IRS.
IRS continues with its quest to identify those taxpayers with undisclosed foreign accounts. The process of identifying non-compliant Taxpayers has become easier for IRS. IRS is able to obtain taxpayer information through tax treaties, whistleblower programs and FATCA. It is important for out-of-compliance taxpayers to take action now as the era of tax transparency is here to stay. IRS may, at its sole discretion, increase penalties or limit eligibility for participating in the program for all or some taxpayers or defined classes of taxpayers. IRS can also decide to end the program entirely at any time. Taxpayers should not be victims of their own making, and ought to consult their tax specialists to ensure that the complicated process of voluntary disclosure is conducted efficiently and effectively.