In 2009, the IRS unveiled a new program called the OVDP, or Offshore Voluntary Disclosure Program, which has been making legal and financial waves throughout the international community ever since. By participating in the OVDP, taxpayers could safely report foreign assets which had previously been concealed, simultaneously coming back into compliance with the law while reducing or completely avoiding the frightening possibility of criminal prosecution by the Department of Justice. But the OVDP isn’t one-size-fits-all. The IRS has implemented several modified OVDPs since the original policy was introduced (sometimes calling the program an “initiative” instead), most notably a special program called the Streamlined OVDP. There are many important differences between the standard and Streamlined OVDP which taxpayers must be aware of — or else risk making a disastrous financial mistake.
The IRS’ Offshore Voluntary Disclosure Program (OVDP)
The OVDP and Streamlined OVDP share a basic objective: to encourage taxpayers to disclose hidden offshore accounts and assets. But beyond this broad shared goal, these two outwardly similar programs are actually very different. Let’s begin comparing the programs by taking a closer look at the crucial components of the standard OVDP, which is in itself divided into several programs by year.
In contrast to the original 2009 OVDP and the 2011 OVDI, the program’s latest incarnation, the 2014 OVDP, does not impose a specific deadline on taxpayers. However, the 2014 guidelines apply to taxpayers making OVDP submissions on or after July 1, 2014. If you applied to the program before July 1, 2014, but your case has not yet been resolved — meaning you have not yet received Form 906 (Closing Agreement On Final Determination Covering Specific Matters) — you or your representative can ask the IRS to consider your case under the 2014 guidelines by writing to the following address:
Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
Attn: OVDP Determination
The IRS describes the 2014 OVDP as a “continuation of the program introduced in 2012 [2012 OVDP] with modified terms.” The primary change from the 2012 program is that under the 2014 version, you may be subject to a 50% penalty if your undisclosed account was held at a foreign financial institution, or “FFI,” which has been publicly identified as either:
- Being under investigation for acts of tax fraud.
- Helping the federal government conduct an investigation.
FFIs located in countries known as tax havens, such as Switzerland and the Netherlands, have borne the brunt of such investigations. US expats in Switzerland, the Netherlands, and other notable tax havens should be especially careful with regard to the reporting of global income.
The 2014 OVDP also requires that taxpayers pay a 20% penalty on all tax underpayments stemming from concealed offshore accounts, as provided by 26 U.S. Code § 6662(a). If applicable, pursuant to 26 U.S. Code § 6651(a)(1) and 26 U.S. Code § 6651(a)(2) participants may also be required to pay penalties for failure to pay or failure to file taxes. Furthermore, participants must agree to help the IRS and DOJ with their investigations by supplying information where requested to do so.
While the 2014 OVDP liberates participants from the strict deadlines associated with previous years’ programs, the IRS also cautions taxpayers that “the terms of this program could change at any time,” including the potential for previous penalties to be increased, or for program eligibility to be narrowed considerably.
As the program currently stands, the 2014 OVDP offers taxpayers a tremendous dual opportunity: not only may the civil penalties (i.e. fines) be significantly reduced, but even more importantly, the participant can effectively eliminate their risk of being referred to the DOJ for criminal prosecution.
How Are the Streamlined Procedures Different?
You cannot mix and match the OVDP and Streamlined OVDP: you must choose one, and participating in the Streamlined version will render you ineligible for the standard version.
Many taxpayers logically but mistakenly assume that because this version of OVDP is streamlined, it must be a quick and easy “OVDP Lite,” and therefore the better and more convenient option. After all, “streamlined” usually means faster and simpler — so where does the issue lie? While the Streamlined OVDP may prove more appropriate for certain filers, it also comes with several caveats which taxpayers must be made aware of.
To begin with, taxpayers using the streamlined procedures are required to certify that their misconduct was not willful. This means you are certifying under law that your conduct was not intentional, but the result of negligence or an accidental error of judgment. In order to obtain this certification, you will need to provide the IRS with the exact, specific reasons you failed to report your income and pay and file taxes where required.
Be warned that the IRS will check your assertions of non-willful conduct — and if the IRS arrives at a different conclusion and deems your certification false, you could face severe criminal penalties for perjury (i.e. lying under oath). That means prison time, massive fines, and the creation of a lasting criminal record which can haunt your personal and professional endeavors for years to come.
There’s another serious risk involved with the Streamlined OVDP as well: lack of protection from criminal liability. The IRS expressly cautions taxpayers, “Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating the Offshore Voluntary Disclosure Program and should consult with their professional or legal advisers.”
Contact an Experienced CPA Today
Remember: the IRS reserves authority to dramatically alter or even totally discontinue the OVDP at its discretion, so while taxpayers should certainly never rush into uninformed participation, neither should they delay unnecessarily. This is especially true for taxpayers who are concerned about an imminent IRS investigation, because if an investigation is already underway, the taxpayer will be prohibited from OVDP participation.
The most prudent course of action is to immediately consult with a qualified CPA, who can then guide you through the benefits, disadvantages, rights, and responsibilities associated with the standard 2014 OVDP as well as the streamlined reporting procedures.
Don’t wait another day: to set up a confidential consultation with CPA Ted Kleinman, call US Tax Help at (800) 810-9312.