Offshore Tax Evasion Solutions, Part 1: OVDP

 Posted on February 13, 2018 in Taxation Law

Under the Internal Revenue Code, taxpayers are required to include all income on their tax return, including interest accrued on funds held offshore.

Under the Foreign Account Tax Compliance Act (FATCA), taxpayers in the United States are required to report financial assets that are held in foreign countries to the IRS. Failure to report their income or these assets can result in both civil and criminal penalties for offshore tax evasion.

To help people and organizations who own offshore funds or assets become compliant, the IRS provides two resolutions: the Offshore Voluntary Disclosure Program (OVDP) and streamlined compliance. In this blog, we examine the requirements and procedures of the OVDP.

OVDP Requirements

Voluntary disclosure allows taxpayers to become compliant and determine the costs involved in resolving tax issues with offshore funds or assets. By doing so, taxpayers can minimize the civil penalties involved with unreported funds or assets and avoid criminal prosecution for tax evasion.

To participate in this program, taxpayers must:

• Provide information about their foreign assets or accounts;
• Pay a 20 percent accuracy-related penalty for underpayment of tax in any years covered in the voluntary disclosure;
• Pay any applicable failure-to-file and failure-to-pay penalties;
• Pay an offshore penalty of 27.5 recent of the highest aggregate value of offshore accounts and assets. In some circumstances, such as when the foreign financial institution where the assets are held is under investigation by the IRS or Department of Justice, this penalty may increase to 50 percent. This penalty will be in lieu of all other penalties that may apply to undisclosed foreign accounts; and
• Pay his or her tax liabilities and applicable interest in full for all years included in the offshore disclosure period.

To participate in the OVDP, taxpayers or their representatives must first request pre-clearance by faxing the following information to the IRS Criminal Investigation Lead Development Center:

• The taxpayer’s identifying information: name, date of birth, tax identification numbers, addresses, and phone numbers;
• Identifying information of financial institutions where offshore assets were held: names, addresses, and phone numbers;
• Identifying information of any entities, including foreign and domestic corporations, partnerships, and trusts, through which the taxpayer held assets: names, employer identification numbers, addresses, and the jurisdiction where the entity was organized; and
• Executed power of attorney forms, if the taxpayer is represented by an attorney. 

If pre-clearance is granted, the taxpayer will receive a pre-clearance notification, after which he or she will have 45 days to submit his or her voluntary disclosure. He or she can do so by mailing an Offshore Voluntary Disclosure letter and attachment to the IRS. If the IRS accepts the disclosure as timely, the taxpayer must complete his or her voluntary disclosure submission and work with a civil examiner to resolve his or her civil liability issues.

Upon the completion of the OVDP process, the taxpayer will execute a closing agreement that resolves his or her outstanding offshore tax issues, and he or she will not be subject to criminal prosecution by the Justice Department.

Contact a San Jose, CA Tax Attorney

The OVDP provides taxpayers who have undisclosed offshore assets with a way to resolve their tax issues, minimize their liability, and avoid criminal prosecution. However, taxpayers with offshore assets and who meet certain criteria may want to consider streamlined compliance (with its more minimal procedures and an offshore penalty of only 5%), which we will be discussing in our next blog.

If you have offshore assets that have not been disclosed to the IRS, John D. Teter Law Offices can work with you to determine your best options for resolving your tax issues while minimizing your liability. For skilled representation in a wide variety of tax matters, contact a San Jose offshore tax compliance lawyer today at 408-866-1810.

Sources:

https://www.irs.gov/individuals/international-taxpayers/offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers-2012-revised