OVDP changes to accommodate non-willful tax evasion

The OVDP (Offshore Voluntary Disclosure Program) may face more modifications as IRS continues to focus on international tax compliance. The IRS Commissioner John Koskinen hinted on the upcoming modifications to the OVDP on June 3rd, 2014 before the IRS Council. His remarks give a ray of hope to U.S citizens and residents who have offshore bank accounts that have gone unreported. This may be because the OVDP has been previously centered on criminal prosecution and hefty penalties under Bank Secrecy Act. The modifications would consider the U.S. Citizens and residents who have resided in other countries for so long that their failure to comply with their tax obligations has not been intentional. The IRS looks to accommodate these tax payers by easing the penalty on them. This is aimed at encouraging them to report their offshore accounts and comply with their tax obligations.

OVD program focus on combating tax evasion

OVDP (Offshore Voluntary Disclosure Program) was put in place to curb global tax evasion. It was to provide an opportunity to U.S. Citizens and permanent residents living overseas or those with offshore accounts to comply with their tax obligations voluntarily. This would involve disclosing offshore accounts and paying a monetary penalty thus avoiding criminal prosecution. The program has been successfully and as such seen various modifications since its inception. Despite this, there are still many tax payers who have not tapped into the OVDP program. They may have been willing to comply with their tax obligations may be if the penalties were minimal and reduced chances of criminal prosecution. For more on help with OVDP program, click here.

IRS modification to include willful tax payers in OVDP

IRS is determined to ensure maximum cooperation of its taxpayers abroad through yet another possible modification of OVDP. The OVDP program has without a doubt targeted all taxpayers with offshore bank accounts without considering if the taxpayers were willful or non-willful tax evaders. In his remarks, the IRS Commissioner John Koskinen notes that they are considering whether their voluntary programs have been too focused on those willfully evading their tax obligations and not being accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. According to the IRS commissioner, some of the U.S. citizens have resided abroad for many years, perhaps even the vast majority of their lives. This is the driving factor behind the forthcoming foreseen possible modifications by the IRS to the OVDP.

The IRS, through its Commissioner, hinted on the possibility of giving these tax payers, whose non-compliance does not constitute willful tax evasion, the opportunity to come into compliance without having to face the type of penalties relevant for those who willfully hid their investments overseas. These tax payers might not have had the opportunity of coming into compliance that doesn’t involve the threat of substantial penalties.

The Justice Department Crackdown on Offshore Foreign Accounts

Offshore financial accounts are the target of a recent IRS crackdown on tax evasionSince the Justice Department raised the threat of prison time for Americans who did not reveal their offshore accounts, the tax-evader crackdown has proven very successful for the United States government. Since 2008—when the Justice Department began a push against Swiss banks—the U.S. has prosecuted 103 people, including 62 guilty pleas and 5 trial convictions.

Of the 103 people prosecuted, only 18 received prison time. In almost every single case, the defendants received sentences that were below the set advisory guidelines. During sentencing, judges must weigh guidelines that seek to provide both consistency and fairness across the board. Although the guidelines still exist, they became advisory rather than mandatory as a result of a 2005 Supreme Court ruling in United States v. Booker [543 U.S. 220 (2005)]. Because the average defendant charged with tax evasion is both a first-time offender and likely very charitable due to their wealth, virtually all judges give out sentences below the guidelines.

The Case of Beanie Babies creator Ty Warner and Tax Evasion

Such is the case with billionaire Beanie Babies creator H. Ty Warner. Warner pleaded guilty Oct. 2 to tax evasion related to Swiss accounts in which he held as much as $107 million. Before sentencing, he had paid a $53 million civil penalty and $27 million in back taxes. Though the guidelines called for between 46 to 57 months in prison, U.S. District Judge Charles Kocoras sentenced Warner to two years’ probation, ordering him to perform 500 hours of community service and pay a $100,000 fine. Remarking upon the relatively light sentence, Judge Kocoras stated, “Society will be best served to allow [Warner] to continue his good works.”

Making a Voluntary Disclosure to the IRS

Since 2009, more than 38,000 taxpayers have joined the government’s amnesty program and paid $5.5 billion in back taxes, interest, and penalties. Deciding whether to participate in the Offshore Voluntary Disclosure Program (“OVDP”) or proceeding under an alternative voluntary disclosure protocol requires careful evaluation of the specific facts in each case and should not be undertaken without the assistance of a competent tax attorney.

Dealing with delinquent foreign financial accounts or unreported income from offshore activity is not a matter that should be handled by the taxpayer without the assistance of competent tax counsel.