About The Offshore Voluntary Disclosure Program (OVDP)
US citizens and residents are required to report foreign accounts and assets by filing an FBAR and other tax documents. Often, our clients are surprised to learn about the degree of possible penalties for an unreported foreign account. US citizens and residents who miss filing an FBAR (that’s IRS jargon for the Report of Foreign Bank and Financial Account) for just one year can end up with a penalty of $100,000 or 50% of the highest balance of the over-reported account.
Unintentional violations may receive fewer penalties, but still cause serious financial loss if not resolved properly with the help of a skilled tax attorney.
What is OVDP?
OVDP stands for Offshore Voluntary Disclosure Program. Often it’s also referred to as OVDI. It is the IRS amnesty plan that allows you to disclose offshore accounts and reduce your penalties. Without a voluntary disclosure, the IRS can and will impose much higher fees on your assets. The IRS can also seek criminal action against individuals who do not voluntarily disclose foreign bank accounts and assets.
What’s new in OVDP?
Also referred to as the 2014 OVDP, it is a continuation of the 2012 OVDP with a few changes. A significant change is the increased 50% penalty from the previous 27.5% penalty. What this means is that a 50% offshore penalty applies if:
- Either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.
This is significant because there is a list of banks attempting to acquire Non-Prosecution Agreements with the Department of Justice to avoid paying this new penalty. To date, there are only a handful of financial institutions whose clients would be subject to the 50% offshore penalty. However this list can grow at any moment. There are three events that will cause a financial institution’s offshore account holders to be subject to the 50% penalty beginning on August 04, 2014. Consulting with an OVDP lawyer will help you understand how this new law may affect reporting your offshore accounts and assets.
Hire the Right Legal Help to Deal with the IRS
Individuals sometimes choose to take their chances and hope they won’t get caught, simply because they can’t afford the penalties. Or, they opt to settle IRS matters on their own. That can be a very expensive mistake.
If you are facing an investigation by the IRS due to an OVDP issue, you will need an OVDP lawyer who can help you with the following:
- If you can prove that your failure to report a foreign account was accidental, the penalty could be $10,000 or even waived.
- Collect only the necessary documents to present to the IRS. This helps you from disclosing unnecessary information that the IRS may use against you during an investigation.
- Make arrangements for standard amnesty, where the penalty is 27.5% but only imposed on 1 year.
As with any tax debt, the IRS wants to get paid quickly. The best option is always to pay the amnesty penalties in full, but payment plans are available and sometimes even an offer in compromise can be worked out. With the assistance of an experienced and skilled tax attorney, you can resolve many of your OVDP issues without adding additional fees and penalties.
Since 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.
