OVDI program returns with some modifications

On Jan. 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Initiative (OVDI), which provides taxpayers that have undisclosed income from offshore accounts an opportunity to get current on their tax returns and limit potential penalties. In conjunction with the reopening, the IRS announced that, during the two previous international programs which ran during 2009 and 2011, more than $4.4 billion had been collected.

In a press release issued Jan. 9, 2012, IRS Commissioner Doug Shulman, stated "we have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation's tax system." He also commented that "people need to come in and get right with us before we find you" and "we are following more leads and the risk for people who do not come in continues to increase."

With a few key differences, this OVDI is similar to the 2011 program, through which participating taxpayers could escape potential criminal prosecution by filing missing tax returns and paying tax, penalties and interest. Unlike the prior program, there is no set deadline for taxpayers to apply. It is important to note, however, that the terms of the program could change at any time. For example, the IRS could decide to end the program entirely at any point, or to increase the penalties for all or some of the taxpayers or defined classes of taxpayers.

The overall penalty structure for the new program mirrors that of the 2011 program, except the highest penalty rate is increased from 25 percent to 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. During the 2011 program, the highest penalty was 25 percent. Similar to the 2011 program, some taxpayers will be eligible for 5 or 12.5 percent penalties. Also similar to the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined. Taxpayers who wish to participate must file all original and amended tax returns and include payment for back taxes and interest for up to eight years, as well as pay accuracy-related and/or delinquency penalties.

For more information on OVDI, read IRS Offshore Programs Produce $4.4 Billion To Date for Nation's Taxpayers: Offshore Voluntary Disclosure Program Reopens.

More information is also available through this article, which further discusses 2011 OVDI programs.

Patti Burquest, Principal, Washington National Tax
Bob Adams, Partner, Washington National Tax