Answers to the Most Frequently Asked Questions Regarding Offshore Voluntary Disclosure Program
As a tax attorney specializing in the Offshore Voluntary Disclosure Program (OVDP), nary a day goes by that I don’t get a call from a person inquiring about the OVDP. The questions asked are relatively the same. After a while, I began to make a list of the most frequently asked questions. Below are my answers to them:
I. Why should I make a voluntary disclosure?
Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties, and eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues.
II. What are some of the civil penalties that apply if I don’t come in under the OVDP and the IRS examines me?
Depending upon a taxpayer’s individual case, the following penalties could apply:
• A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents, and certain other persons must annually report their direct or indirect financial interest in, or signature authority over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
• Beginning with the 2011 tax year, a penalty for failing to file form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, and certain foreign securities and interests in foreign entities, as required by I.R.C. §6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
• Fraud penalties. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that essentially amount to 75 percent of the unpaid tax.
• An accuracy-related penalty. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.
In accordance with Circular 230 Disclosure
As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.
Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.
1 comment on “Should I Stay or Should I Go? – Part 1”
If your enquiry is coming from abroad, you should suggest they speak with a citizenship expert to determine if they have unknowingly performed a relinquishing act, such as taking another citizenship. You’d be surprised how many people aren’t even US citizens anymore, but enter programs like OVDI.
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