In 2009 the IRS ran a short program for offshore voluntary disclosure. In 2011 they ran a similar program. In 2012 they began a third offshore disclosure program, this one without an expiration attached. Intead of expiration, the IRS is free to change the particulars of the program when it choose, for example increasing the penalties. That program, the Offshore Voluntary Disclosure Program or OVDP continues today.
All three variations off the OVDP shared a common purpose. In exchange for submitting information to the IRS regarding previously undisclosed offshore/foreign accounts and assets, taxpayers receive reduced penalties and avoid criminal prosecution. The IRS has long had a similar program in place for domestic disclosure as well.
Without the protection of the OVDP, the penalties are severe for failing to disclose offshore assets to the Department of the Treasury or failing to disclose offshore income. They include high penalties and can also include jail time. Participation in the OVDP does not spare the taxpayer all penalties, like some other tax amnesty programs have in the past, but the program does spare the taxpayer criminal prosecution and the penalties to be paid as part of participation are much lower than what one would otherwise face.
There’s one important caveat. Once the IRS or the Treasury Department begins investigation into a taxpayer’s offshore assets–and such investigation typically begins before the taxpayer is notified about it–they are no longer eligible for the OVDP. With the 2010 Foreign Account Tax Complicate Act (FATCA), a law that will allow for the automatic exchange of information between the IRS on foreign financial institutions regarding US depositors, coming into full force this July, the IRS’s ability to investigate offshore assets is stronger than ever before. Twenty-two countries have already signed FATCA agreements with the US and many more have agreements in various stages of completion.
Each tax situation is of course unique and you should always consult a tax professional to determine the best course of action for you. Horowitz Law Offices has represented numerous clients in their participation with the OVDP, with offshore reporting requirements, and other Federal, Illinois and Chicago tax matters. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org