The Offshore Voluntary Disclosure Program (OVDP), instituted by the IRS, is an opportunity to allow people to share their "hidden" overseas assets without getting into too much trouble. But let's start from the beginning.
What is OVDP?
This program, started in the beginning of 2012, allows people to voluntarily tell the IRS how much money they are holding overseas for the purposes of getting current with their taxes and fulfilling their legal obligations of reporting foreign assets. You're probably asking why would anyone voluntarily give up that information if they have been successfully hiding it this long? Well, consider the alternative. If someone is holding a significant amount of money overseas, we all know our government wants their share. You can bet they will be searching for the evidence and when they find it, the consequeces will be even more severe than if it had just been voluntarily declared.
Who Needs the OVDP?
Any U.S. taxpayers who currently have undisclosed foreign accounts qualify for the OVDP. The only reasons one would not qualify is if they are already being audited, are on the audit list, or if their foreign accounts are funded from illegal sources. You do NOT need the OVDP if: (1) your negligence was not willful, (2) you have no criminal background, (3) your foreign bank account holds a small amount, and (4) you are going to file amended tax returns for the past 3 years.
What does the OVDP require?
As with any government program, there is a lot of work before getting any action. In submitting an OVDP application, one must be prepared to provide the following information on the eight prior years: (1) report all foreign assets and income that was hidden; (2) report the people who helped hide the assets and income including your banker, accountant, attorney, and even family members; (3) submit amended federal income tax returns; (4) pay all your unpaid federal income tax plus a 20% penalty and the interest; and (5) pay an OVDP penalty, usually at 27.5% of the highest aggregate balance of all unreported foreign accounts during the disclosure period.
How long does OVDP take?
Beginning with all the required paperwork mentioned above, the OVDP process takes a long time. It can take one to two years, start to finish. You're not submitting this application for a quick fix. This process will change your life for the better, so stay strong.
What is the OVDP deadline?
Since this is the third time the IRS has instituted the OVDP, it makes sense one would wonder when their goodwill might end. But unlike the prior two times, there is currently no deadline stated. The IRS can certainly change that at any time; but at present, the 2012 OVDP is open-ended.
What happens after OVDP is complete?
Once you have gone through the rigmarole of paperwork and anxiety of waiting, you can take a deep sigh and relax. You have successfully landed on the right side of the IRS nearly unscathed, though a bit lighter in the wallet. Though there were hefty fines, it sure beats dealing with civil and criminal penalties. Congratulations. You are now squeaky clean.
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