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The IRS Reopens the Offshore Voluntary Disclosure Program for 2012

Posted by attorney Irina Goldberg

The IRS has announced that it will reopen its Offshore Voluntary Disclosure Program (OVDP) for the third time. The purpose of this program is to allow people hiding offshore accounts to come clean to the IRS and get current with their taxes.

The previous two programs resulted in collection of more than $4.4 billion in 2009 and 2011. The IRS states that it has closed about 95% of the disclosure cases from the 2009 program, collecting $3.4 billion. The 2011 program has resulted in an additional $1 billion as the IRS continues to process those disclosure cases. Therefore, for those of you who participated in the 2011 OVDP and have not yet heard from the IRS, sit tight. It will probably take another three years before the IRS gets through everyone who participated.

Since the 2011 program expired in September, hundreds of taxpayers continued to make voluntary disclosures. In response, the IRS has decided to treat these taxpayers under the provisions of the 2012 OVDP.

Unlike the previous two programs, the 2012 OVDP has no set deadline to expire. Nevertheless, in return the IRS reserves the right to change the program at any time by increasing penalties or ending it altogether.

Currently the penalty structure for the 2012 OVDP remains the same except for the taxpayers in the highest penalty category. Those individuals will have to pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight tax years prior to disclosure. This is an increase from the 25% penalty during the 2011 OVDP. In limited situations and for smaller accounts, some taxpayers will instead be eligible for the 5% or 12.5% penalties (as they were during the 2011 OVDP). If the taxpayer believes that the penalty is disproportionate, they may opt to be examined by the IRS.

In order to qualify for the program, taxpayers must file all their original and amended tax returns and include payment for taxes owed, interest, accuracy-related and/or delinquency penalties for up to eight years.

IRS Commissioner, Doug Shulman, urges people to come clean before the IRS finds them. He states that “we are following more leads and the risk for people who do not come in continues to increase."

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