The 2012 Offshore Voluntary Disclosure ProgramFebruary 02, 2012
On January 9, 2012, the IRS reopened the offshore voluntary disclosure program (the “2012 OVDP”) to give taxpayers with unreported foreign accounts a chance to become current on their taxes and reporting obligations while mitigating the risk of criminal prosecution.
The 2012 OVDP is similar to the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the 2009 Offshore Voluntary Disclosure Program (OVDP), both of which have ended. However, there are some significant changes.
Unlike the previous programs, there is no set deadline by which applications must be submitted. The 2012 OVDP will remain open indefinitely until further notice. However, the IRS can change the terms of the program at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.
The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. Under the new program, the penalty framework requires individuals to pay a penalty of 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. That is up from 25 percent in the 2011 program.
Taxpayers in limited situations can qualify for a 5 percent penalty, and smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.
Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy related and/or delinquency penalties.
The IRS is currently developing procedures by which dual citizens and others who may be delinquent in filing but owe no U.S. tax may come into compliance with U.S. tax law.
Stan P. Baranski, CPA, is a partner with BlumShapiro, the largest regional accounting, tax and business consulting firm based in New England, with offices in West Hartford and Shelton, CT and Boston and Rockland, MA. The firm serves as business advisors for today’s leading companies, non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization’s full potential. Stan can be reached at 860-561-6898, and for more information about BlumShapiro, visit blumshapiro.com.