In January 2012, the Internal Revenue Service (IRS) commenced an unrestricted offshore voluntary disclosure program (OVDP). With this program, the IRS is presenting those taxpayers with unreported income from foreign accounts a chance to get on top of their taxes. The 2012 OVDP utilizes a larger penalty rate; however, it offers fair benefits in an effort to push people to disclose offshore accounts today, instead of risking issues with the IRS and potential criminal charges in the future.
Why take advantage of this program?
Those with undisclosed offshore accounts should consider voluntary disclosure. This process permits taxpayers to become compliant, thus avoiding significant civil penalties and eliminating the risk of criminal sanctions. The voluntary disclosure process also permits individuals to calculate the total cost of resolving offshore taxes, with relative certainty. Those who do not take advantage of the option may face future problems, including foreign information return and fraud penalties.
The IRS is very proactive about investigating taxpayers with undisclosed foreign accounts. Furthermore, this information is more readily available to the IRS under tax treaties and whistleblower reports. Moreover, it will become even more accessible under the Foreign Account Tax Compliance Act and the Foreign Financial Asset Reporting.
The overall penalty for the new program requires individuals to pay 27.5 percent of the "highest aggregate balance" in foreign bank accounts/entities, including the value of all non-American assets that have been tainted during the eight years prior to the legal admission. Moreover, in some cases, taxpayers will be eligible for 5 to 12.5 percent penalties.
Again, the program could end at any time. Therefore, taxpayers should consider their options before the program no longer exists. However, it is best to consider choices with a legal professional. Prior to making a decision on the 2012 program, a taxpayer should first speak with a tax attorney experienced in the intricacies of the rules. There are several calculations, which could affect one's ultimate return payment. In many cases, the final penalty depends on the person's specific situation.
At this time, the IRS has collected billions of dollars through the program. However, all of this is in exchange for limited liability. If you would like to learn more about your options and weigh your potential consequences - whether or not you participate in the program - speak to a qualified tax attorney in the area. If you want a clean slate, a legal professional can help.