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IRS makes billions off Offshore Compliance Program

The Internal Revenue Service (IRS) continues to encourage taxpayers to correct any potential omissions of offshore accounts through participation in the Offshore Voluntary Disclosure Program (OVDP), and for good reason. A recent newsroom release from the agency reports that the program has generated over $8 billion from the over 54,000 disclosures received under the OVDP since its inception in 2009.

What is OVDP?

OVDP was started in January of 2009 by the IRS in an effort to encourage taxpayers to come into compliance with offshore account reporting. The program was renewed in 2011 and 2012. It is currently considered "open-ended," meaning the IRS could decide to shut it down at any time.

In an effort to further encourage compliance, the 2012 offering also provided "streamlined procedures." These procedures are available for individual taxpayers and their estates in situations where the taxpayer can certify that the failure to comply was not willful. If there is concern that the willful element cannot be established, taxpayers can still use the OVDP in an attempt to avoid criminal prosecution.

A recent report by The Wall Street Journal discussed the success of OVDP, noting 70 countries are currently sharing information with the IRS under the Foreign Account Tax Compliance Act (FATCA). Among these countries are Singapore, the British Virgin Islands and the Cayman Islands. Switzerland and Japan have reportedly signed agreements stating that the requested information will be sent directly to the IRS. Information requested by the IRS generally includes the name, address and taxpayer ID of any United States account holder.

The IRS also notes that this year marks the beginning of "automatic third-party account reporting." This process is designed to better ensure the agency locates foreign accounts that are not reported by taxpayers.

Should I consider OVDP?

Although the program is extremely successful for the IRS, it is important for those who are debating participation carefully review the potential negative impact of a failure to comply. Failure to disclose these accounts can lead to criminal charges. This can result in even more harsh monetary penalties as well as imprisonment. It is also important to note that once an audit begins or additional information is requested from the IRS, a taxpayer may not qualify for these programs. The IRS also reported that offshore-related audits have resulted in criminal charges leading to billions in fines and restitutions.

Those who are considering compliance are wise to seek the counsel of an experienced tax attorney. This legal professional can review your unique situation and help better ensure a more favorable outcome.