IRS Offshore Voluntary Disclosure Program Reopens

The Internal Revenue Service reopened the offshore voluntary disclosure program (OVDP) to encourage taxpayers to disclose unreported foreign accounts. The IRS also announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2009 and 2011 programs. This program will be open for an indefinite period until otherwise announced. The revived program is open-ended but the IRS reserved the right to change the terms of the program at any time going forward.

The program is similar to the 2011 program in many ways, but with a few key differences. 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.

IRS Commissioner, Douglas Shulman, announced the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. For 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. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011. 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.

If you have any questions or would like more information, please contact Fred Schutz at 856-722-5300 ext. 201 or Dave Gill at ext. 210.

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