Offshore Voluntary Disclosure Program

IRS Requests Comments on OVDP Information Collection | OVDP Lawyer

On February 28, 2018, the IRS issued a request for comments from the general public with respect to the its OVDP Information Collection practices. Let’s explore this new development in more detail.

OVDP Information Collection: Background Information on the OVDP

The IRS Offshore Voluntary Disclosure Program (“OVDP”) remains today the primary voluntary disclosure route for taxpayers who violated their US international tax requirements willfully. It is also a valid option for taxpayers who wish to avoid the uncertainty associated with the Streamlined Compliance Procedures. This uncertainty often arises with respect to being able to establish non-willfulness and the potential follow-up audit. Finally, given the differences between the OVDP penalty calculation rules and those of the Streamlined Domestic Offshore Procedures (“SDOP”), some taxpayers may find it beneficial to go through the OVDP rather than SDOP.

The idea behind the OVDP is to allow US taxpayers to voluntarily disclose their prior noncompliance with US international tax requirements, including FBAR, in return for a fixed, lower penalty. One of the great benefits of the OVDP is that it generally eliminates the risk of a criminal prosecution.

OVDP Information Collection: Forms For Which Comments are Requested

The IRS requests comments for all Forms 14452, 14453, 14454, 14457, 14467, 14653, 14654, 14708 and 15023. In other words, while this request is formally made under the OVDP, it also covers the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Moreover, by including the brand-new Form 15023 (which was just created a few months ago), this request for comments (which supposed should cover only the OVDP Information Collection) also extends to the new IRS Decline and Withdrawal Campaign.

OVDP Information Collection: Requested Comments

The IRS requests comments on five matters related to the OVDP Information Collection, SDOP, SFOP and Form 15023:

“(a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.”

OVDP Information Collection: Deadline for Comments

The IRS requests that all written comments be received on or before April 30, 2018.

Contact Sherayzen Law Office for Professional Help With OVDP and Other Offshore Voluntary Disclosure Options

If you have undisclosed foreign accounts and foreign income, you should contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers to resolve their prior US international tax noncompliance, and we can help You!

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Abandoned OVDP Preclearance Requests Are Targeted by IRS

Since January 31, 2017, all of the denied and abandoned OVDP Preclearance requests have become the target of a special IRS compliance campaign. Let’s analyze in more detail this important development and attempt to predict what may be its main consequences for noncompliant or formerly noncompliant US taxpayers.

Denied and Abandoned OVDP Preclearance Requests: OVDP Background

IRS Offshore Voluntary Disclosure Program (“OVDP”) is a special program developed by the IRS to allow US taxpayers to resolve their past tax noncompliance concerning unreported foreign assets and foreign income. Under the OVDP, US taxpayers have to file delinquent FBARs and other information returns as well as amended tax returns; additionally, the taxpayers are required to pay additional tax due with interest and penalties.

In return, the IRS promises that participation in the OVDP would result in no criminal prosecution for past noncompliance. Furthermore, OVDP offers a clear and limited civil penalty exposure in the form of the Miscellaneous Offshore Penalty, which replaces all other civil penalty systems, including the draconian FBAR penalties.

What Are These Denied and Abandoned OVDP Preclearance Requests?

In order to participate in the OVDP, US taxpayers have to file a Preclearance Request with the IRS-CI (Criminal Investigation). The IRS-CI determines whether applicants are eligible to participate in the OVDP; the taxpayers who fail to meet the eligibility criteria are rejected without the possibility of further participation in the OVDP.

Additionally, especially after the Streamlined Compliance Procedures were instituted, there were a lot of taxpayers who submitted their Preclearance Requests and even certain additional information, but ultimately decided not to participate in the OVDP and/or withdrew from the OVDP. These are abandoned OVDP Preclearance Requests.

Denied and Abandoned OVDP Preclearance Requests: June of 2016 TIGTA Report

Despite the fact that the IRS was already aware of prior noncompliance of the taxpayers who submitted these denied or abandoned OVDP Preclearance Requests, it failed to do any follow-up in many of these cases. In June of 2016, TIGTA issued a report on the IRS management of OVDP. Among other matters, TIGTA recommended that the IRS review all Denied or Abandoned OVDP Preclearance Requests.

LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests

Partially in response to the 2016 TIGTA report, the IRS LB&I announced an unprecedented compliance campaign on Denied and Abandoned Preclearance Requests in January of 2017. The campaign specifically targets taxpayers who were denied the participation in the OVDP or who voluntarily abandoned their Preclearance requests.

On October 26, 2017, an IRS official stated that the Denied and Abandoned OVDP Preclearance Requests Campaign is focusing on approximately 6,000 US taxpayers. It appears that the exact treatment stream will be decided on a case-by-case basis, but the IRS is hoping to review (at least at some level) this entire category of taxpayers. In other words, virtually every one of these taxpayers should expect some sort of communication from the IRS, including, potentially (and maybe even likely) full IRS audit of their tax returns and FBARs.

What Does the LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests Mean for US Taxpayers

US taxpayers who abandoned their OVDP Preclearance Requests or whose requests were denied by the IRS-CI should prepare as soon as possible a viable strategy on how to deal with respect to the potential IRS audit. Right now, they are at an extremely high risk of detection and possible imposition of the IRS civil and criminal penalties.

The options are various and highly depend on the individual fact pattern of a taxpayer. In particular, a taxpayer’s legal position will depend on whether the taxpayer’s prior noncompliance was willful or non-willful and whether he abandoned his OVDP Preclearance Request or such a request was denied.

This entire analysis of a taxpayer’s legal position and available strategies for dealing with a possible IRS audit should be done by an experienced international tax lawyer who specializes in the area of offshore voluntary disclosures.

Contact Sherayzen Law Office for Professional Help With the LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests

If your OVDP Preclearance Request was denied by the IRS or abandoned by you, you should contact Sherayzen Law Office for professional help as soon as possible. Our legal team is highly experienced in the area of international tax law and, specifically, offshore voluntary disclosures. In fact, we have helped hundred of US taxpayers around the globe to bring their US tax affairs into full compliance with US tax laws. We Can Help You!

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OVDP & Streamlined Disclosure May Terminate Soon | Foreign Accounts Lawyer

On November 15, 2017, the IRS sent yet another signal that certain offshore voluntary disclosure options, particularly the OVDP & Streamlined Disclosure options, will be significantly modified or even terminated as the IRS proceeds with the LB&I Compliance Campaigns. This means that US taxpayers with undisclosed foreign accounts need to hurry up if they wish to proceed with their offshore voluntary disclosure utilizing the OVDP or the Streamlined Compliance Procedures.

OVDP & Streamlined Disclosure Termination: What Did the IRS Say?

The latest signal on the termination of the OVDP & Streamlined Disclosure options came from Mr. John Cardon (director of the withholding and international compliance area within IRS LB&I) and Mr. Daniel Price, an attorney with the IRS Office of Chief Counsel, Small Business/Self-Employed Division in Austin, Texas.

Both IRS officials emphasized that the current Offshore Voluntary Disclosure Program and the Streamlined Filing Procedures are likely to terminate soon. Mr. Price emphasized the fact that these voluntary disclosure options were always intended as special offers that were bound to end at some point.

The possibility that the IRS wishes to terminate the Streamlined Disclosure options in addition to OVDP is somewhat sudden and premature. The IRS already stated in the past that it is no longer satisfied with the OVDP, but it never complained about the Streamlined Compliance Procedures (which have been highly successful with over 18,000 disclosures just in the last year). It is also not clear whether the IRS wishes to completely terminate all OVDP and Streamlined Disclosure options or whether the Streamlined Filing Procedures will survive in one form or another.

Why the IRS Wishes to End OVDP & Streamlined Disclosure Options

There is more than one reason behind the current IRS drive to end or significantly modify the existing voluntary disclosure options. Let’s focus on the two most important of them.

First, the existing voluntary disclosure options are rapidly losing value as a source of new information regarding offshore noncompliance with US taxes. FATCA has created an enormous and continuously expanding network of automatic information exchange between the IRS and foreign financial institutions. Moreover, other automatic information exchanges mechanisms have successfully filled most of the gaps left by FATCA.

In other words, now that offshore tax compliance and automatic international information exchanges have become a worldwide norm, the IRS does not need voluntary disclosures to obtain new information about offshore tax noncompliance.

Second, there has been a systemic change to a different model of tax administration. As the IRS officials emphasized on November 15, 2017, the IRS is shifting away from processing broad voluntary disclosure programs while it is embracing the model of focused enforcement. This is precisely why the IRS created the LB&I Compliance Campaigns – to concentrate its limited resources on tax enforcement where it is most needed rather than engage in broad efforts with respect to voluntary correction of past errors. Hence, in an environment where enforcement dominates over voluntary disclosures, the utility of the IRS voluntary disclosure options becomes more and more limited.

OVDP & Streamlined Disclosure Termination: When Will the IRS Announce the Termination of the Current OVDP & Streamlined Disclosure Programs?

It appears that the IRS will make the appropriate announcement for the termination of the voluntary disclosures prior to the end of January of 2018.

Will the Termination of Current OVDP & Streamlined Disclosure Programs Happen Immediately or Sometime After the Announcement?

It appears that, even after its announcement of the termination of the OVDP & Streamlined Disclosure options, the IRS will provide some time for the taxpayers to finalize their on-going disclosures. Mr. Cordone even stated that the voluntary disclosure programs’ termination date could be as far away as one year from the date of the IRS announcement of such a termination.

Will the End of OVDP & Streamlined Disclosure Programs Also Mark the End of IRS Voluntary Disclosures Per Se?

While the recent IRS moves are of great concern, they should not be taken as the end of the IRS voluntary disclosures per se with no options available to remedy one’s past tax noncompliance with respect to offshore accounts. Rather, I expect that the IRS voluntary disclosures will simply shift to different options. It is beyond the scope of this article to discuss these potential voluntary disclosure options, but it is reasonable to assume we will find ourselves in situation somewhat reminiscent of the period of time between the end of 2011 OVDI and the beginning of 2012 OVDP.

If, however, a taxpayer wishes to take advantage of the existing voluntary disclosure options, the taxpayer should contact Sherayzen Law Office as soon as possible to make sure that the voluntary disclosure can be completed before the IRS closes OVDP & Streamlined Disclosure Program.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure, including the OVDP & Streamlined Disclosure Options

If you have undisclosed foreign accounts or any other foreign assets, you should contact Sherayzen Law Office for professional help as soon as possible. Our international tax firm is highly experienced in successful completion of offshore voluntary disclosures for clients with foreign assets in close to 70 countries. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2018 OVDP Changes Imminent | International Tax Lawyer & Attorney Update

On October 26, 2017, the IRS sent a clear signal that OVDP changes are coming soon. The signal that the 2018 OVDP changes are imminent came from Mr. Daniel Price, an attorney with the IRS Office of Chief Counsel, Small Business/Self-Employed Division, who participated in a panel discussion of offshore accounts and compliance at the University of San Diego School of Law (at a Procopio International Tax Institute Annual Conference).

What Are the Main Reasons for the 2018 OVDP Changes?

There are four main reasons for the upcoming 2018 OVDP changes. First, the OVDP program has been heavily criticized for lack of transparency by tax lawyers and the National Taxpayer Advocate’s Nina Olson. Ms. Olson’s report in June of 2017 and the Freedom of Information Act requested from Tax Analysts forced the IRS to recently release its OVDP hotline guide.

Second, there is a very specific but painful and largely unaddressed issue of the relationship between bankruptcy and the ability to participate in the OVDP. As a reminder to readers, the OVDP FAQs currently require the payment of all liabilities, including the miscellaneous offshore penalty, with the submission of the OVDP voluntary disclosure package. Mr. Price stated that a new FAQ will be added to OVDP to specifically address whether taxpayers in bankruptcy or contemplating bankruptcy will be able to use the OVDP process.

Third, the value of the OVDP as an information collection tool has greatly diminished as a result of FATCA and other automatic information exchange mechanisms.

Finally, fewer and fewer taxpayers are participating in the OVDP. Between 2015 and 2016, only about 1,800 OVDP disclosures were made. At the same time, there were almost 18,000 Streamlined submissions made by US taxpayers in the United States and overseas.

Potential 2018 OVDP Changes: Could the OVDP Program End in 2018?

There is a possibility of the OVDP program ending in 2018. Such a dramatic development, however, may cut off any voluntary disclosure possibilities for willful taxpayers who wish to bring their US tax affairs into full compliance, but are too afraid to do so without a guarantee that they will not be criminally charged. For this reason, I believe that it is more likely that the OVDP program will be modified, but not cancelled.

Sherayzen Law Office Will Continue to Follow Any Potential 2018 OVDP Changes

Sherayzen Law Office will continue to monitor any new developments with respect to changes to the current OVDP. OVDP currently constitutes an integral part of our practice of international tax law and it remains one of the main voluntary disclosure options that every US taxpayer with past noncompliance should consider.