2012 OVDP vs. 2011 OVDI: Five Key Differences

On June 26, 2012, the IRS published the instructions for the 2012 Offshore Voluntary Disclosure Program (“OVDP”). The program was originally announced on January 9, 2012, but there were no instructions with respect to the program aside from modifications in the 2011 penalty structure and general references to the 2011 OVDI.

The new 2012 OVDP shares many similarities with 2011 OVDI, but there are specific differences with further implications that go far beyond its appearances.

There are five key differences between the programs that I would like to emphasize here:

1. The highest penalty is increased from 25% under the OVDI to 27.5% under the OVDP;

2. Unlike 2011 OVDI and every other previous voluntary disclosure program, 2012 OVDP is open for an indefinite period of time. This means that it can potentially be closed next week or it may be open far beyond 2012 and other years – the IRS has complete control over the exact expiration time of the OVDP.

3. The IRS may change the terms of the OVDP at any time. While the IRS did amend the 2011 OVDI instructions several times, these amendments (with the exception of June regulations) usually were for the purposes of clarification of the existing terms. It appears that, under 2012 OVDP, the fundamental rules of the program maybe changed at any time (it is debatable whether such changes would have any retroactive impact with respect to persons who already entered the program).

4. The eligibility terms have been modified for certain types of taxpayers. Two changes in particular must be highlighted under FAQ 21 of the 2012 OVDP instructions. First, a taxpayer in ineligible to participate in the 2012 OVDP if the taxpayer (i) appeals a foreign tax administrator’s decision authorizing the supply of account information to the IRS, (ii) does not serve the notice of account information to the IRS and (iii) fails to properly serve (as required under 18 U.S.C. 3506 ) on the Attorney General of the United States the notice of any such appeal and/or other documents relating to the appeal at the time such notice of appeal or other document is submitted.

The second eligibility modification concerns certain groups of taxpayer singled out by the IRS. In essence, a taxpayer is ineligible to participate in the 2012 OVDP if he has or had accounts at specified foreign financial institutions which were subject to U.S. government actions. The IRS may announce such taxpayer groups ineligible at any time; such announcements will be posted on the 2012 OVDP page.

This provision should be of special importance to taxpayers who maintain accounts with high-risk institutions.

5. In conjunction with the OVDP instructions, the IRS also published a new procedure for certain non-resident taxpayers (including dual citizens) seeking to establish a de minimis, low-risk exception to FBAR penalties. While seemingly benign, the new procedure does pose dilemmas for the taxpayers who are not eligible to take advantage of the new procedure and seek to do a modified voluntary disclosure (also known as “noisy voluntary disclosure”). I will explore this subject later in a separate article.

There are other differences between the 2012 OVDP and 2011 OVDI, but they are less pronounced. In order to find out exactly how these differences may affect your case, contact Sherayzen Law Office direct.

Contact Sherayzen Law Office for Professional Help with 2012 OVDP

If you have undisclosed offshore accounts and/or income, contact Sherayzen Law Office immediately. Our experienced voluntary disclosure tax firm will conduct a thorough analysis of your case, explore all options available to you, help you draft all of the required tax documents, amend your tax returns, and offer rigorous professional representation of your interests in IRS negotiations.