2012 OVDP vs. 2011 OVDI: Five Key Differences

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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.

Taxability of Grants and Fellowship Amounts

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With the cost of higher education sky-rocketing, it may make financial sense for students and families to consider grants and fellowships.  But what about the tax consequences of receiving a grant or fellowship payment? Are grants and fellowship taxable?

The question depends upon whether the individual is a degree candidate.  A degree candidate can exclude from taxation grants and fellowships that pay for tuition and course-related fees, books, supplies and equipment necessary for courses (candidates must first meet the degree test under IRS rules).  Non-degree students, however, must report the entire amount of grants and fellowships as income received.

There are some limitations as well for degree candidates.  Degree candidates may not exclude any portion of a grant and/or fellowship received for purposes not described above, including room, board or similar expenses.  Additionally, in general, amounts received for grants or tuition reductions that pay for teaching, research or other services, required as a condition for receiving such amounts, may not be excluded from income.  This will be the case even if all degree candidates in a particular program are required to perform such services.

Finally, federal grants received by a candidate in return for the individual performing future work with the federal government, generally may not be excluded (however, there may be limited, specific exceptions under certain programs).

2011 Form TD F 90-22.1 (FBAR) is Due on June 30, 2012

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Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “DOT”) has established certain recordkeeping and filing requirements for United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If the aggregate balances of such foreign accounts exceed $10,000 at any time during the relevant year, FinCEN form 114 formerly Form TD F 90-22.1 (the FBAR form) must be filed with the DOT.

The FBAR must be filed by June 30 of each relevant year, including this year (2012). Thus, 2011 FBAR must be received by the DOT on June 30, 2012.  This rule is contrary to your regular tax returns where the mailing date determines whether the filing is timely.  There are no extensions available – the FBAR must be received by June 30 or it will be considered delinquent.

If the FBAR becomes delinquent, it may be subject to severe penalties.

Contact Sherayzen Law Office for FBAR Assistance

If you have any questions or concerns regarding whether you need to file the FBAR or how to prepare the form, please contact Sherayzen Law Office directly.  If you have not previous filed the FBARs and you were required to do so, contact our experienced international tax firm to schedule a consultation now.  We will assess your situation, determine your potential FBAR liability, explain the available options and guide you through this complex process of voluntary disclosure.

Estimated Tax Payments are due on June 15, 2012

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Estimated tax payments for the second quarter (April 1 –  May 31) of 2012 are due on June 15, 2012. The estimated tax payments should be made using Form 1040-ES. Note, if the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be considered on time if it is made on the next business day.