IRS Offshore Voluntary Disclosure Program Process
In an earlier article, I discussed the key requirements of the Offshore Voluntary Disclosure Program (OVDP) now closed. In this essay, I would like to outline the general OVDP administrative process from initial pre-clearance through the execution of the Closing Agreement.
General Description
In order to participate in the OVDP, the taxpayer must first be accepted into the program. The acceptance process consists of the basic pre-clearance and the submission of the Offshore Voluntary Disclosure Letter with Attachments. Once the IRS approves the preliminary acceptance into the OVDP, the next step is to prepare and timely submit the voluntary disclosure package that includes all of the required documentation covering the entire voluntary disclosure period. Then, the IRS will assign an Agent to complete the certification of your tax returns and assess your Offshore penalty. Assuming that the taxpayer agrees to the Offshore penalty and the results of the Agent’s certification, the taxpayer should execute the Closing Agreement with the IRS.
This is a very simplified description of the process; there are numerous other considerations and requirements that must be taken into account. It will be up to your attorney to determine the precise process of your voluntary disclosure.
The following discussion of the process assumes that you retained an attorney to help you with the OVDP process; I also strongly recommend securing an international tax attorney’s help with the OVDP in order to improve the chance of success of your voluntary disclosure.
Pre-Clearance
The OVDP acceptance process begins with securing the pre-clearance from the IRS Criminal Investigation Lead Development Center (CILDC). It is usually secured by your attorney who sends a fax to CILDC with the identifying information (name, date of birth, social security number and address) and executed power of attorney. If each spouse intends to apply for OVDP, the attorney should make a separate request for each spouse.
Generally, CILCD will notify your attorney by fax within thirty days whether or not you are cleared to make an offshore voluntary disclosure. If you are not cleared, this most likely means that the IRS has already launched an investigation of your tax affairs. If you are cleared, you can proceed to the next OVDP step.
Note, pre-clearance does not guarantee your acceptance into the OVDP. You must truthfully, timely, and completely comply with all OVDP process and requirement provisions.
Offshore Voluntary Disclosure Letter and Preliminary Acceptance
If you are deemed cleared for the OVDP, the next step is to prepare and file the Offshore Voluntary Disclosure Letter with all of the required attachments (the “Letter”) within 45 days from receipt of the pre-clearance fax notification.
As of February of 2013, the Letter with attachments should be submitted to the following address:
Internal Revenue Service
Voluntary Disclosure Coordinator
1-D04-100
2970 Market Street
Philadelphia, PA 19104
The IRS Criminal Investigation will review the Letter and notify your attorney by mail or fax whether your offshore voluntary disclosure have been preliminarily accepted or declined. It is intended this process should be completed within 45 days of receipt of a complete Letter, but there is no guarantee that this will occur. In general, however, the IRS is able to render its decision within this time period.
Note that preliminary acceptance into the OVDP is conditioned upon the information provided by the taxpayer being, and remaining, truthful, timely, and complete. Further note that there is a different process for domestic disclosures contemporaneous with the OVDP.
Voluntary Disclosure Package
If the preliminary acceptance is secured, the letter from the IRS Criminal Investigation will instruct your attorney to submit the full voluntary disclosure package to the Austin Campus within 90 days of the date of the letter.
The Voluntary Disclosure Package is the most intense part of your voluntary disclosure in terms of the time it will take to produce the package. The voluntary disclosure submission must be sent in two separate, yet simultaneous, parts.
The first part is to submit a check payable to the Department of Treasury in the total amount of tax, interest, accuracy-related penalty, and, if applicable, the failure to file and failure to pay penalties, for the voluntary disclosure period. The check should be sent along with information identifying the taxpayer name, taxpayer identification number, and years to which the payment relates to the following address. If you cannot pay the total amount of tax, interest, and penalties as described above, submit your attorney should submit a proposed payment arrangement and a completed Collection Information Statement (Form 433-A, Collection Information Statement for Wage Earners and Self-employed Individuals, or Form 433-B, Collection Information Statement for Businesses, as appropriate).
As of February of 2013, the address to which the check must be sent is as follows:
Internal Revenue Service
3651 S. I H 35 Stop 1919 AUSC
Austin, TX 78741
ATTN: Offshore Voluntary Disclosure Program
The second part of the voluntary disclosure submission is the rest of the Voluntary Disclosure Package which should include among other requirements:
1. Copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure;
2. For taxpayers who began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure for certain years of the offshore disclosure period, copies of the previously filed returns for the compliant years;
3. Complete and accurate amended federal income tax returns (for individuals, Form 1040X, or original Form 1040 if delinquent) for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the offshore account or entity or domestic source (e.g., Schedule B for interest and dividends, Schedule D for capital gains and losses, Schedule E for income from partnerships, S corporations, estates or trusts and, for years after 2010, Form 8938, Statement of Specified Foreign Financial Assets);
4. A completed Foreign Account or Asset Statement for each previously undisclosed foreign account or asset during the voluntary disclosure period;
5. Properly completed and signed Taxpayer Account Summary With Penalty Calculation;
6. For those applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $500,000 or more, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure. For those applicants disclosing offshore financial accounts with an aggregate highest account balance of less than $500,000, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure must be readily available upon request; and
7. Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.
The above seven items is not a complete list; other forms and statements may also be required to be submitted.
As of February of 2013, the second part of the Voluntary Disclosure Package should be submitted to the following address:
Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: Offshore Voluntary Disclosure Program
Remember, a full and complete submission is required for acceptance into the program.
Assignment of Agent, Additional Requests, Certification
After your attorneys submits both parts of the Voluntary Disclosure Package, your case will be assigned to a civil examiner to complete the certification of your tax returns for accuracy, completeness and correctness. However, do not expect this to be a fast process despite the IRS efforts to expedite the process; depending on how busy the IRS is, it make take months before an agent is assigned to your case. The OVDP operates on a first-come, first-served basis.
During the certification process, it is likely that the examiner will request additional information as needed to process your voluntary disclosure, especially if your disclosure involves PFIC calculations or complex returns. This may delay the process further.
Offshore Penalty Negotiations, Opt-Out and Closing Agreement
After the certification process is completed, your Offshore Penalty will be calculated by the IRS (as approved by a technical specialist) and presented to your attorney.
At this point you will have three options. First, if you disagree, your attorney may attempt to re-negotiate the Offshore Penalty by pointing out any mistakes in the agent’s calculations. Second, if option number one does not work, you should discuss the opt-out option with your attorney. In this article, I will not be discussing this very important and complex subject. Finally, the third option to agree with the Offshore Penalty calculations, pay the Offshore Penalty and sign the Closing Agreement on Final Determination Covering Specific Matters.
Contact Sherayzen Law Office for Help with Your Offshore Voluntary Disclosure
Offshore Voluntary Disclosure Program comes with a very long and complex process. It is too easy to get lost within the process or submit to the calculation of the IRS agents without proper consideration of your alternatives. This is why you need to make sure that you are represented by a tax attorney experienced in this area of law.
If you are already in the OVDP or you are only considering the option of doing so, contact Sherayzen Law Office as soon as possible. Our experienced international tax law firm will thoroughly review your case, identify the available options, implement the agreed-upon legal strategy, guide your case through the entire process of the OVDP and rigorously represent your interests during your negotiations with the IRS.