Offshore Voluntary Disclosure: Client Records| International Tax Lawyer

One of the first things a client must get in order to pursue an offshore voluntary disclosure are all of the client records from his former accountant. Sometimes, however, the clients are having difficulty obtaining their documents from their accountants. In this article, I would like to briefly describe an accountant’s obligations with respect to the return of client records to their clients.

Return of Client Records: General Obligation to Return All Client Documents

Subsection 10.28(a) of Circular 230 requires an accountant to promptly return, upon a client’s request, any and all of the records of the client that are necessary for the client to comply with his federal tax obligations. Hence, a failure of an accountant to return all clients records to his or her client is a violation of the accountant’s IRS obligations.

Return of Client Records: Documents Included

31 CFR §10.28(b) defines the documents that an accountant must return to his client:

  1. All documents or written or electronic materials provided to the practitioner, or obtained by the practitioner in the course of the practitioner’s representation of the client, that preexisted the retention of the practitioner by the client;
  2. All materials that were prepared by the client or a third party (not including an employee or agent of the practitioner) at any time and provided to the practitioner with respect to the subject matter of the representation; and
  3. Any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner, or his or her employee or agent, that was presented to the client with respect to a prior representation if such document is necessary for the taxpayer to comply with his or her current federal tax obligations.

Return of Client Records: Documents Excluded

31 CFR §10.28(b) also expressly excludes from the definition of client records “any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner or the practitioner’s firm, employees or agents if the practitioner is withholding such document pending the client’s performance of its contractual obligation to pay fees with respect to such document”.

Hence, in most cases, it is important for a client to pay his outstanding fees to the accountant in order to make sure that he has all relevant documents. Later, if he wishes, the client may file a lawsuit against the accountant for negligence (if there are legal grounds for such a lawsuit) to recover the fees paid.

Contact Sherayzen Law Office to Help With the Voluntary Disclosure of Your Prior US Tax Noncompliance

If you have not disclosed your foreign income and/or foreign assets to the IRS in violation of your US tax obligations, you should contact Sherayzen Law Office as soon as possible for professional help.  We have helped hundreds of US taxpayers to bring their tax affairs into compliance with US tax laws, including through a voluntary disclosure such as SDOP (Streamlined Domestic Offshore Procedures)SFOP (Streamlined Foreign Offshore Procedures)DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures. We can help you!

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50% Offshore Penalty of the 2014 OVDP

The 50% Offshore Penalty is a unique feature of the 2014 OVDP. What is so unusual about this penalty is that its impact widens with each passing month and year to include and affect more and more US taxpayers. In this article, I would like to explore the emergence of the 50% Offshore Penalty and its importance to US international tax compliance.

2014 OVDP Penalty Structure

On June 18, 2014, the IRS completely changed the entire legal landscape of US voluntary disclosure. The unwieldy and uncompromising penalty structure of the 2012 OVDP was replaced by the new Streamlined Procedures and a completely modified 2014 OVDP.

Under the new rules, the IRS eliminated the 5% and 12.5% penalties of the 2012 OVDP and replaced them with milder and more flexible Streamlined Domestic Offshore Penalty of 5% and Streamlined Foreign Offshore Penalty of 0%. On the other hand, the old default 25% penalty of the 2012 OVDP evolved into a new stringent system of dual penalty structure: 27.5% default Offshore Penalty and 50% Offshore Penalty.

FAQ 7.2 and 50% Offshore Penalty

The 27.5% default Offshore Penalty applies unless the participating US taxpayer has foreign accounts in a bank on a special IRS list as described in FAQ 7.2.

FAQ 7.2 states that, starting August 4, 2014, any taxpayer who enters OVDP will be subject to a 50% Offshore Penalty if, at the time the Preclearance letter is submitted to the IRS-CI (Criminal Investigation), a “public disclosure” has already occurred.

FAQ 7.2. further states that a “public disclosure” has occurred if one of the following three events occurs. First, if the foreign financial institution (FFI) where the undisclosed foreign account is held or another “facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement” (“facilitator”) is under IRS or US DOJ investigation. The investigation should be the one that is related to accounts that are beneficially owned by a US person.

Second, the FFI or facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person. In other words, where a foreign bank signs a Non-Prosecution Agreement with US DOJ; this means every Swiss bank that reached resolution with the DOJ under the Swiss Bank Program; OR

Third, the FFI or facilitator has been identified in a John Doe Summons seeking information about U.S. taxpayers who may hold financial accounts at this FFI or have accounts established or maintained by the facilitator.

FAQ 7.2 provides an example of when a public disclosure occurs: “a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.

It is easy to see now why the 50% Offshore Penalty has been increasing in influence – every Non-Prosecution Agreement, every DOJ investigation, every John Doe summons automatically expands the application of the 50% Offshore Penalty to another FFI or even a set of FFIs.

Entire Penalty Base is Subject to 50% Offshore Penalty

If a public disclosure occurs with respect to the FFI or facilitor where the US taxpayer has one or more foreign accounts, the 50% Offshore Penalty applies not only to these accounts but to all of the taxpayer’s assets included in the penalty base. For example, if a US taxpayer has one account at UBS, ten accounts in an Australian bank (for which no public disclosure occurred) and a foreign rental property that generated unreported foreign income, the 50% Offshore Penalty will apply to all of these assets.

List of FFIs and Facilitators

The IRS published the list of all FFIs and Facilitators for which public disclosure has occurred with the dates when the 50% penalty is activated with respect to these FFIs and Facilitators. Here, I am only providing the list up to date through January 7, 2016:

Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
Wegelin & Co.
Liechtensteinische Landesbank AG
Zurcher Kantonalbank
swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
BSI SA (effective 3/30/15)
Vadian Bank AG (effective 5/8/15)
Finter Bank Zurich AG (effective 5/15/15)
Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
MediBank AG (effective 5/28/15)
LBBW (Schweiz) AG (effective 5/28/15)
Scobag Privatbank AG (effective 5/28/15)
Rothschild Bank AG (effective 6/3/15)
Banca Credinvest SA (effective 6/3/15)
Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
Berner Kantonalbank AG (effective 6/9/15)
Bank Linth LLB AG (effective 6/19/15)
Bank Sparhafen Zurich AG (effective 6/19/15)
Ersparniskasse Schaffhausen AG (effective 6/26/15)
Privatbank Von Graffenried AG (effective 7/2/15)
Banque Pasche SA (effective 7/9/15)
ARVEST Privatbank AG (effective 7/9/15)
Mercantil Bank (Schweiz) AG (effective 7/16/15)
Banque Cantonale Neuchateloise (effective 7/16/15)
Nidwaldner Kantonalbank (effective 7/16/15)
SB Saanen Bank AG (effective 7/23/15)
Privatbank Bellerive AG (effective 7/23/15)
PKB Privatbank AG (effective 7/30/15)
Falcon Private Bank AG (effective 7/30/15)
Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
Bank EKI Genossenschaft (effective 8/3/15)
Privatbank Reichmuth & Co. (effective 8/6/15)
Banque Cantonale du Jura SA (effective 8/6/15)
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
bank zweiplus ag (effective 8/20/15)
Banca dello Stato del Cantone Ticino (effective 8/20/15)
Hypothekarbank Lenzburg AG (effective 8/27/15)
Schroder & Co. Bank AG (effective 9/3/15)
Valiant Bank AG (effective 9/10/15)
Bank La Roche & Co AG (effective 9/15/15)
Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)
St. Galler Kantonalbank AG (effective 9/17/15)
E. Gutzwiller & Cie, Banquiers (effective 9/17/15)
Migros Bank AG (effective 9/25/15)
Graubundner Katonalbank (effective 9/25/15)
BHF-Bank (Schweiz) AG (effective 10/1/15)
Finacor SA (effective 10/6/15)
Schaffhauser Kantonalbank (effective 10/8/15)
BBVA Suiza S.A. (effective 10/16/15)
Piguet Galland & Cie SA (effective 10/23/15)
Luzerner Kantonalbank AG (effective 10/29/15)
Habib Bank AG Zurich (effective 10/29/15)
Banque Heritage SA (effective 10/29/15)
Hyposwiss Private Bank Genève S.A. (effective 10/29/15)
Banque Bonhôte & Cie SA (effective 11/3/15)
Banque Internationale a Luxembourg (Suisse) SA (effective 11/12/15)
Zuger Kantonalbank (effective 11/12/15)
Standard Chartered Bank (Switzerland) SA, en liquidation (effective 11/13/15)
Maerki Baumann & Co. AG (effective 11/17/15)
BNP Paribas (Suisse) SA (effective 11/19/15)
KBL (Switzerland) Ltd. (effective 11/19/15)
Bank CIC (Switzerland) Ltd. (effective 11/19/15)
Privatbank IHAG Zürich AG (effective 11/24/15)
Deutsche Bank (Suisse) SA (effective 11/24/15)
EFG Bank AG (effective 12/3/15)
EFG Bank European Financial Group SA, Geneva (effective 12/3/15)
Aargauische Kantonalbank (effective 12/8/15)
Cornèr Banca SA (effective 12/10/15)
Bank Coop AG (effective 12/10/15)
Crédit Agricole (Suisse) SA (effective 12/15/15)
Dreyfus Sons & Co Ltd, Banquiers (effective 12/15/15)
Baumann & Cie, Banquiers (effective 12/15/15)
Bordier & Cie Switzerland (effective 12/17/15)
PBZ Verwaltungs AG (effective 12/17/15)
PostFinance AG (effective 12/17/15)
Edmond de Rothschild (Suisse) SA (effective 12/18/15)
Edmond de Rothschild (Lugano) SA (effective 12/18/15)
Bank J. Safra Sarasin AG (effective 12/23/15)
Coutts & Co Ltd (effective 12/23/15)
Gonet & Cie (effective 12/23/15)
Banque Cantonal du Valais (effective 12/23/15)
Banque Cantonale Vaudoise (effective 12/23/15)
Bank Lombard Odier & Co Ltd (effective 12/31/15)
DZ Privatbank (Schweiz) AG (effective 12/31/15)
Union Bancaire Privée , USP SA (effective 1/6/16)

Contact Sherayzen Law Office for Help with Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts, including those FFIs and Facilitators for which public disclosure has occurred, contact the experienced international tax team of Sherayzen Law Office, Ltd. Our international tax law firm has helped hundreds of US taxpayers around the globe to bring their tax affairs into full compliance with US tax laws, while reducing their penalty exposure.

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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.


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
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.