One of the most critical aspects of the 2012 Offshore Voluntary Disclosure Program (2012 OVDP) are the rules pertaining to the voluntary disclosure period – i.e. what years are involved in calculating the Offshore Penalty and for how many years back should the tax returns be amended (with the corresponding consequences for the additional tax due with interest and penalties). These rules have been greatly expanded and elaborated since 2011 OVDI.
The general rule is that the voluntary disclosure period for the applicants to the 2012 OVDP involve the most recent eight tax years for which the due date has already passed. Critically important is to realize that the eight year period does not include current years for which there has not yet been non-compliance. For example, for taxpayers who submit a voluntary disclosure prior to April 15, 2012 (or other 2011 due date under extension), the disclosure must include each of the years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities.
For the fiscal-year taxpayers must include fiscal years ending in calendar years 2003 through 2010. For taxpayers who disclose after the due date (or extended due date) for 2011, the disclosure must include 2004 through 2011.
For disclosures made in successive years, any additional years for which the due date has passed must be included, but a corresponding number of years at the beginning of the period will be excluded, so that each disclosure includes an eight year period.
For taxpayers who establish that they began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure, the voluntary disclosure period will begin with the eighth year preceding the most recent year for which the return filing due date has not yet passed, but will not include the compliant years. For example, in hypothetical where a taxpayer who historically filed income tax returns omitting the income from a foreign investment account, but who began reporting that income on his timely, original tax and information reporting returns for 2009 and 2010 without making a voluntary disclosure, and who filed a voluntary disclosure in January 2012, the voluntary disclosure period will be 2003 through 2008.
Understanding the rules of the voluntary disclosure period allows a taxpayer to plan the time of his disclosure according to his circumstances. Of course, such a benefit is only available in cases where there is sufficient time for such planning.
Contact Sherayzen Law Office for Help with 2012 OVDP
If you have undisclosed foreign account or foreign entities and you plan to enter the 2012 OVDP, you should contact Sherayzen Law Office for help with your voluntary disclosure. Our experienced international tax firm will thoroughly analyze your case, assess your FBAR liability as well as other applicable penalties, identify the options available in your case, and work with you every step of the way until your voluntary disclosure is finished.