Since January 31, 2017, all of the denied and abandoned OVDP Preclearance requests have become the target of a special IRS compliance campaign. Let’s analyze in more detail this important development and attempt to predict what may be its main consequences for noncompliant or formerly noncompliant US taxpayers.
Denied and Abandoned OVDP Preclearance Requests: OVDP Background
IRS Offshore Voluntary Disclosure Program (“OVDP” now closed, is a special program developed by the IRS to allow US taxpayers to resolve their past tax noncompliance concerning unreported foreign assets and foreign income. Under the OVDP, US taxpayers have to file delinquent FBARs and other information returns as well as amended tax returns; additionally, the taxpayers are required to pay additional tax due with interest and penalties.
In return, the IRS promises that participation in the OVDP would result in no criminal prosecution for past noncompliance. Furthermore, OVDP offers a clear and limited civil penalty exposure in the form of the Miscellaneous Offshore Penalty, which replaces all other civil penalty systems, including the draconian FBAR penalties.
What Are These Denied and Abandoned OVDP Preclearance Requests?
In order to participate in the OVDP, US taxpayers have to file a Preclearance Request with the IRS-CI (Criminal Investigation). The IRS-CI determines whether applicants are eligible to participate in the OVDP; the taxpayers who fail to meet the eligibility criteria are rejected without the possibility of further participation in the OVDP.
Additionally, especially after the Streamlined Compliance Procedures were instituted, there were a lot of taxpayers who submitted their Preclearance Requests and even certain additional information, but ultimately decided not to participate in the OVDP and/or withdrew from the OVDP. These are abandoned OVDP Preclearance Requests.
Denied and Abandoned OVDP Preclearance Requests: June of 2016 TIGTA Report
Despite the fact that the IRS was already aware of prior noncompliance of the taxpayers who submitted these denied or abandoned OVDP Preclearance Requests, it failed to do any follow-up in many of these cases. In June of 2016, TIGTA issued a report on the IRS management of OVDP. Among other matters, TIGTA recommended that the IRS review all Denied or Abandoned OVDP Preclearance Requests.
LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests
Partially in response to the 2016 TIGTA report, the IRS LB&I announced an unprecedented compliance campaign on Denied and Abandoned Preclearance Requests in January of 2017. The campaign specifically targets taxpayers who were denied the participation in the OVDP or who voluntarily abandoned their Preclearance requests.
On October 26, 2017, an IRS official stated that the Denied and Abandoned OVDP Preclearance Requests Campaign is focusing on approximately 6,000 US taxpayers. It appears that the exact treatment stream will be decided on a case-by-case basis, but the IRS is hoping to review (at least at some level) this entire category of taxpayers. In other words, virtually every one of these taxpayers should expect some sort of communication from the IRS, including, potentially (and maybe even likely) full IRS audit of their tax returns and FBARs.
What Does the LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests Mean for US Taxpayers
US taxpayers who abandoned their OVDP Preclearance Requests or whose requests were denied by the IRS-CI should prepare as soon as possible a viable strategy on how to deal with respect to the potential IRS audit. Right now, they are at an extremely high risk of detection and possible imposition of the IRS civil and criminal penalties.
The options are various and highly depend on the individual fact pattern of a taxpayer. In particular, a taxpayer’s legal position will depend on whether the taxpayer’s prior noncompliance was willful or non-willful and whether he abandoned his OVDP Preclearance Request or such a request was denied.
This entire analysis of a taxpayer’s legal position and available strategies for dealing with a possible IRS audit should be done by an experienced international tax lawyer who specializes in the area of offshore voluntary disclosures.
Contact Sherayzen Law Office for Professional Help With the LB&I Campaign on Denied and Abandoned OVDP Preclearance Requests
If your OVDP Preclearance Request was denied by the IRS or abandoned by you, you should contact Sherayzen Law Office for professional help as soon as possible. Our legal team is highly experienced in the area of international tax law and, specifically, offshore voluntary disclosures. In fact, we have helped hundred of US taxpayers around the globe to bring their US tax affairs into full compliance with US tax laws. We Can Help You!