Since the enrollment into the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) closed on September 9, 2011, I have been asked repeatedly by new and prospective clients about their post-OVDI options – i.e. is there a voluntary disclosure option for clients who were not able to enroll into the program by the September 9 deadline?
The answer is – Yes! The IRS traditional voluntary disclosure is now an option for clients who wish to come forward with the voluntary disclosure of their foreign assets and foreign income.
Historic Relationship Between Traditional Voluntary Disclosure and Amnesty Initiatives
In order to understand this option, it is important to understand the relationship between the OVDI and the IRS traditional voluntary disclosure. The traditional voluntary disclosure has existed for a very long time, much earlier than the 2011 OVDI or the 2009 Offshore Voluntary Disclosure Program (“OVDP”) or the 2004 Last Chance Compliance Initiative (“LCCI”) or even the very first 2003 Offshore Voluntary Compliance Initiative (“OVCI”).
The four offshore amnesty programs I just mentioned really represent a special type of the voluntary disclosure program that offers advantages to certain individuals who otherwise would be subject to much higher penalties under the traditional voluntary disclosure program. Every time one of the amnesty initiatives. It is important to emphasize, however, that, as the time goes, the advantages for some categories of taxpayers diminish with each subsequent amnesty initiative (while new categories of taxpayers are given additional incentives).
For example, the OVDI offered more penalty categories for the purposes of the offshore penalty calculation (i.e. FBAR penalties) than OVDP. On the other hand, the way OVDI calculates its penalty made the program less advantageous than OVDP for some categories of taxpayers.
Thus, every time there is an amnesty initiative, the traditional voluntary disclosure takes a back seat and limits itself mostly to the domestic voluntary disclosure.
OVDI and Traditional Voluntary Dislcosure
The same story occurred in 2011. Once the OVDI initiative was announced on February 8, 2011, the traditional voluntary disclosure stopped accepting applications involving offshore accounts. Rather, it limited itself to the voluntary disclosures involving U.S.-source income. After a short transitional period of time, all voluntary disclosures involving foreign income were diverted solely to the OVDI program. The updates of June 2, 2011, clarified many such changes, including the opt-out options.
Post-OVDI Voluntary Disclosure
When the OVDI program closed on September 9, 2011, the IRS Traditional Voluntary Disclosure was reinstated to its full size and started to accept the voluntary disclosure applications. However, it is yet to be seen just how much the procedures of the traditional voluntary disclosure have been impacted by the OVDI. At this point, it is clear that the streamlining of applications and the processing structure that existed under the OVDI are impacting the current procedures of the Traditional Voluntary Disclosure program.
On the other hand, substantively, it is also clear that the pre-OVDI FBAR penalty structure has been reinstated with its differentiation between willful and non-willful violations.
Contact Sherayzen Law Office To Conduct Voluntary Disclosure of Foreign Assets and Foreign Income
If you would like to enroll into the IRS Traditional Voluntary Disclosure program or if you would like to consult an attorney about it, contact Sherayzen Law Office by email [email protected] or telephone (952) 500-8159. Our firm’s core tax compliance practice is to help people like you to properly conduct voluntary disclosures.
Our international tax firm is experienced in these matters and will guide you through every stage of this complex process, from initial acceptance into the program (pre-clearance) to strategy development, document submission (amendment of tax returns, FBAR drafting, and other documents), aggressive ethical advocacy, and penalty negotiation with the IRS.
The IRS has professionals working on its side and so should you. Contact Sherayzen Law Office for experienced and professional legal representation!