Tax Law

Article on OVDI and Beyond

Scott Michel and Mark Matthews have written a thought-provoking article on the status of the IRS offshore financial account.  See Scott D. Michel, OVDI is Over -- What's Next for Voluntary Disclosures?, 133 Tax Notes 369 (Oct. 17, 2011), here.  (The article is offered here with the permission of Tax Analysts, the publisher of Tax Notes.)  Scott and Mark are seasoned practitioners who are major players in this niche area.  The article is excellent and should be read by those interested in this area.  Each reader will take away his own key points from the article, but here are mine:

1. Voluntary disclosure for offshore accounts is still alive and well even after the close of OVDI 2011.  In theory, the voluntary disclosure will be under the noisy disclosure procedures for general voluntary disclosure and there is uncertainty as to the amount of the "in lieu of" penalty. 

2. The authors state:

Admirably, CI used a pre-clearance process in the OVDI programs, and one would think that would remain available. Will "optional intake letters" continue to be required? And how does the process differ for non-foreign-account cases?

 JAT Comment:  I suspect that the IRS will use the administrative process it has refined (original letter by the preclearance letter, a submission like the offshore voluntary disclosure letter and a package like the one required in the program.  This will insure some level of uniformity and consistency for fair treatment relative to those who came forward to join the programs.

3. The authors state:

What civil penalties will be imposed? One would think that the IRS will seek to exact an amount somewhere north of 25 percent for offshore cases, and probably less than the 50 percent paid by most of those who pleaded guilty to criminal tax offenses.

Presumably, whatever that amount is it will function like the program "in lieu of" penalty to resolve the other penalties that could apply (5471, 3520, etc.)....

View Jack Townsend's input in its entirety on the Federal Tax Crimes blog site.

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  • Anonymous
    Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010. If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent. These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties. Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report. Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.