Voluntary Disclosures

Within our Tax Controversy practice, GL Howard & Company CPAs, LLP has developed significant expertise in “Voluntary Disclosures” to the IRS as they pertain to foreign asset holdings. We serve clients nationwide as well as internationally with these matters. If you have foreign financial interests or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, you are required to report the account yearly to the Internal Revenue Service. Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, reduce substantial civil penalties and can reduce the risk of criminal prosecution.

The 2011 Offshore Voluntary Disclosure Initiative

The IRS’s prior Offshore Voluntary Disclosure Program (2009 OVDP), which closed on October 15, 2009, offered a uniform penalty structure for taxpayers who came forward voluntarily and reported their previously undisclosed foreign accounts and assets.  From a taxpayer perspective, the initiative offered consistency and predictability in determining the amount of tax and penalties they faced.

The IRS determined that a similar initiative should be available to the large number of taxpayers with offshore accounts and assets who applied to IRS Criminal Investigation’s traditional voluntary disclosure practice since the 2009 deadline.  Further, the 2009 OVDP provided the IRS with many leads on bankers and financial advisers involved in hiding such assets, and the IRS is now investigating and tracking the flow of illicit money.

New Disclosure Opportunity

This new initiative, the 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI), is available to those taxpayers and other similarly situated taxpayers who come forward and complete all requirements on or before August 31, 2011.  The objective of the 2011 OVDI is to bring taxpayers into compliance with United States tax laws for those who have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax.

Under the new program, tax evaders must pay back taxes, interest and delinquency penalties for up to the past eight years. In addition, they will be required to pay a penalty of up to twenty-five percent of the highest annual amount in the overseas account from 2003 through 2010.

The disclosure programs are part of a larger effort by the Obama administration to crack down on Americans who evade U.S. taxes by hiding assets in overseas accounts.  For example, in 2009 the Swiss bank UBS AG agreed to turn over details on 4,450 accounts suspected of holding undeclared assets from American customers.  Such cooperation and information is expected from other overseas banks.

How does this initiative differ from the IRS’s long-standing voluntary disclosure practice or the 2009 OVDP?

The Voluntary Disclosure Practice is a long-standing practice of IRS Criminal Investigation (CI) whereby CI takes timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

Why should I make a voluntary disclosure?

Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistle blowers, and will become more available as the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D) become effective.

What should I do next?

Contact GL Howard & Company CPAs, LLP and your attorney.  If you need an attorney, contact us and we can refer you to a competent attorney with expertise in these matters.