For taxpayers holding undisclosed foreign accounts and assets, making a voluntary disclosure has significant benefits. Most notably, it allows you to become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file a Report of Foreign Bank and Financial Accounts (FBAR).
Understanding the Offshore Voluntary Disclosure Process
The Offshore Voluntary Disclosure Program requires taxpayers to submit a significant amount of information to the IRS. Given the complexity of the disclosures, it is always advisable to work with an experienced attorney who can walk you through the entire process. Below is a brief summary of the steps:
- Submit a preclearance letter: The first step of the OVDP is to obtain preclearance to make a voluntary disclosure. Taxpayers or their representatives must send a facsimile to the IRS – Criminal Investigation Lead Development Center (LDC) with: (a) Applicant identifying information including complete names, dates of birth (if applicable), tax identification numbers, addresses, and telephone numbers; (b) Identifying information of all financial institutions at which undisclosed OVDP assets were held. Identifying information for financial institutions includes complete names (including all DBAs and pseudonyms), addresses, and telephone numbers; (c) Identifying information of all foreign and domestic entities (e.g., corporations, partnerships, limited liability companies, trusts, foundations) through which the undisclosed OVDP assets were held by the taxpayer seeking to participate in the OVDP; this does not include any entities traded on a public stock exchange. Information must be provided for both current and dissolved entities. Identifying information for entities includes complete names (including all DBAs and pseudonyms), employer identification numbers (if applicable), addresses, and the jurisdiction in which the entities were organized; and (d) Executed power of attorney forms (if represented).
- Make initial disclosure: Criminal Investigation will then notify taxpayers or their representatives via fax whether or not they are eligible to make an offshore voluntary disclosure. It may take up to 30 days to receive the decision. Taxpayers pre-cleared for OVDP then have 45 days from receipt of the fax notification to submit the Offshore Voluntary Disclosure Letter.
- Submit full disclosure: Criminal Investigation will review the Offshore Voluntary Disclosure Letter and notify taxpayers or representatives by mail or facsimile whether their offshore voluntary disclosures have been preliminarily accepted as timely or declined. This typically occurs within 45 days of receipt of a complete Offshore Voluntary Disclosure Letter. Once the voluntary disclosure has been preliminarily accepted, within 90 days, the taxpayer must send the full voluntary disclosure, which requires the submission of more detailed information. Examples include previously filed federal tax returns and complete and accurate amended federal income tax returns for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from foreign financial accounts or domestic sources. A Consent to Extend the Time to Assess Tax (Form 872) and a Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. 5321(the FBAR consent form) must also be provided with the voluntary disclosure. Taxpayers must also submit payment for the total amount of tax, interest, offshore penalty, accuracy-related penalty, and, if applicable, the failure-to-file and failure-to-pay penalties, for the voluntary disclosure period must be sent with information identifying the taxpayer name, taxpayer identification number, and years to which the payments relate.
Case resolution: After the taxpayer submits a full and complete submission, the case is assigned to a civil examiner to complete the certification of the tax returns for accuracy and completeness. Finally, the taxpayer and the IRS will enter into a closing agreement that resolves the case.
Taxpayers Must Act Now
The clock is ticking for taxpayers to take advantage of the Offshore Voluntary Disclosure Program. Complete offshore voluntary disclosures conforming to the requirements of OVDP must be received or postmarked by September 28, 2018. In order to qualify for the program, they may not be partial, incomplete, or placeholder submissions. To find out if you may benefit from the OVDP, contact Scarinci Hollenbeck’s knowledgeable tax attorneys today.