The OVDP Is Coming to an End; What’s Next?

By of MillarLaw A Professional Corporation On Sunday, June 3, 2018

The Offshore Voluntary Disclosure Program (“OVDP”), ends in September, 2018.  All taxpayer who want to participate in the OVDP must have their Voluntary Disclosure Letter submitted by September 28, 2018 or they will not be considered for  the program.  The reality is that the last day to be considered eligible of the OVDP will be the last date the IRS accepts Requests for Pre-clearance. The Pre-clearance is the initial determination by IRS-CI that the taxpayer is coming forward without being under examination .  This date is for all intents and purposes about July 1, 2018 less than 30 days from now.  Anyone considering the OVD{ need to act immediately.  The alternative to entering the OVDP for the “willful” taxpayer is not only the prospect of prosecution but assessment of substantial penalties under both the Bank Secrecy Act, which requires disclosure of foreign financial accounts, through the filing on an annual FBAR,  but also under the Internal Revenue Code which requires reporting and disclosure of foreign income, and foreign financial assets. “Willfulness” is a knowing and intentional act.  Recelntly the 9th Circuit sustained an FBAR penalty of over $1,200,000.  The penalty is calculated as the greater of$100,000 or 50% of the highest aggregate balance per account per year for up to six years.

IT should be cleard to all concerned that there will be some taxpayers who think that they are better of waiting the government out.  By that I mean not responding to the OVDP deadline and instead waiting to let the Statute of Limitations run.  Unfortunately for some taxpayers that will b a gamble they should not take.  The IRS has entered into “information exchange agreements” with dozens of countries and thousand of foreign financial institutions and is using information from the reports obtained through these agreements to locate non-compliant taxpayers and begin penalty assessments.

So what should a “willful” taxpayer do if they do not take advantage of the OVDP?  Once the deadline passes and the OVDP ends, the old format Domestic Voluntary Disclosure will be available.  That program is designed to limit criminal exposure so the civil penalties will still be applicable, but will be subject to determination on an individual basis. The process may have advantages that the formulaic OVDP does not, but the risk is one of timing.   The fundamental aspect of a voluntary disclosure is that it come before the government is aware of the taxpayers actions or in-actions.  The fact is that a number of taxpayers will face FBAR penalties of 50% of their highest annual account balance and income tax penalties because they did not act timely.