The IRS Voluntary Disclosure Process
The Offshore Voluntary Disclosure Process is actually three (3) alternative procedures
First, the Delinquent Filing Program.
Eligibility: You must have reported all your offshore income and disclosed your offshore account on Schedule “B” of Form 1040. This program is used to file previously unfiled Reports of Foreign Financial Accounts, (FBARS) FinCEN Form 114. If is not used to file amended return or late information returns. There is no penalty to be paid under this Program
Second, the Streamline Domestic Filing Procedure and Streamline Non-resident Filing Procedure
Eligibility: These procedures require that you make a statement under penalty of perjury the describes the facts giving rise to your “non-willful” failure to timely filed FBARS. You must file amended income tax returns for the immediately preceding three years and FBARs for the preceding 6 years along with any other unfiled Information returns. Information returns include Form 5471, Return of Controlled
Foreign Corporation; Form 3520, Report of Foreign Trust or Gift or Inheritance
For the Domestic Streamline Procedure you must also pay a miscellaneous penalty of of 5% of the highest year end balance of all offshore accounts. For Non-resident Streamline filers, you have no penalty, but you must have lived outside the U.S for 330 consecutive days. Both procedures are subject to audit and offer no protection from criminal prosecution.
Third is the Offshore Voluntary Disclosure Program (OVDP).
Eligibility: This is a “no fault” program. Whether you were “willful” or not does not matter. What matters is that the funds in the offshore account(s) be from lawful source. The term lawful source excludes, proceeds of arms trafficking, drug dealing, terrorist financing and money laundering.
- The OVDP process is as follows:
- Filing a Request form pre-clearance with the IRS-Criminal Investigation Lease Development Center. The purpose is to determine if you are already under internal exam. If you are eligible a Preliminary Approval Letter will be issued allowing 30 days to do the following.
- Submit the OVDP letter which explains the source of funds and reasons for non-filing and includes.
- Amended income tax returns, Information Returns and FBARS for the preceding 8 years and payment of tax and interest and a negligence penalty of 20% of the tax due plus
- a Miscellaneous penalty (FBAR Penalty) of 27.50% or 50% of the highest balance at any point during the preceding 8 years. The 50% penalty is due instead of 27.50% if an account was maintained at specific banks.
- The OVDP letter, amended return and financial information are subject to an automatic “certification audit”. An IRS Revenue Agent will review the submission and verify its accuracy following which a Closing Agreement will be issued. The Closing Agreement generally bars prosecution.
Analysis of the facts of your case and recommendation of the best form of voluntary Disclosure to meet your circumstance and facts. Our analysis includes
- Financial analysis all foreign financial accounts to determine the amount of unreported Income, if any, and to determine the account balances subject to penalty. This includes tracing of funds to eliminate double counting with multiple accounts.
- Legal analysis to determine “willfulness” or lack thereof and the lawful source of funds.
- Coordination with CPA”s to prepare amended returns, when required.
- Filing of the disclosure and representation during the process.