The IRS’s Offshore Amnesty Program Is Closing. Tax Expert Rob Wood Explains It
Since 2009, the IRS has offered its Offshore Voluntary Disclosure Program (OVDP) to taxpayers who held foreign assets and who faced serious legal and tax penalties because of those holdings. But the OVDP is coming to an end on September 28, 2018. The end is near, but there is still time for taxpayers to disclose foreign assets and get in under the wire. Tax lawyer Rob Wood discusses the situation—and what taxpayers can do to comply—in this report. He also wrote about the subject in his Forbes articles, “IRS Offshore Account Amnesty Closing, How To Get In Under The Wire” and “IRS Closing Offshore Account Amnesty, Here's How To Cut Huge Penalties.”
Wood explains that the OVDP is the IRS’s main amnesty program for taxpayers who hold foreign accounts. The program has been in place for almost ten years, so most taxpayers who would be inclined to disclose their foreign accounts have probably already done so. That’s probably one reason why the IRS is ending the program. Also, the program requires a lot of IRS manpower, and ending it would ease a burden on the Service.
The OVDP has provided a way for taxpayers to avoid criminal prosecution for having failed to disclose offshore accounts. The program also allowed taxpayers to avoid a vast range of civil penalties that might have been applied to those who failed to make disclosure. Wood points out that the OVDP has afforded a predictable way to come into compliance with the IRS’s disclosure requirements.
Of course, using the OVDP requires the payment of some penalties. Wood says that the IRS is allowed to go back eight years to collect taxes and penalties, even for taxpayers who have not complied for decades. The program is not inexpensive. Taxpayers would be required to pay taxes, plus interest, plus a 20% penalty on undisclosed income. Most people, Wood has found, are willing to pay what it costs as a quiet and easy way to make the big risks of nondisclosure go away.
However, there is another penalty provision under the OVDP that might apply, the account-based penalty. Wood warns that the possible account-based penalties for nondisclosure include forfeiture of either 27.5% or 50% of the undisclosed money. For some taxpayers, opting out of the OVDP before the penalties are imposed seems like a good option. Wood notes that entering the OVDP to opt out sounds counter-intuitive, but it can make good sense. He points out that what is ending in September is the opportunity to enter the program. An actual OVDP case may take a long time to run its course. Amending eight years of tax returns, getting foreign bank records, etc., can take a lot of time. Getting into the program is a threshold event. Opting out later can be a good strategy.
In parting, Wood urges taxpayers not to wait until the last moment if they want to get into the OVDP.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.