Law Office of Charles W. Cope, PLLC | IRS Releases Facts Sheet on Its Offshore Voluntary Disclosure Program
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  • IRS Releases Facts Sheet on Its Offshore Voluntary Disclosure Program
    June 2014

    In June 2014, the IRS released a fact sheet showing the results of its offshore voluntary disclosure program. The program, which remains in effect today, has produced $6.5 billion in tax revenue from approximately 45,000 taxpayers since its inception in 2009.
    Description of the programs
    The IRS has operated a series of offshore voluntary disclosure programs over the years. The first was the 2009 Offshore Voluntary Disclosure Program. Under this program, taxpayers with undeclared offshore assets could avoid criminal prosecution and settle a variety of criminal and civil penalties with a single “miscellaneous offshore penalty.” This penalty generally was 20 percent of the highest aggregate value of the taxpayer’s unreported offshore accounts from 2003 to 2008. Under this program, the IRS received 15,000 disclosures and collected $3.4 billion in back taxes, interest and penalties. The program also led to 3,000 additional disclosures after the program had closed.
    In February 2011, the IRS announced the 2011 Offshore Voluntary Disclosure Initiative (the “2011 OVDI”) which lasted until September 9, 2011. Under this program, taxpayers paid a penalty of 25 percent on the highest aggregate value of unreported offshore accounts from 2003 to 2010. The 2011 OVDI elicited 15,000 disclosures and collected $1.6 billion in back taxes, interest and penalties for the cases that were closed during that year.
    In January 2012, the IRS revised the terms of the 2011 OVDI and made it permanent until further notice. Under the 2012 Offshore Voluntary Disclosure Program (“OVDP”), taxpayers with unreported offshore accounts pay a penalty of 27.5 percent of the highest aggregate balance or value of offshore accounts during the prior eight years.
    In June 2014, changes were made to the program 2012 OVDP. One significant change is that now a 50 percent penalty applies if either a foreign financial institution at which the taxpayer has or had an account, or a facilitator who helped the taxpayer establish or maintain an offshore arrangement, has been publicly identified as being under investigation or as cooperating with a government investigation.[1]
    The success of the IRS’s OVDP should not be surprising in light of recent U.S. government initiatives to obtain information on U.S. taxpayers with offshore accounts. These initiatives include the ongoing implementation of FATCA (by regulations and intergovernmental agreements), the enhanced exchange of account information with treaty partners under existing treaties and through new protocols and agreements, and criminal and civil investigations of various foreign financial institutions that are believed to have facilitated U.S. taxpayers’ evasion of U.S. tax. Faced with an increased likelihood of discovery under one of these programs, taxpayers chose to voluntarily disclose their offshore accounts in order to avoid more serious civil or criminal penalties.
    KEYWORD: Tax Compliance