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What’s Required to Participate in OVDP?

Offshore Account Update

Posted on March 11, 2016 |

Offshore banks are turning investors in for tax evasion, and the IRS and Department of Justice have become aggressive in enforcement activity for those with undeclared offshore funds. If you didn't file annual Reports of Foreign Bank and Financial Accounts (FBARs), the IRS could begin investigating you and could possibly consider criminal prosecution. That being the case, you're at risk of substantial financial penalties and other consequences.

You need to talk with a Boston tax law attorney about whether you can, or should, participate in the Offshore Voluntary Disclosure Program (OVDP). This program lets you make a voluntary report of your undeclared offshore investments, as long as the IRS isn't already investigating.

While you'll have to pay large penalties based on your failure to file and failure to pay taxes, the penalties are going to be less if you opt into OVDP than if you were caught by the IRS without coming forward voluntarily.  Many investors have already taken advantage of OVDP, but if you are interested, you'll need to make sure you meet the requirements.

What Requirements Must You Fulfill to Participate in OVDP?

To participate in the offshore voluntary disclosure program, you have to:

  • Show your violation of reporting requirements wasn't willful
  • Provide copies of your federal returns. If you're voluntarily declaring a failure to report offshore income which spanned multiple years, copies of the returns need to be provided for each year covered by the voluntary disclosure.
  • Provide completed federal tax returns which have been amended, including providing a supporting schedule with comprehensive details of income in offshore accounts that went unreported in the past
  • Provide copies of your OVDP letter, which are completed and signed
  • Sign an agreement authorizing an extended time period for the IRS to assess penalties for failure to file FBARs and for the IRS to assess the taxes that are due
  • Provide copies of FBARs which have been properly filed
  • Provide account statements that show account activity. These must be provided for each year covered by your voluntary disclosure
  • Provide disclosures of all foreign entities which you directly or indirectly hold, with enough information to identify the entities
  • Complete specific forms in connection with the disclosure of foreign entities, including 3520 and 3520-A
  • Make payments for penalties assessed under Code Section 6662(a). The formula used to assess penalties considers the full amount of underpaid taxes during voluntary disclosure years as a result of the failure to report the foreign investment accounts.
  • Make payment of penalties based on your failure to file, as outlined in Internal Revenue Code section 6651(a)
  • Make payment of penalties for failure to pay, as calculated based on instructions in Code Section 6651(a)(2)
  • Pay an additional miscellaneous penalty as calculated under provisions of Title 26. This penalty is assessed based on determining the highest aggregate value of assets held in offshore accounts during the time period which the voluntary disclosure covers.
  • Commit to full cooperation with the IRS and Justice Department related to tax evasion enforcement. This could mean offering info on the banks that facilitated your failure to report offshore accounts.

Before you decide participation in an OVDP is the right choice, speak with attorney Kevin Thorn. He can provide invaluable assistance with making sure all of these requirements are met if you decide to disclose accounts and seek amnesty through OVDP.

For a consultation, contact Kevin E. Thorn, Managing Partner, at ket@thornlawgroup.com or (617) 692-2989


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