OVDI CPA discusses the 2012 Third Wave Edition | Expat and Foreign Bank Issue | FBAR

Hi, I’m Gary Bode, an OVDI CPA with a virtual office to serve companies outside of our Wilmington, NC base.

The IRS just re-opened the Offshore Voluntary Disclosure Initiative (OVDI) in 2012. So, if you have unfiled TD F 90-22.1(s), Report of Foreign Bank and Financial Accounts (FBAR), here’s another chance to do so, apparently without fear of criminal charges. But note that we’re so fresh with this post, the IRS even states more details are to come.

Why is the IRS Starting OVDI again in 2012?

• The IRS has collected more than $4.4 Billion from OVDI 2009 and OVDI 2011 on 33,000 cases.
• OVDI CPAs see this as a good return on a premature bluff. The Treasury Department is pressuring foreign banks to disclose American accounts to the IRS through the FATCA program. FATCA draws flak because foreign banks don’t appreciate American demands that seem arrogant and costly. I think OVDI 2012 is an indication FATCA compliance isn’t as quick or complete as the IRS hoped.
• The IRS has nothing to lose; the OVDI program is already in place.
• There probably are a lot more undisclosed foreign bank accounts. The IRS claims to be following leads.
• The IRS is interested in future compliance along with recapturing lost tax revenues.

Time Limit and Penalties on OVDI 2012

OVDI 2012 has an indefinite time period. But OVDI CPAs face a different kind of pressure with the 2012 edition. The IRS states it will increase penalties over time. For the 2012 program, at least for now, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

OVDI Program Basics

• Complete multiple forms and applications.
• Prepare current and back FBARs.
• Amend past tax returns to reflect additional undisclosed income.
• Pay the back taxes, penalties and interest.
• Pay what OVDI CPAs call the FBAR penalty, as described above.

We’re an OVDI CPA Firm serving National and International Clients via our Virtual Office

We prepare Form 2555, the main focus for folks working overseas. Also Form 5471, Form 1116, Form 3520, FBAR, etc. Our virtual office allows secure transfer of documents, encrypted storage, digital signatures, Google Docs and extended phone appointments to accommodate different time zones. For a free initial phone consult, call (910) 399-2705.

Here’s the IRS news announcement cut and pasted.

IRS Offshore Programs Produce $4.4 Billion to Date for Nation’s Taxpayers;

WASHINGTON — The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.