The tax attorneys at Nardone Law Group routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program. Whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances. Recently, the National Taxpayer Advocate Nina Olson released her 2012 Annual Report to Congress. In it, among other issues of concern, she criticized current IRS practices in the Offshore Voluntary Disclosure Program (OVDP) that hinder voluntary compliance by penalizing taxpayers who are entitled to a reasonable cause exception from willfulness.
The Bank Secrecy Act requires U.S. citizens and residents to report foreign accounts on Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts (FBAR) so the government can better detect “bad actors” engaged in tax evasion, terrorism, and money laundering. Beginning in 2009, the IRS initiated a series of Offshore Voluntary Disclosure programs to settle with taxpayers who had failed to report offshore income and file any related information return such as the FBAR: the 2009 Offshore Voluntary Disclosure Program, 2011 Offshore Voluntary Disclosure Initiative, and the open-end¬ed 2012 Offshore Voluntary Disclosure Program. As discussed in prior reports, these programs applied a resource-intensive, burdensome, punitive, one-size-fits-all approach designed for bad actors to benign actors that inadvertently violated the rules.
National Taxpayer Advocate Concerns
According to the National Taxpayer Advocate, while an estimated five to seven million U.S. citizens reside abroad, and many more U.S. residents have FBAR filing requirements, the IRS received only 741,249 FBAR filings in 2011, and as of September 29, 2012, it had received fewer than 28,000 Offshore Voluntary Disclosure submissions from FBAR violators. Thus, significant FBAR filing compliance problems likely remain unaddressed.
In addition to problems identified in prior reports, the National Taxpayer Advocate is concerned that the IRS has:
1. Increased the cost and burden of correcting past violations, as well as the IRS resources required to process these corrections, by continuing to require benign actors to opt in and opt out of Offshore Voluntary Disclosure programs — even though processing times are longer for those who opt out, averaging nearly 550 days for the 2009 program;
2. Increased the burden of reporting foreign accounts in the future by requiring duplica¬tive reporting on the FBAR and Form 8938, Statement of Specified Foreign Financial Assets; and
3. Discontinued pilot programs to send information about the foreign account reporting requirements to people with foreign accounts.
But, according to the National Taxpayer Advocate, the IRS recently reduced the burden of correcting errors somewhat. It clarified that some taxpayers could opt out of the Offshore Voluntary Disclosure programs without penalty. A new initiative also allows some nonresidents to correct errors outside of the Offshore Voluntary Disclosure programs. To read more about the National Taxpayer Advocate's opinion of the Offshore Voluntary Disclosure program, please see here.
In sum, the determination of whether to enter into the Offshore Voluntary Disclosure program and the determination to opt out of the Offshore Voluntary Disclosure program must be made on a case-by-case basis. As part of that determination, each taxpayer will have to review the pros and cons of each strategy.
Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Internal Revenue Service's Offshore Voluntary Disclosure Program. If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.