By Nick Eusanio
The tax attorneys at Nardone Law Group regularly guide Ohio taxpayers through 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. For example, there are instances in which Nardone Law Group may advise a taxpayer to opt out of the Offshore Voluntary Disclosure Program. This article briefly notes the reasons a taxpayer may decide to opt out of the Offshore Voluntary Disclosure Program, and discusses the procedure for opting out of the Offshore Voluntary Disclosure Program.
Why Opt Out of the Offshore Voluntary Disclosure Program?
In one of our prior articles we explained the 2012 IRS Offshore Voluntary Disclosure Program and its penalty structure. Most importantly, as part of the IRS’ 2012 Offshore Voluntary Disclosure Program taxpayers usually must pay a penalty equal to 27.5% of the highest aggregate balance in their foreign bank accounts, or the value of their foreign assets or entities during the period covered by the voluntary disclosure. Because the 27.5% offshore penalty takes the place of various penalties otherwise imposed outside the Offshore Voluntary Disclosure Program, there may be cases where a taxpayer making a voluntary disclosure would owe less by opting out of the Offshore Voluntary Disclosure Program. Please see our previous article providing an example of such a scenario.
The Process for Opting Out of the IRS Voluntary Disclosure Program
When a taxpayer has made contact with the IRS to initiate a voluntary disclosure, but thereafter notifies the IRS that the taxpayer is considering opting out of the IRS Offshore Voluntary Disclosure Program, the IRS examiner handling the case will take the following steps:
1. Status Report: The IRS examiner will send a letter to the taxpayer summarizing the status of the voluntary disclosure, identifying any documents the taxpayer must still provide to the IRS and, if the IRS has enough information at the time, the amount of tax, interest, and penalties likely to be due under the Offshore Voluntary Disclosure Program.
2. Caution Letter: If the taxpayer does not respond to the Status Report letter within 30 days, the IRS examiner will issue a letter to the taxpayer explaining that the decision to opt out of the Offshore Voluntary Disclosure Program must be in writing, and cautioning that the decision to opt out is irrevocable. The taxpayer must provide a written response within 20 days of receiving the Caution Letter from the IRS.
3. Taxpayer Opt Out Statement: The taxpayer then provides a written response to the IRS examiner, outlining the facts of the case, a recommendation of the penalties that should apply, and the reasoning for the penalty recommendations.
4. IRS Case Summary: After the taxpayer provides a written opt out statement, the IRS examiner will prepare a case summary outlining the facts and disputed facts of the case, the examiner’s recommendation as to applicable penalties and position as to the taxpayer’s recommendations on applicable penalties, and the degree and scope of audit the examiner recommends for the taxpayer.
5. IRS Centralized Committee Review: The examiner will then forward the taxpayer’s opt out statement and the IRS Case Summary to the IRS centralized review committee, which will evaluate those documents and determine how the examination will proceed.
Taxpayers should understand, however, that opting out opens the case up for examination of all relevant years and issues. Consequently, if issues that were not disclosed by the taxpayer are discovered under a full scope examination, those issues may be subject to review by IRS Criminal Investigation. Thus, it is important to have an experienced tax attorney evaluate your case to decide whether the Offshore Voluntary Disclosure Program is best for you, or whether opting out of the Offshore Voluntary Disclosure Program makes more sense.
Nardone Law Group represents businesses and individuals in federal and state tax issues, including the 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.