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March 17, 2015

Transitional Treatment under the IRS Offshore Voluntary Disclosure Program

Nardone Law Group’s experienced tax attorneys, located in Columbus, Ohio, routinely advise taxpayers about U.S. tax reporting obligations regarding foreign financial accounts and the importance of reporting previously undisclosed foreign accounts. The Internal Revenue Service offers various programs that allow taxpayers to disclose foreign accounts, assets, or entities, and resolve any tax and penalty obligations. Two of these programs are the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures. Each program has certain requirements that taxpayers must meet in order to qualify for participation.

In 2014, the IRS expanded the streamlined procedures, making them available to a wider population of U.S. taxpayers. As part of those expansions, certain taxpayers participating in the Offshore Voluntary Disclosure Program will be allowed to take advantage of the favorable penalty structure of the expanded streamlined procedures, while remaining in the offshore disclosure program. This is commonly referred to as transitional treatment. As we always advise our clients, whether the Offshore Voluntary Disclosure Program will be beneficial to a particular taxpayer depends on that taxpayer’s facts and circumstances. Therefore, it is important to know the relevant requirements, and resulting benefits, for transitional treatment under the Offshore Voluntary Disclosure Program.

What is Transitional Treatment?

Transitional treatment under the Offshore Voluntary Disclosure Program allows taxpayers currently participating in the program an opportunity to take advantage of the favorable penalty structure of the expanded Streamlined Filing Compliance Procedures. For example, certain taxpayers who qualify for transitional treatment will not be required to pay the Title 26 miscellaneous offshore penalty, prescribed under the Offshore Voluntary Disclosure Program.

To receive transitional treatment, taxpayers must meet the general eligibility requirements for the expanded Streamlined Filing Compliance Procedures (discussed here). The streamlined procedures are available to individual U.S. resident and non-resident taxpayers who have a valid taxpayer identification number. Furthermore, the taxpayer must be able to certify that their failure to report all income, pay all tax, and submit all required information returns, was due to non-willful conduct.

How Does Transitional Treatment Work?

A taxpayer is considered eligible for transitional treatment under the streamlined procedures if they submitted a voluntary disclosure letter under the Offshore Voluntary Disclosure Program prior to July 1, 2014, but do not yet have a fully executed closing agreement.  If eligible, the taxpayer may request treatment under the applicable penalty terms available under the Streamlined Filing Compliance Procedures.

If a taxpayer makes a submission under the Streamlined Filing Compliance Procedures, the taxpayer may not participate in the Offshore Voluntary Disclosure Program. Similarly, a taxpayer who submits an Offshore Voluntary Disclosure Program voluntary disclosure letter on or after July 1, 2014, is not eligible to participate in the streamlined process.

To receive transitional treatment, the taxpayer does not need to opt out of the Offshore Voluntary Disclosure Program, but will be required to certify, as discussed below, that the failure to report was due to non-willful conduct. The IRS will review the facts and circumstances of the taxpayer’s case and determine whether to incorporate the streamlined penalty terms in the Offshore Voluntary Disclosure Program closing agreement. 

NLG Comment: It is important to understand that this certification must be carefully reviewed and thoroughly understood before making such certification. Intentionally falsifying this certification or negligently failing to conduct the necessary due diligence to determine whether a particular taxpayer qualifies, may place that particular taxpayer in significant harm. If the Internal Revenue Service determines that the taxpayer intentionally falsified the certification, the taxpayer may be prosecuted.

Contact Nardone Law Group

Nardone Law Group routinely represents clients before the Internal Revenue Service. As you can see, there are many factors to consider when deciding whether to participate in the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures. If you have an undisclosed foreign account, asset, or entity, you should contact one of our experienced tax attorneys today. Nardone Law Group’s tax attorneys will thoroughly review your case to determine which options and alternatives are available, including transitional treatment under the Offshore Voluntary Disclosure Program.

Contact us today for a consultation to discuss your case.

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March 17, 2015

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