Every year, American taxpayers with a qualifying amount assets in offshore bank or financial accounts are required to make full disclosure of these assets to the IRS on a form known as the Report of Foreign Bank and Financial Accounts, or FBAR. Those who fail to timely file a complete and accurate FBAR and other required offshore information returns each year can end up facing serious civil and even criminal penalties especially where tax on offshore taxable income is viewed by the IRS to have been simultaneously evaded.
However, the IRS does have programs to bring back into compliance those who have, intentionally or unintentionally, failed to file an FBAR, other required information returns, or filed an inaccurate report, and or failed to report taxable offshore income if they come forward voluntarily before an audit or criminal tax investigation into their issues is begun. If you go through one of these programs, which a skilled Dual Licensed Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing can assist you with, you will receive a near-certain pass on criminal prosecution and likely be assessed much lower civil fines than if you had been caught through an audit or criminal investigation.
You will need to be extra cautious in filing your returns in the years after you go through a voluntary disclosure program, though, as the IRS is likely to be watching closely.
What is the OVDP and Its Successor Program?
The IRS began a program in the early 2010s called the Offshore Voluntary Disclosure Program, or OVDP. This program was aimed at those who had failed to file FBARs and report taxable offshore income as required in previous years and were looking to get back into tax compliance by voluntarily disclosing their errors and correcting them. In exchange for voluntarily coming forward, the taxpayer would receive a near-guaranteed pass on criminal prosecution even if their conduct was willful, as well as securing substantially lower civil fines being assessed against them in most cases. While the taxpayers utilizing this program still had to pay back taxes and certain civil penalties, the consequences were far less severe than if the IRS had caught them on their own and potentially referred the matter to its criminal investigation (CI) unit, who in turn could make a referral to a federal prosecutor. The CI unit has a 90%+ conviction rate regarding the cases it refers for prosecution.
The original OVDP program was a smashing success, resulting in many taxpayers being brought back into compliance and the agency collecting millions of dollars in back taxes owed to them. As interest waned over time, the OVDP officially ended in 2018. Most of the components of this program, however, have been rolled over into the IRS’s new voluntary disclosure practice (VDP) where those with past failures to file FBARs and report offshore taxable income can still be brought back into compliance. If you are in such a situation and believe voluntary disclosure could be beneficial to you, contact one of our skilled Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing right away so we can assess your situation, and, if we believe the program is right for you, we will get to work on reconstructing records and getting the necessary paperwork filed to begin the process and secure a pass on criminal prosecution.
What Happens After You Have Completed the OVDP or Its Successor Program, VDP?
In July 2019, the IRS sent out a series of letters to many of those who had participated over the years in the OVDP program before it was ended. In the letter, the IRS warned that continued compliance with FBAR and other requirements was a necessary component of the OVDP program and asked the taxpayers to explain why they had not filed foreign information returns in years subsequent to their completion of the original OVDP requirements. These taxpayers were apparently identified through a combined effort using data analytics, information provided by third parties such as banks and financial institutions, FATCA, and other information in possession of the IRS. As such, it is quite clear that the IRS is paying close attention to ongoing compliance for those who have gone through the OVDP program, and likely through its successor voluntary disclosure program as well.
Of course, there can be a multitude of valid reasons why you did not file a form like FBAR even when you had been required to in years prior, such as repatriation of the financial assets, the absence of meeting applicable filing thresholds, or the disposition of the foreign assets. The letter gives the taxpayers two options. First, if the taxpayer fully complied with all tax and information reporting requirements for the foreign financial accounts and assets, they can submit a signed statement to that effect. If the taxpayer is indeed out of compliance, they can file or amend the delinquent returns, for which they will face the applicable penalties, unless the taxpayer shows that the noncompliance was due to reasonable cause. In either case, you must contact a skilled tax attorney like those at the Tax Law Offices of David W. Klasing right away after receiving one of these letters so we can work to ensure you are in compliance and mitigate any damage that may have already occurred.
If You Previously Went Through a Voluntary Disclosure Program and Find Yourself Out of Compliance Again, Call Our Skilled Tax Lawyers and CPAs Right Away
These letters make it clear that the IRS is paying close attention to those who have been given a second chance to get back into compliance to ensure they are following the rules now. If you have gotten out of tax compliance again by failing to file FBAR or in any other way, you must reach out to a battle-tested tax attorney like those at the Tax Law Offices of David W. Klasing right away, as the IRS is not likely to be so lenient the second time around. To set up a consultation, call us at (661) 432-1480 today.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
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Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)
Cancelled much of this is still relevant.
- Why hire David W. Klasing to represent me in an audit
- 2011 Offshore Voluntary Disclosure Initiative FAQ
- Key Features of Initiative
- Eligibility For This Initiative
- 2011 OVDI Process
- Calculating The Offshore Penalty
- Statute of Limitations
- FBAR Questions
- Taxpayer Representatives
- Case Resolution
- What not to do!
- What to do!
- FBAR Reporting and Expired Voluntary Disclosure Program
- How the Law Offices of David W. Klasing Can Help
- Bank account overseas I didn’t report on my income tax
- Do I have to maintain information on overseas bank accounts
Questions and Answers about FBAR Compliance and Disclosure
- Potential charges for not participating in the 2014 OVDP
- How many tax returns will I amend for my FBAR filing?
- FBAR Voluntary Disclosure program end
- Can I make a voluntary disclosure after the deadline?
- Can I use IRS Voluntary Disclosure if I Can’t Pay?
- Potential reporting requirements and civil penalties
- What Happens if You Don’t Disclose Foreign Accounts
- Criminal charges if you refuse voluntary disclosure
- Characteristics of FBAR voluntary disclosures
- What is required to make a valid voluntary disclosure?
- 2012 Offshore Voluntary Disclosure Initiative Objectives
- What is an FBAR?
- Filed amended returns without making a Voluntary Disclosure
- Undisclosed foreign accounts: What exchange rate to use
- Why did the IRS announce the 2012 OVDI at this time?
- Should I consider making an offshore voluntary disclosure?
- Why to consider making a Voluntary Disclosure
- 2012 OVDI program vs. the voluntary disclosure practice
- Foreign bank account asset reporting/filing requirements
Questions and Answers About Foreign Tax Audits
- Does the Fifth Amendment apply to foreign accounts?
- How is evidence cultivated from foreign sources?
- How is tax loss determined?
- How might an FBAR audit be resolved?
- Is a penalty assessment ripe for judicial review?
- Overview of an administrative criminal investigation
- What is the process of an FBAR referral?
- Statute of Limitations raised during a FBAR audit?
- Precautions to be taken in the pre-audit phase
- Recent international tax and reporting prosecutions
- Foreign account, entity and investment prosecution
- Who collects restitution and penalties?
- International tax investigations are an IRS high priority
