The Offshore Voluntary Disclosure Program (OVDP), known in previous years as the Offshore Voluntary Disclosure Initiative (OVDI), was established by the Internal Revenue Service (IRS) to provide a path by which at-risk taxpayers could willingly disclose previously concealed foreign financial accounts and unreported foreign income, as is required of both individuals and entities such as corporations. However, there are two major hurdles to successful participation in the program: the OVDP is ending in 2018, and even if a taxpayer moves swiftly, there is still a possibility that he or she will not qualify and will thus be denied access to the program. There are also cases in which taxpayers choose to leave the program following acceptance and enrollment via a process called an “opt out”. However, regardless of whether a taxpayer leaves the OVDP or is denied access from the outset, he or she must find a way to resolve the outstanding matter of the noncompliant foreign account and unreported foreign income. If you need to disclose offshore income, but have left or been barred from the OVDP, you may be able to pursue one of the alternative options presented for consideration in this article.
In 2017, the Large Business and International (LB&I) Division of the IRS, which deals with corporations and business partnerships whose assets exceed a threshold of $10 million, announced the launch of more than a dozen tax campaigns, including the IRC 48C Energy Credit Campaign, the Micro-Captive Insurance Campaign, the Form 1120-F Non-Filer Campaign, and, as this article will focus on, the OVDP Declines-Withdrawals Campaign. To quote a portion of the brief announcement, the OVDP Declines-Withdrawals Campaign “addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to [the] OVDP or withdrew from the program of their own accord”: in other words, taxpayers with unresolved noncompliance issues related to hidden foreign accounts.
To help such taxpayers reenter compliance, the IRS, as part of the campaign, issued taxpayers written notices titled Letter 5935. You may have received this letter if you either requested pre-clearance to enter the OVDP, or sent a voluntary disclosure letter to the IRS’ Criminal Investigation Division (IRS-CI) in accordance with OVDP provisions, but:
The reason you received the letter should be indicated on the notice’s first page. The second (and arguably more important) portion of the letter summarizes several disclosure options. However, you should consult with an OVDP tax attorney before pursuing these options and engaging with the IRS, as there may be unforeseen tax consequences – or legal consequences – of which you are presently unaware. In addition to protecting you from making an uninformed and potentially dangerous decision, your tax lawyer can also handle corresponding with the IRS, protecting your legal rights throughout the disclosure process, and educating you on the requirements that are necessary to successfully fulfill whichever option you ultimately choose.
Circling back to the notice itself, Letter 5935 highlights three potential options (“Option #1,” “Option #2,” “Option #3”) for reentering compliance. These options are briefly summarized below.
Though Option #2 may be the optimal approach for certain taxpayers, it is crucial to note two caveats at this juncture:
If you recently received Letter 5935 from the IRS, it is imperative that you take the notice seriously and discuss your foreign account disclosure options with an experienced tax attorney who is appropriately qualified to assist taxpayers with OVDP-related matters, which sit at the nexus of international tax law, taxes for expats, business tax law, streamlined disclosure/domestic streamlined disclosure regulations, and in some instances, criminal tax defense.
To set up a reduced-rate consultation with a tax attorney or attorney-CPA from the Tax Law Office of David W. Klasing, an award-winning, nationally recognized law firm with an extensive track record of representing entities and individuals in OVDP proceedings, contact our tax law offices online, or call (800) 681-1295 today to get started. Though located in California, we represent clients around the world.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Foreign income and information non-compliance
If you’re under audit and have undisclosed foreign bank accounts and unreported foreign income see: https://klasing-associates.com/tax-audit-help-2/foreign-account-tax-audit-representation/
And the following links…
Here is a link to our practice video on warning signs than an audit has gone criminal.
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