The IRS developed the Offshore Voluntary Disclosure Program to help taxpayers come clean about accounts held in foreign jurisdictions. Because the program is one of administrative grace and not a right of taxpayers, the Service has unfettered authority to administer it as they choose. An update of the Internal Revenue Manual (providing procedural guidance to IRS employees) sheds some light on how applications to be a part of the OVDP are selected for an examination.
The most crucial procedure that is identified in the IRM update is an instruction that scrutinizes the number of foreign informational returns that were included by the taxpayer in their application. The informational returns that are specified by the update include those that detail transfers of property or cash to foreign entities or corporations and the like. If more than five of such informational returns are included in the OVDP package from the taxpayer, the IRS employee is directed to refer the case to the Large Business and International division of the Service. It is highly likely that once LB&I has received the application, it will be heavily scrutinized and the chances of complications in the Offshore Voluntary Disclosure process increase.
It is important to remember that the favorable penalties and treatment that are offered by the streamlined program are only for taxpayers that have not willfully failed to disclose or pay taxes on their foreign accounts. If your application is flagged for review, receives special attention from an IRS examiner, and it is determined that you intentionally failed to file your FBAR, the process will become much more involved with multiple 50% FBAR penalties assessed and the risk of a criminal investigation ensuing because the streamlined program does not provide amnesty . The goal of an experienced tax attorney in examining the “willfulness” of your actions is to make sure that that doesn’t happen.
One other item of interest with respect to the IRM update is the reminder that if your taxes are audited for any reason, even if they do not relate to the disclosure of foreign income, you become ineligible to participate in the OVDP for the tax years that are under examination. Taxpayers that wish to participate in the program need to make sure that not only their OVDP application is completely accurate, but should also ensure that they are not at risk for a civil audit for any other reason. The last thing that you want to be a part of is an IRS Criminal Investigation.
Either type of scenario can be avoided by seeking the advice of an extremely competent tax attorney who has years of experience as both an auditor and as an effective advocate for taxpayers who are seeking to stay out of trouble with the Service. At the Tax Law Offices of David W. Klasing, our team of tax and accounting professionals will handle your case quickly, effectively and confidentially. Contact us online or call (800) 681-1295 for a reduced-rate consultation.