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Taxpayers Denied OVDP Access Targeted for IRS Auditing

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    In 2009, the Internal Revenue Service (IRS) launched the Offshore Voluntary Disclosure Program (OVDP), also known as the Offshore Voluntary Disclosure Initiative (OVDI). The OVDP, which is meant for taxpayers who previously failed to disclose foreign income and assets, allows participants to mitigate civil penalties – and more significantly, avoid criminal prosecution – by completing the program. However, many OVDP participants drop out of the program, while others are rejected from joining in the first place. Such taxpayers are now the focus of a new IRS risk assessment, which has targeted approximately 6,000 individuals for auditing. If you exited or were denied entry into the OVDP or OVDI, you could be next.

    IRS Auditing 6,000 Taxpayers Who Left, Were Rejected from OVDP

    Since its inception in 2009, the OVDP has passed through several iterations, namely the 2009 OVDP, 2011 OVDI, 2012 OVDP, and 2014 OVDP. Despite minor differences between each version, each of these programs has served the same basic function: to give formerly noncompliant taxpayers a comparatively safe channel to disclose foreign financial assets. (It is worth noting that, in addition to the standard or regular OVDP, the IRS also offers a streamlined version of the program. However, the streamlined filing compliance procedures, or “streamlined OVDP,” did not offer the same benefits or protections against criminal prosecution as the regular OVDP, which highlights the importance of consulting an experienced tax attorney.)  If you made a quite disclosure or a streamlined disclosure where there were significant badges of fraud present in your fact pattern, you might want to consult with our office before the IRS approaches you on the issue which will severely limit our options to limit your civil and criminal tax exposure.

    While OVDP participation does not enable taxpayers to circumvent all consequences – on the contrary, participants are required to pay costly fines – the reduction in potential civil penalties is often considerable. Even more importantly, participating in the regular OVDP allows taxpayers to avoid being criminally prosecuted and, potentially, incarcerated for income tax evasion and willful foreign information return non-filing.

    According to the IRS, by mid-2014 more than 42,000 disclosures were received through the OVDP and OVDI programs: approximately 15,000 disclosures in the 2009 program, 15,000 disclosures in the 2011 program, and 12,000 disclosures in the 2012 program. However, while the OVDP and OVDI have proven popular among taxpayers, not everyone completes the program successfully. Many participants drop out within weeks or months of entering, while other applicants are simply rejected from the outset.

    It is precisely these taxpayers who are now in danger. Speaking at a webinar on November 15, 2017, John Cardone, who currently serves as Director of Withholding and International Individual Compliance in the IRS’ Large Business and International (LB&I) Division, warned of a risk assessment targeting approximately 6,000 individuals who withdrew from, or were denied entry into, the OVDP.

    This is not a concern for the distant future. On the contrary, “Some of those cases have already been sent for classification, and early audits are underway,” according to Cardone.

    Translation? It is only a matter of time before the IRS works its way through all 6,000 cases, and affected taxpayers should act immediately to protect themselves before it is too late and they faced with an eggshell audit and potential criminal tax exposure.

    Elise T. Gardner, who also serves in the LB&I Division as Director of Field Operations International Individual Compliance, urged taxpayers to be “very open and compliant,” adding that taxpayers “should consider applying to OVDP before a contact is made.” To that point, taxpayers should keep in mind that they will be disqualified from OVDP participation if they:

    • Are currently under investigation by the IRS Criminal Investigation Division (CID).
    • Have already been referred to the Department of Justice (DOJ) for prosecution.
    • Are currently undergoing a civil audit. In fact, Gardner cited civil audits as the leading reason for rejection of OVDP applications.

    Not all of the taxpayers under assessment have been slated for auditing. Some taxpayers were instead sent “soft letters” providing last-minute options to come back into compliance. According to Cardone, one of these options is to “file your return and tell us why we’re wrong.” Another option suggested by the “soft letters” is making an application to the streamlined version of the program.

    “Taxpayers have kind of run out of excuses for willfully avoiding some of the liabilities,” Cardone said.

    CA Tax Attorneys Can Help You Enter the Offshore Voluntary Disclosure Program

    Participating in the regular or streamlined OVDP may be the best option if you are concerned about a previous failure to disclose foreign assets or income. If OVDP participation is not an option because you are already under civil audit or criminal investigation, it is imperative that you immediately consult with a knowledgeable IRS tax audit lawyer or tax defense attorney. The longer you delay, the more difficult it will be to mitigate the consequences of noncompliance, but by taking swift and strategic action with help from an aggressive California IRS audit attorney, it may still be possible to reduce your fines and prevent prosecution.

    The trusted tax professionals at the Tax Law Office of David W. Klasing have extensive experience representing taxpayers faced with IRS audits and criminal investigations. We have already helped numerous taxpayers to successfully make voluntary disclosures, and are ready to put our decades of experience to work zealously managing your case. Whether you need to appeal an IRS audit, file back taxes, file an FBAR or Form 8938 (Statement of Specified Foreign Financial Assets), or simply have questions about your eligibility for the OVDP, we urge you to contact us right away by submitting our online form or calling (800) 681-1295.

    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 BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all of our offices here.


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    Here is a link to our practice video on warning signs than an audit has gone criminal.

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