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Foreign Account Reporting Compliance After the Close of the OVDP

About a decade ago, the IRS implemented an amnesty program that allowed taxpayers to pay back taxes, penalties and interests resulting from income earned through foreign accounts without fear of criminal persecution. In the decade that followed, about 56,000 Americans came forward to resolve more than $11 billion in tax revenue owed to the U.S. government.

This amnesty program, known as the Offshore Voluntary Disclosure Program, closed in September 2018. In its wake, there are several programs available to encourage taxpayers to voluntarily disclose offshore assets with minimal civil penalties:

Criminal investigations screenings and procedures

Taxpayers who are interested in pursuing their options through voluntary disclosure need to begin by requesting IRS approval. The IRS offers specific preclearance forms that must be completed in order to determine if the individual is eligible for offshore voluntary disclosure. This is the first step in the process, and preclearance must be requested via fax or mail.

Civil processing procedures

If preclearance is granted, taxpayers must then submit all required documentation in a timely manner, so civil processing procedures can begin. Upon receipt of all documents, the case will then be routed to the appropriate unit or field assignment. 

Case development and examination

Once the civil processing procedure is complete, an examiner will begin determining what measures are necessary to complete the process of remitting payments to the IRS. All standard examination procedures apply, and the taxpayer can expect the examiner to fully develop the case by collecting evidence and data as well as gathering vital information relevant to the case. After the information has been collected and analyzed, the examiner will also determine which tax liabilities apply in the case and which penalties should be enforced as a result. The examination is completed on the pretense that the taxpayer will agree to pay in full at the end of the process. This includes taxes for the foreign assets, any interest that may have accrued over time and penalties as a result of withholding the information from the IRS. 

Civil resolution framework

As a result of the closing of the OVDP, a new civil resolution framework has been put in place. The framework includes:

  • A six-year disclosure period for which all necessary documents will be examined.
  • A requirement that all taxpayers interested in offshore voluntary disclosure submit all requested forms that cover the six-year disclosure period.
  • An ability by the examiner to identify and enforce penalties associated with the disclosure period.
  • An ability to revoke preliminary voluntary disclosure clearance if the taxpayer does not comply with established penalties.

https://www.irs.gov/pub/foia/ig/spder/lbi-09-1118-014.pdf

https://www.bostontaxlitigationfirm.com/2018/09/offshore-amnesty-ends-a-review-of-a-decade-of-enforcement.shtml

https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers

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