With the US Internal Revenue Service's (IRS) Offshore Voluntary Disclosure Programme (OVDP) due to close on 28 September, Americans with offshore tax compliance problems are being advised to apply immediately.
The safest way to apply for the OVDI is to make a 'pre-clearance request'. This asks the IRS whether it already has information that disqualifies the taxpayer from participating in OVDI – that is, whether the taxpayer is already being investigated for willful offshore violations. By doing this, the taxpayer can establish their eligibility before revealing any extra information to the IRS.
However, pre-clearance requests take a minimum of 30 days to process, according to the IRS' most recent guidance. So, they must be submitted by tomorrow (24 August) if the taxpayer is to apply safely to use the OVDI, and to find out whether they are eligible.
The current OVDP, launched in 2014, is the last in a series of voluntary disclosure programmes administered by the IRS since 2009. They have enabled more than 56,000 US taxpayers to voluntarily resolve past non-compliance behavior related to unreported foreign financial assets and failure to file foreign information returns, without risking prosecution.
Participating taxpayers generally agree to file amended returns and file foreign bank and financial accounts reports (FBARs) for eight tax years, pay the appropriate taxes and interest, together with a 20 per cent accuracy-related penalty and an FBAR-related penalty of either 27.5 or 50 per cent of the highest account balance in those eight years. The penalty rate charged depends on the bank used.
'Taxpayers with criminal exposure or those wishing to resolve their civil tax and penalty obligation should quickly act to meet the deadline', says tax expert Michel Stein of Hochman, Salkin, Rettig, Toscher& Perez. 'The first step is to confirm eligibility through the IRS pre-clearance process. Those who [delay] may not benefit from a pre-clearance check, potentially exposing themselves to the risk that the IRS obtains information about that person, even though that person may not be accepted into OVDP which is something that should be avoided if possible.'
Law firm Dentons goes further, calling this 'a potentially devastating' risk. 'Any sensible taxpayer facing potential criminal liability should request a pre-clearance check: if he files his application and is already under investigation, he has just handed the government all the evidence it would need to proceed with criminal charges'.
