As end looms, IRS Offshore Voluntary Disclosure Program processing delays create additional risk for participants



As we noted previously, the IRS announced in March that it will end its Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. Under OVDP, a taxpayer with undisclosed foreign assets or income could come forward to pay tax, interest and reduced penalties in exchange for immunity from criminal prosecution.

Most taxpayers probably assume that they have until the deadline to take full advantage of the program. That is no longer true. Because of processing delays, taxpayers should prepare their OVDP applications now or else face a potentially devastating risk.

In order to qualify for the program, a taxpayer must not be on the IRS’ radar—for example, must not be under audit or investigation. Under the OVDP, before filing an application, a taxpayer can obtain a pre-clearance letter that confirms the taxpayer is not under audit or investigation. Any sensible taxpayer facing potential criminal liability should take this step, because 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.

Before the announcement of OVDP's termination, the government provided such letters in about two weeks. As one can imagine, news of the program's imminent shutdown has caused a large number of taxpayers to begin the process of obtaining pre-clearance letters. We have just learned that this influx has significantly lengthened the turnaround time; what previously took just a couple of weeks is now lasting two to three months.

This is potentially disastrous for a taxpayer who has not yet filed his request for a pre-clearance letter. Unless he files his request immediately, he likely will not receive the pre-clearance letter before the OVDP ends. Then, he must face the Catch-22 of either not participating in the program at all, risking future criminal prosecution or handing over incriminating information to the government only to find out he is not eligible at all.

As such, we would strongly advise anyone whose clients, friends or colleagues may be candidates for OVDP to begin the process of obtaining a pre-clearance letter as soon as possible.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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