On September 28, 2018, the IRS closed the Offshore Voluntary Disclosure Program (2014 OVDP). The 2014 OVDP (and prior 2011 and 2009 programs) had the purpose of providing Taxpayers that WILLFULLY failed to report foreign financial assets and pay all related respective taxes with protection from potential criminal liability and with terms for resolving their civil tax penalty and related interest amounts. On November 20, 2018, the US Department of Treasury released an Updated Voluntary Disclosure Practice Memorandum (LB&I-09-1118-014).
Highlights of the Updated Voluntary Disclosure Practice Procedures
The US Treasury Department provides Taxpayers whose conduct is willful or fraudulent and could result in tax and tax-related criminal acts, with a means to come into compliance with the law and potentially avoid criminal prosecution via its Procedures. The Department also stated that the eligibility for Taxpayers to qualify will continue to be based on the Internal Revenue Manual Voluntary Disclosure Practice dated 12/2/09 (IRM 18.104.22.168). The Updated Procedures state that:
Non-Willful Taxpayers continue to have the same options to correct past mistakes (at least for now)
Although IRS has stated that these options can be eliminated at any time, in non-willful scenarios, Taxpayers with unfiled returns or unreported income can still come into compliance via:
Don’t be a Victim of your own making
It is evident that IRS is coordinating efforts between the IRS Criminal and Civil Divisions for Taxpayers whose conduct is willful or fraudulent which could result in tax and tax-related criminal acts being charged. IRM 22.214.171.124 clearly states that a voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. Taxpayers with illegally sourced income do not qualify for a Voluntary Disclosure under any circumstance.
IRS expects that Voluntary Disclosures will be resolved by a Taxpayer’s agreement to pay in full all taxes, interest and penalties for the disclosure period and that Taxpayers will cooperate promptly and fully. If Taxpayers do not cooperate during the examination period, IRS-CI may revoke the preliminary acceptance at its sole discretion.
Taxpayers with undisclosed foreign assets ought to consult with a specialized tax advisor in order to potentially diminish criminal exposure.