For years, the Internal Revenue Service (“IRS”) has been aggressively pursuing the disclosure of unreported foreign accounts and assets held by U.S. taxpayers, including offering certain voluntary disclosure programs featuring reduced penalties in exchange for U.S. taxpayer compliance. On February 8, 2011, the IRS announced the details of its latest voluntary disclosure program, known as the 2011 Offshore Voluntary Disclosure Program (the “2011 OVDP”). The 2011 OVDP follows on the heels of a similar program offered in 2009, which, by most accounts, attracted several thousand U.S. taxpayers. Similar to its predecessor, the objective of the 2011 OVDP is to bring U.S. taxpayers that have undisclosed foreign accounts and/or undisclosed foreign entities into compliance with U.S. tax laws.

The 2011 OVDP offers U.S. taxpayers the chance to resolve their U.S. tax liabilities associated with undisclosed foreign accounts and entities through a reduced penalty framework and a minimized chance of criminal prosecution. Although the penalty framework for the 2011 OVDP is generally higher than in 2009, it provides a fixed penalty framework that seems to remove any discretion from IRS examiners to negotiate a different offshore penalty percentage.