by Brian Mahany
Since its inception at the beginning of 2012, the IRS has published very little guidance on its popular tax amnesty program for taxpayers with unreported foreign accounts. The program, called the Offshore Voluntary Disclosure Program or “OVDI”, remains a great bargain for people with unreported foreign income and foreign accounts. (Taxpayers who truly didn’t know of the reporting requirements may still be better with a traditional disclosure.) Late last month, the IRS finally announced new guidelines and slight changes to the program.
Some of the announcements – like those on Canadian retirement accounts – provided welcome relief and guidance. One such change, however, may hurt some taxpayers.
The IRS announced that U.S. taxpayers who appealed the decision of a foreign tax authority to release information to the IRS are not eligible for amnesty. Lately some Swiss banks and financial institutions in other countries have been notifying U.S. account holders of their intent to release information to the I.R.S. Under some bank secrecy laws, account holders can appeal the decision of the bank to that country’s tax authority. For example, many clients of UBS Bank appealed when they learned that the bank was cooperating with the U.S.
The Internal Revenue Code requires any U.S. taxpayer to notify the IRS when appealing a foreign tax administrator’s decision to provide information. Of course, by telling the IRS that you are appealing the decision of the Swiss tax authorities is self defeating – once you appeal the IRS knows you have a foreign acount!
The program change isn’t likely to affect many taxpayers but it does point out the complexity and ever changing rules surrounding the program. One of the advantages of the program is that it provides a “walk” on criminal charges for program participants. Go through amnesty and you avoid prison.
A taxpayer who isn’t careful and appeals the release of information by some foreign government potentially still faces jail and loses all the benefits of amnesty. In other words, even if you win the appeal you could find yourself owing a fortune in IRS civil penalties or worse.
The OVDP program is quite complex. The decision whether or not to pursue amnesty, a traditional disclosure or opt out of amnesty is one that should be made with the assistance of a competent tax attorney fluent in offshore reporting requirements.
The tax lawyers at Mahany & Ertl have helped many taxpayers all over the world. FBAR filings, OVDI, voluntary disclosures, foreign gift returns and the new FATCA law, we can help. Most services can be performed on a flat fee basis and we will stand behind our work all the way through U.S. Tax Court if necessary.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota (San Francisco, California coming soon). IRS services available worldwide.