The changes to the Offshore Voluntary Disclosure Program are significant. They are so sweeping that as of July 1st, the IRS has given the program a new name – 2014 OVDP. (The prior programs were 2009, 2011 and 2012.)
For many expats and certain others, the changes are welcome news. Penalties for these folks may decrease.
Unfortunately, the new program may not be a good deal for everyone.
The Justice Department and IRS are investigating over a 100 banks and more continue to come under scrutiny. If your bank is the subject of a subpoena, under investigation or if a third party such as your lawyer / trust promoter is under investigation, the 27.5% amnesty penalty is no longer available. For those folks, the penalty increases to 50%.
How will the 50% penalty be enforced? No one knows for sure.
Existing law allows the IRS to impose a penalty of up to the greater of 50% of the historical high account balance or $100,000 per account. The default penalty has been 50%. Amnesty offered a somewhat reduced 27.5% penalty. Now that penalty reduction is seemingly off the table if the IRS is already investigating your bank.
We understand why the IRS takes this position; they believe that if you wait until the IRS is already hot on your trail then your actions in not reporting your account must be “willful.” There are flaws in that logic, however.
First, there is often no way of knowing of knowing if your bank or promoter is under investigation. Second, most of our clients simply don’t understand their reporting obligations. Their actions are anything but willful.
If the IRS actually raises the amnesty penalty to 50%, there will be little incentive for many folks to come forward.
Despite some unknowns, our advice has not changed. You won’t be treated worse for coming forward right away and may be treated much better. Remember, for many folks the new amnesty program is more liberal.
Confused? Do not ignore the problem or try to navigate these waters on your own. Consult with a good FBAR lawyer, CPA or expat tax service.