Wednesday, 26 June 2019 08:52 GMT

From the Tax Law Offices of David W. Klasing: IRS Drastically Increasing Penalties Under New Offshore Voluntary Disclosure Guidelines

(MENAFN - iCrowdNewsWire) iCrowdNewswire - Dec 22, 2018

IRVINE, Calif.,—In 2009, the IRS introduced the Offshore Voluntary Disclosure Program (OVDP), which enabled taxpayers to receive reduced civil penalties and receive amnesty against criminal tax liability for voluntarily reporting previously hidden offshore bank accounts, income producing foreign assets and businesses. InSeptember 2018, the IRSpermanently ended the OVDP, citing, among other factors, dropping rates of taxpayer participation. The Service has preserved several existing disclosure programs and guidelines for instance,international delinquent information return submission proceduresand thedomesticandexpatstreamlined voluntary disclosure programs that are designed for taxpayers who need to resolvenon-criminaldisclosure matters.


For those taxpayers whodohave concerns about offshore criminal tax exposure, the Internal Revenue Service recently introducednew IRS voluntary disclosure guidelines, which were announced in aNovember 2018memo. Unfortunately, for taxpayers the "new OVDP" is in some ways a sharp departure from its predecessor, featuring several substantial penalty increases. In light of the enhanced penalties taxpayers now face and the IRS's incredible amount of discretion available to them, it is of the utmost importance to work with a highly experiencedcriminal tax defense lawyerwho possesses a strong background in the areas of willfulFBARandFATCAnoncompliance.

Taxpayers now face heightened penalties and potentially, longer disclosure periods as compared to the original OVDP. While the new guidelines mightseemto reduce the years at issue from eight to six years, the IRS can extend the six-year period to cover all years in which noncompliance occurred, as necessary. Depending on the circumstances, that means the disclosure period could be potentially extended to eight years, just as in the original program or even longer.

Among various penalties within the updated guidelines, one of the most noticeable is the civil fraud penalty for fraudulentunderpayments of tax, which can equal up to 75% of the underpayment. While this penaltymayonly be applied to the year where the taxpayer's liabilities were highest, there is also a risk that the IRS could apply the 75% penalty to two years, three years, four years, or more. This depends largely on whether or not the taxpayer "fails to cooperate and resolve the examination," making legal representation and professional tax guidance essential particularly because the IRS has indicated that, in the event of a dispute between the taxpayer and the IRS, the Service may increase penalties protectively. For example, if a taxpayer appeals, the IRS may seek to impose the fraud penalty for multiple years and increase the FBAR penalty from 50% to 100%.

Unfortunately for taxpayers, it seems likely that more civiltax auditsandforeign account auditswill ultimately result in these outcomes. Anexperienced tax attorney in addition to affording you theattorney-client privilege can help to ensure that you navigate these processes cautiously, correctly, and thoroughly, decreasing the level of danger involved.

Finally, it bears mentioning that the new program has also altered various regulations which formerly governedpassive foreign investment companies(PFIC) yet again, to the detriment of taxpayers. Under the original OVDP, if a taxpayer had a PFIC with excess distributions, he or she could potentially avoid certain penalties and utilize a simplified version of the PFIC regulations, which is not possible under the new guidelines.

There may be one positive change for taxpayers: under the new IRS guidelines, the original 27.5% offshore penalty on the fair market value (FMV) of undisclosed unreported income generating assets will no longer be assessed. See the full version of this articleHERE.

Public Contact:Dave Klasing Esq.CPA,

Contact Information:

Tax Law Offices of David W. Klasing, PC


From the Tax Law Offices of David W. Klasing: IRS Drastically Increasing Penalties Under New Offshore Voluntary Disclosure Guidelines


  Most popular stories  

Day | Week | Month