Consider Your Options: A Look at OVDPOffshore Account Update
Posted in on August 12, 2016
If you were keeping your money at a Swiss bank, you may have faced many unpleasant surprises in recent years. One of the biggest shocks to many accountholders is that the long tradition of banking privacy and secrecy is all-but-over, as one Swiss bank after another enters into non-prosecution agreements with the Internal Revenue Service (IRS) under the Swiss Bank Program.
Swiss financial institutions, which often encouraged and helped to facilitate tax evasion, are trying to avoid criminal prosecution and are reaching agreements with the IRS even though the Swiss Bank program requires them to give up lots of client information. The banks avoid being prosecuted, they turn over detailed data on their clients, and they pay a fine -- while their accountholders suffer from being put at risk of an investigation.
As if this wasn't bad enough, now many Swiss banks are sending out letters to accountholders urging them to participate in the Offshore Voluntary Disclosure Program which the IRS offers. OVDP is similar to the Swiss Bank Program, but for individuals.
It urges offshore accountholders to come forward voluntarily in exchange for limiting penalties and taking criminal prosecution off the table. OVDP may initially sound like a good thing, and the letters from Swiss banks to clients are certainly touting its positive aspects. However, OVDP is not right for everyone, and those considering it should talk with a New Jersey tax law firm first before they decide to act.
Why Banks are Pushing OVDP -- and What You Should Do
Swiss Banks may be pushing OVDP on accountholders because the financial institutions want to show their cooperation with the IRS and bolster their chances of getting the most favorable possible deal with the Department of Justice.
Their recommendation, however, needs to be carefully considered. OVDP penalties are very substantial, even for voluntary disclosure. The Bank Secrecy Act imposes a penalty based on a percentage of the highest balance from the Swiss accounts over the past eight years.
This can be a huge financial penalty, not to mention the fact that amending eight prior years of income taxes to declare offshore income also becomes necessary. When tax returns are turned over, accountholders also have to pay a 20 percent accuracy penalty, taxes on income they didn't declare, and interest on money they should have paid the IRS.
These taxes, penalties and interests can be very, very costly and deciding to participate in OVDP is not something to be taken lightly. Yet, Swiss banks that are sending letters to clients are urging them to jump in quickly because the IRS could end or change the program at any time. Of course, there's no indication the IRS will do either, but the bank just wants accountholders to act.
Acting without the proper advice when dealing with tax problems can cost you. Contact Kevin Thorn before making a decision about whether OVDP participation is the right choice when you have undeclared offshore accounts.