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Should You Participate in OVDP?

Offshore Account Update

Posted in on July 20, 2014

If you have a foreign account held offshore with more than $10,000 in it, you are required to report the account to the Internal Revenue Service. If you fail to file a Report of Foreign Bank and Financial Accounts (FBAR) form and you do not disclose the account to the IRS, you could potentially face criminal prosecution and civil penalties.  

The Offshore Voluntary Disclosure Program (OVDP) was created to encourage taxpayers to come forward and tell the IRS about offshore accounts that they have not previously disclosed.  Participation in the OVDP can allow you to avoid criminal prosecution for failure to file FBARs and can reduce penalties, which in some cases have actually exceeded the value of the accounts held offshore.  An experienced Washington DC IRS voluntary disclosure lawyer can help you to determine if the OVDP is a good option for you. 

One of the biggest factors in deciding how to proceed in OVDP whether or not you willfully violated the law by failing to file FBAR forms.  

A willful failure to file an FBAR is a criminal act under 31 USC 5322(a).  Conviction could result in imprisonment for as long as five years as well as a criminal fine totaling as much as $100,000. 

Taxpayers could also be prosecuted under several additional criminal statutes for intentionally failing to report offshore income. For example, 26 USC section 7201 makes it a crime to willfully understate taxes due if you engage in at least one affirmative action of evasion. An action of evasion is an action, like keeping a separate set of books, which is done with the intent of deceiving or defrauding the government.  26 USC section 7206(1) also makes it a crime to willfully submit a tax return you do not believe to be true in every material matter.   

However, the IRS has a longstanding policy of not criminally prosecuting people who voluntarily report a violation of a tax law before the government learns that the violation has occurred.  If you submit your pre-clearance letter to participate in OVDP and follow the requirements for making a full and truthful disclosure, then you can generally avoid the risk of criminal charges. 

The penalties for certain account holders are scheduled to increase within the OVDP.  According to recent IRS changes, you could face a civil penalty equal to 50 percent of the highest aggregate account balance over the past eight years if you do not come forward soon.  To avoid the added penalties, you need to submit a pre-clearance letter to become part of OVDP prior to August 4, 2014. 

Non-willful violators do not face the same harsh penalties or the same risk of incarceration, but still face civil penalties.  Participation in OVDP can make sense for those who failed to file FBARs but who did not act willfully, as OVDP can limit penalties due. 

An experienced IRS voluntary disclosure lawyer can help you assess your case to determine if you should participate in OVDP and how to proceed in becoming a part of this program. Contact our experienced lawyers today for a consultation.


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