2011 New Voluntary Disclosure Program for Offshore Assets

Michael Chojnacki, Partner – Tax Services
Joshua Cohen, Senior Manager – Tax Services

On February 8, 2011, the Internal Revenue Service (IRS) announced a new voluntary disclosure program to encourage taxpayers to reveal certain offshore assets to the government: the 2011 Offshore Voluntary Disclosure Initiative (OVDI). (See IRS News Release IR-2011-14.

The new initiative includes several changes from the previous Offshore Voluntary Disclosure Program (OVDP), which offered reduced penalties for taxpayers who voluntarily disclosed certain offshore accounts for tax years 2003-2008.

Deadline. The announcement gives taxpayers until August 31, 2011 to submit all documents related to their offshore financial accounts—including file all original and amended tax returns and include payment for taxes, interest, and accuracy-related penalties—on required foreign bank account reports (FBARs) for the years 2003 to 2010.

Penalties. The IRS said that the penalties for 2011 are greater, “meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting.”

For the 2011 initiative, the penalty framework requires taxpayers to pay a penalty of 25% of the highest balance (or value) in the foreign account during the program’s 2003 to 2010 time period.

Taxpayers with offshore accounts or assets of less than $75,000 in any calendar year may qualify for a lower penalty rate of 12.5%.

Some taxpayers may be eligible for a further reduced penalty rate of 5%, if they:

  • did not open or cause the account to be opened
  • had minimal, infrequent contact with the account
  • did not withdraw more than $1,000 from the account during the 2003 to 2010 time period (except for closing the account and moving the funds to a U.S. account), and
  • establish that all applicable U.S. taxes were paid on funds deposited to the account.

Back Taxes. Participants also must pay back taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. All of these payments must be submitted by the August 31st deadline.

For more information, please contact Michael Chojnacki or Joshua Cohen at
Frank, Rimerman + Co. LLP.

Any tax advice in this communication is not intended or written by Frank, Rimerman + Co. LLP. to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this communication, Frank, Rimerman + Co. LLP. is not rendering any specific advice to the reader.