2012 Voluntary Disclosure Program for Offshore Assets

Michael Chojnacki, Partner — Tax Services
Joshua Cohen, Partner — Tax Services

On January 9, 2012, the Internal Revenue Service (IRS) reopened the Offshore Voluntary Disclosure Program (OVDP) to encourage taxpayers to reveal certain offshore assets to the government. (See IRS New Release IR-2012-5.)

The program is similar to the 2011 program (See Frank, Rimerman article, 2011 New Voluntary Disclosure Program for Offshore Assets), except for certain key differences.

No Firm Deadline. At the time of this writing, there is no firm deadline within which people must apply for the program, but that could change at any time. The IRS’s goal is to encourage taxpayers to come forward before they are audited.

Higher Penalties for Some Taxpayers. The overall penalty structure is mostly the same as the prior program, except for taxpayers in the highest penalty category. The new program requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign accounts during the eight years prior to the disclosure (this amount is up from 25% in 2011). Taxpayers with offshore accounts or assets of less than $75,000 in any calendar year may continue to qualify for the lower penalty rate of 12.5%. In limited situations, some taxpayers may incur a penalty of as low as 5%.

Liability for Back Taxes. As with the 2011 plan, participants must file all original and amended tax returns, and pay back taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

The IRS plans to announce more details about the 2012 program within the next month. 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.