IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

On January 9, 2012 the IRS announced the terms of the 2012 OVDI which requires that taxpayers: (1) File 8 years of back tax returns reflecting unreported foreign source income; (2) Calculate interest each year on unpaid tax; (3) Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and (4) Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years.

In return for entering the offshore voluntary disclosure program, the IRS has agreed not to pursue charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

With taxpayers still facing a rather large penalty, taxpayers are torn on whether or not they should participate in OVDI or “Opt-Out”. The “opt-out” process was first introduced in the 2011 version of OVDI and still continues to this day.  As our office has received many inquiries on opting-out. Here are top OVDI opt-out questions that we are routinely asked.

1.         Will the IRS prosecute me criminally if I opt-out of the OVDI? The IRS should keep your case in Civil because you are still within the structure of voluntary disclosure (a program which the IRS encourages taxpayers to come forward in exchange for avoiding criminal prosecution) but you are no longer subject to the standard penalty rates of OVDI.  Under the standard 2012 OVDI penalty cap, you pay one penalty either (a) 12.5% of account value, Offshore “FBAR equivalent” penalty for accounts under $75,000, or (b) 27.5% for accounts over $75,000.So that standard 12.5% / 27.5% penalty cap is all that you are “opting-out” of.

2.         Will the IRS charge me more than the standard 12.5% or 27.5% offshore penalty if I opt out? That’s possible and therefore one of the risks to consider in opting-out.

3.         What is the status and outcome of those cases that have opted out?The opt-out program is fairly new as it was first introduced in 2011.  So far only a few have closed out and the IRS has not announced any guidelines as to how these cases are being dispensed.  The reason: The IRS is trying to centralize all opt-out decisions for consistency especially given the hazards of litigation that the IRS would face if one of these cases went to Court and the Court ruled in favor of the taxpayer.  Another reason for the delay is that the IRS overestimated how many intentional tax evaders would use the program, while simultaneously underestimating how many innocent or at worst negligent filers like ex pats, dual citizens, Visa holders and resident aliens, would be entering OVDI.

4.         What if I disagree. Can I appeal or dispute the agent’s determination?Yes. There are means to dispute an agent’s determination that will be different whether within OVDI or having opted out.  When disputing a determination that is within OVDI, we still remain on more certain ground as to the downside if we cannot effect any change.  However, outside OVDI the law lets the IRS “raise the bar” by assuming willfulness and thus charge multiple 50% penalties that can wipe out your entire net worth.

5.         For small cases, OVDI seems like overkill. Why don’t I just do a “soft” or “quiet” disclosure?The decision to enter into the program is entirely yours. And honestly, the biggest threat of not entering into the program is the risk of an FBAR audit – not criminal charges (although it is possible). But if caught in an FBAR audit, the results could be disastrous.A “soft” or “quiet” disclosure to us makes no sense. The IRS is using its vast data collecting tools and is receiving information directly from foreign financial institutions under the Foreign Account Tax Compliance Act (“FATCA”).  Already IRS has discovered about 10,000 individuals and businesses that have made soft disclosures. The IRS claims they will track down all of those who have made soft or quiet disclosure.We have heard many people tell us they find the law unfair. Yet despite this unfairness, it is the law and our advice is to hire experienced tax counsel to take your case into OVDI and secure the best possible outcome within the OVDI guidelines.  We have found some “wiggle-room” in the guidelines that for some of our clients we used certain techniques that the IRS accepted resulting in lower penalties than what our clients thought they would be facing.

6.         If I made a soft disclosure can I still use the OVDI?Yes and you should. Again, the IRS has detected 10,000 people it suspects of making a soft disclosure. And these are only the accounts over $1 million. There are a lot more under $1 million.

7.         I started, or my CPA started my OVDI. But I am getting uncomfortable. I want to get a lawyer who specializes in this. Can you take over my case?We think that getting an OVDI / FBAR tax attorney is critical for your opt-out and from our experience each person’s case must be looked at separately to determine if opting-out is the best option.  If you have no evidence of willfulness, the sheer numbers may make opting out attractive especially where the proposed OVDI penalty is in the hundreds of thousands of dollars.  But for those taxpayers whose proposed OVDI penalty is let’s say $80,000 or less, opting out probably can’t save you too much, especially if by opting out you end up with non-willful penalties which over a six-year period can equate to about the same amount as this $80,000 guideline amount referred herein.

From a broad perspective OVDI is predictable but opting out is much less so. As the above considerations reflect, think about your facts. Ask whether the potential risks and additional legal fees of opting out offset the potential rewards. Individual advice about the particular facts is important.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. are highly skilled in handling OVDI cases and can effectively represent you no matter what is the make-up or circumstances of your unreported foreign assets and unreported foreign income.  We will keep you informed step-by-step of the progress in your case and present your case in the best possible way to avoid any pitfalls and gain the maximum benefits conferred by this program.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your foreign account filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

With the full enforcement of the Foreign Account Tax Compliance Act (“FATCA”)starting July 1, 2014, all of the foreign banks have been requiring their U.S. account holders to disclose their social security numbers and other information so that the foreign bank may comply with this law and report their U.S. account holders to the IRS and avoidforced withholding on their U.S. investments.  That being the case, there has been an increase in inquiries to our office about going into the Offshore Voluntary Disclosure Initiative (“OVDI”) and filing missed FBAR’s.

In 2009 our firm was one of the first firms to offer assistance to those taxpayers looking to come into compliance under the first OVDI program (that one was called the Offshore Voluntary Disclosure Program or “OVDP”).  Since then a lot more companies have entered into the marketplacewith mass advertising on the internet offering their services to bring taxpayers into OVDI.  But with so many companies listed out there, who do you call?

Four Things You Should Consider In Making Your List Of Attorneys To Call:

1. Only Deal With Tax Law Firms. Make sure the company is a tax law firm and not a CPA firm.  CPA firms typically do tax filings and other regular tax related stuff.OVDI applications involve legal issues which CPA firms cannot handle.  In addition, CPA’s do not have attorney-client privilege.  That is important because until you are accepted into OVDI, you could be subject to criminal prosecution or civil fraud.  So talk only to an attorney in a tax law firm for OVDI related stuff.
2. Look At The Tax Law Firm’s Practice Area. Check out the firm’s website to determine the tax attorney’s major practice areas. Do they have information where they talk about FBAR, OVDI and other related stuff? Many of them have that in their blog or news area. That way you knew they have some idea and most likely experience in dealing with such cases.
3. What Access To The Tax Attorney Is Being Offered. As most of the stuff can be done via email/phone/mail you do not need to be so focused on where the tax law firm is located. Instead be focused on getting access to speak with the tax attorney to get good feeling about your case.
4. Does The Tax Attorney Offer A Free Initial Consultation? Most of the firms will have free initial phone consultation. Make use of it. If the receptionist answers your call tell you are looking for someone to consult about FBAR and OVDI.  A tax law firm who regularly does this kind of work will hook you up with the tax attorney you need to speak with for a confidential consultation.Some might be available right away but if they are really good at what they do youshould not be dissuaded if youhave to make an for the telephone conference.  Remember that the attorney is setting aside time so that he can exclusively devote full attention to your call. 
   

Some Things To Consider BEFORE You Make The Call.

Before you start making calls keep the following details handy:

• Number of foreign financial accounts you have
• When were they opened
• The maximum balance at any point of time during each year and yearend balance in each accounts and the total balance of all account for each year. You can use the treasury department exchange rates to determine the $ equivalent.
• If you haven’t reported the interest in those accounts in your tax returns then details of interest earned in those accounts for each year
• Whether joint accounts or if anyone else has any authority to deposit or withdraw from those accounts.
  

What To Ask?

Here are few points

• Discuss the situation. Let the attorney know that (a) you did not report interest in my foreign accounts and (b) you didn’t file FBAR for the years when the total of your foreign accounts exceeded $10,000. Once you tell that, the attorney should start asking more details and that’s when you will need information I suggested to collect in the above section.
• The Process. Afterhearing your information, the attorney should suggest what he thinks is best in your case and tell you what the process would be like. If you are offered a free face-to-face consultation where you can see the attorney and let him review your documents(i.e., tax returns, bank statements, etc.), you should accept this offer.
• Charges & Penalty.  Ask the attorney how bad is your situation. Ask how good the chances of you getting cleared from criminal charges are.  Ask what can be the maximum penalty and how good are chances of getting penalty waived or reduced. Ask what would be his strategy or reasoning to waive or reduce the penalty.
• Time.  Ask the attorney how long will the entire process take.
• Price. Ask the attorney what he would charge for the entire process. You should find that firms will either charge based on time spent and costs incurred or a set amount.  For those charging based on time spent and costs incurred, ask the attorney what would be the approximate time and costs. Firms who charge in this manner will usually have different levels of staff whose rates vary based on their level of skill or expertise so you should ask who else would be involved, their rates and impact to the total time charges.  For those firms who offer a set amount, ask what and all will they do and what you will have to do.  Some firms may even offer alternatives that if certain tasks are delegated to you or other third parties such as your accountant, the amount charged by the tax law firm can be less.

How Do You Know Which Tax Attorney Is Best For You?

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. are highly skilled in handling OVDI cases and can effectively represent you no matter what is the make-up or circumstances of your unreported foreign assets and unreported foreign income.  We will keep you informed step-by-step of the progress in your case and present your case in the best possible way to avoid any pitfalls and gain the maximum benefits conferred by this program.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.