[authors:
Sherwin P. Simmons II,
Jonathan Gopman,
Barbara Ruiz-Gonzalez, and
Leanne Reagan]
On June 26, 2012, the Internal Revenue Service (“IRS”) released
IR 2012-64 (the “Release”) announcing new details and guidelines regarding the 2012 voluntary disclosure program announced in January (“2012 OVDP”), including tightening the eligibility requirements. See our previous Practice Update
“The Pursuit of International Tax Compliance; IRS Reopens Offshore Voluntary Disclosure Program.”
The Release announced that more than 33,000 taxpayers have come forward under the first two (2) disclosure programs in 2009 and 2011, with the government collecting more than $5 Billion in back income tax, interest and penalties. Since the opening of the 2012 OVDP in January 2012, more than 1,500 disclosures have been made.
Jointly with the Release, the IRS also issued a new set of Frequently Asked Questions and Answers (“FAQs”) on the 2012 OVDP. The 2012 OVDP is similar to the 2011 program in many ways, but with a few key differences. For example, some of the call-in numbers, dates when documents should be submitted, and an increased top penalty of 27.5%. Unlike prior programs, the 2012 OVDP has no set deadline for taxpayers to apply and is open for an indefinite period of time. The IRS has reserved the right to modify the terms of the 2012 OVDP at any time and without warning.
The FAQs clarify the period covered by the voluntary disclosure by stating that the program includes the most recent eight tax years for which the due date has already passed. Thus, for taxpayers who timely filed their 2011 return or who requested an extension of time for filing, the voluntary disclosure period will include calendar years 2003 to 2010. For taxpayers who have not filed timely in 2011, the voluntary disclosure period will include calendar years 2004 to 2011.
One of the more important changes to note is contained in Examples 4 and 5 found in FAQ 51.1 which discuss the new filing compliance procedures for non-resident taxpayers and dual-citizens. This is detailed in IR 2012-65 that announced a proposed new procedure for U.S. citizens living abroad including, but not limited to, dual citizens who have not filed U.S. income tax and/or informational returns to file their delinquent returns. See our
Practice Update.
The Release also discusses a procedure used by taxpayers to dispute disclosure of tax information by a foreign government. Under current law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal. The IRS clarifies in the Release that if the taxpayer does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible to participate in the 2012 OVDP.
More importantly, the Release states that taxpayers should be aware that their eligibility for participation in the 2012 OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution. This is of importance with more and more foreign financial institutions coming under U.S. scrutiny and the implementation of Foreign Account Tax Compliance Act ("FATCA"). See our previous
Practice Update which discusses U.S. action against eleven (11) Swiss and Israeli financial institutions.
The advantages and disadvantages of the 2012 OVDP and how it applies to each U.S. citizen and resident should be carefully analyzed based upon each person’s facts and circumstances. Akerman’s International Taxation Practice has a continued history of dealing with the amnesty programs and has handled over thirty (30) disclosures in accordance with the 2011 Program. If you or anyone you know has an undisclosed foreign asset or you are concerned about the recent IRS offshore scrutiny, we strongly suggest you acquire immediate assistance.
