The Offshore Voluntary Disclose Program is a second chance to correct a previously filed tax return, or to file a return that you hadn’t previously filed. Not only are individuals eligible to make voluntary disclosures, but corporations, partnerships, and trusts can as well. The Offshore Voluntary Disclosure Program is mainly designed to provide all taxpayers with two things: exposure protection from criminal liability and terms for resolving their civil tax and penalty obligations.
What’s it all about?
Offshore does not mean you have been plotting to steal millions of dollars and run off to the Bahamas. It just means you have money overseas, and the terminology varies from foreign accounts to abroad. Therefore, you cannot qualify for an Offshore Voluntary Disclosure Program without an overseas income or investment. You can, however, include your domestic undisclosed money in your Offshore Voluntary Disclosure Program. An important note is that offshore and domestic do not receive the same protection.
You must be aware that you are up to date on your taxes and be fully tax compliant because you cannot apply to the program after the IRS puts you under audit or examination. Hence the voluntary portion. The IRS approved the Offshore Voluntary Disclosure Program because it protects your financial well-being. It requires following specific time requirements. If your reporting disclosures are not done according to specific milestones established by the program, you can be removed by the IRS. If you do not successfully complete the Offshore Voluntary Disclosure Program, the IRS will enforce incredibly high fines and penalties against you because of the specific information they obtained.
How do you get started?
The first phase of the Offshore Voluntary Disclosure program requires you to submit a letter of approval to the IRS. Typically, it takes 30 to 45 days for a response. Not everyone is approved for acceptance into the program, so prepare yourself for possible rejection. If approved, you move into the second phase of the program. This phase requires you to submit the initial disclosure to the IRS. You have 45 days to complete a detailed breakdown of all the different accounts, transfers, openings, and closings of accounts, and any other related information. Phase 3 requires even more paperwork. The approved applicant has 90 days to submit a full disclosure compiled of all necessary FBARs, schedules, penalty competitions, legal arguments for mitigation of penalties, etc.
The opportunities which the program offers are immensely valuable to your financial well-being because they allow you to avoid criminal prosecution. The ability to pay the tax, interest, offshore penalty, accuracy-related penalty, and in some cases, the failure-to-file and failure-to-pay penalties is not a necessary condition of the Offshore Voluntary Disclosure Program. If you are unable to pay the total amount or make a full payment amount, the IRS will consider other payment arrangements. You must first establish the reason for the inability to pay the IRS, which includes the full disclosure of all your assets and income sources, domestic and foreign, under your control. If the IRS does find your reasoning to be genuine, other financial agreements can be made.
What happens if the IRS examines or audits you before you apply for the Offshore Voluntary Disclosure Program?
There are multiple civil penalties that are dependent on the particular facts and circumstances of the case. The civil penalty for consciously failing to file an FBAR can be as high as $100,000 or 50 percent of the total balance of the foreign financial account. Criminal charges can also apply. Failure to file a tax return can result in a prison term of one year and a fine of $100,000. Criminal charges for filing a false tax return can result in a prison term of three years and a fine of up to $250,000. If you are convicted of tax evasion, your prison sentence can raise to five years while the fine remains $250,000. A person convicted of conspiracy to defraud the government with respect to claims can be charged with a prison term of up to, but not more than, 10 years, or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States can serve a prison term of not more than five years and can be fined up to $250,000. In other words, while it may seem wrong to acquiesce to the IRS before they have requested to audit or examine you, allowing the IRS to issue penalties against you through the Offshore Voluntary Disclosure Program can result in more leeway.
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