IRSMedic

Planning to Opt Out from the IRS OVDI program? Consider These Things First

There is more chance that you might be troubled by the IRS as they have authority to tax any income you get from around the world. They won’t leave you that easily once you come under their radar. That’s why of all the government agencies, IRS is among the most hated by the Americans. IRS Offshore Voluntary Disclosure Initiative (OVDI) is a complicated program and many people don’t know how to handle them effectively. Persons who are immigrants, expats or having dual citizenship are the most affected by this program. An OVDI attorney can be extremely helpful in getting you through this problem safely.

The Offshore Voluntary Disclosure Initiative (OVDI) was introduced in the year 2009 to help the taxpayers who holds undisclosed foreign bank accounts to voluntarily disclose the information to the IRS. A person needs to pay the taxes with interest along with 20% penalty on the highest balance they have on their overseas accounts. Nearly 5000 people have opted for this program. By doing this, you not only protect your family and assets but also avoid criminal prosecutions. If you have more than $10000 on your offshore bank account, you have to report it to the IRS.

In the 2011 OVDI, IRS corrected many of the hiccups in the 2009 OVDP since the penalty is same for the taxpayers who made honest mistake in reporting and those who made intentional omission. Opt-out procedure was introduced but the overall penalty structure went higher. The new penalty framework requires individuals to pay 25% of the amount in the foreign banks (which was 20% earlier) and instead of six, IRS looked for last eight years to get the highest aggregate account balance. But the good news for those who actually made a mistake or did not intentionally evaded taxes can now ask for a reduced FBAR penalty rate. In these special cases, a taxpayer can qualify for just 5% penalty.

IRS increased the FBAR penalty once again to 27.5% in the 2012 OVDI. This substantial fine made taxpayers to look for other ways such as ‘quiet disclosures’. But a person should never go for it since the IRS department can initiate criminal proceeding against people who try to utilize it. A good tax firm will tell clients that it is worth to come clean as it can avoid all the hassles even though it may be expensive. During the first half of 2012, nearly 2500 OVDI’s were filed. The IRS is now completely overwhelmed by number of OVDI reports and sheer number of tax related court cases. Thus there is a great chance of IRS being unreasonable with your OVDI penalties and you can do nothing about it. An OVDI attorney is the only person you can trust to work you through the OVDI process.

Opting out of the OVDI program may result in reduction of penalties but the taxpayer need to carefully weigh the other consequences before doing so. It is always safe to come clean since the IRS is very strict with FBAR reporting. They not only make you to pay big penalties but also can impose hefty sanctions on you such as prison time. Seek the help of an OVDI Lawyer immediately to get all the assistance with the OVDP Procedure.