Frequently Asked Questions about IRS OVDP Opt-out Process

The most confusing aspect of the current OVDP is definitely the “opt-out” procedure where several unanswered questions remain among the individuals. Below are the answers to some of the commonly asked questions about the OVDI opt-out procedure.

1. Will I be criminally charged by the IRS if I opt-out of the OVDI?

No, not really. The key reason why there is confusion is the fact that when you opt-out of the OVDP, you actually aren't opting out of the OVDP. Yes, that is correct.

Opting out of the OVDP is not going to increase the risk of criminal prosecution, because what you opt-out of is the standard penalty cap which varies according to the highest balance in the offshore accounts. For the majority of taxpayers, the penalty will be 27.5% of the highest aggregate value in overseas accounts however, you may become eligible for 12.5% penalty if the highest balance is less than $75,000 or if you meet certain conditions. Therefore you just opt out of the penalty cap and never out of your entire OVDP.

2. Will I have to pay additional penalty if I opt out?

Yes! There is a possibility. But we haven't come across it yet. The Internal Revenue Service has told us, they don't want to punish anybody who using the OVDP. These are definitely, in the IRS’ view, the people doing “the right thing.” Some might be charged more, not because of the OVDI, but only if the individual gives the IRS a hard time.

3. Exactly how many opt-out cases are successful?

Compared to other available options, the opt-out is a pretty new program, at least in IRS years. Right until now, not that many successful opt-outs has taken place for the ones that was submitted in 2012. Since the IRS is quite interested in centralizing the opt-out decision, delay in approval looks inevitable. So there's no big surprise to see several cases in queue for getting 5% penalty approval.

The Internal Revenue Service miscalculated regarding who is going to mainly make use of the OVDP program. The IRS overestimated the number of intentional tax evaders while underestimated the innocent filers since they become the big users of the opt-out program. This seems to have further slowed the whole process. 

4. Can I appeal against OVDP penalty?

Yes, you can. Inside the OVDP program, an opt-out gives several appeal rights for you. However outside the program, the IRS can charge multiple 50% penalties which could eliminate your entire assets within seconds. This has occurred before and the IRS agency threatens to do a lot more.

5. For small cases, OVDI appears to be overkill. Why don’t I simply carry out a 'soft’ disclosure?

The final decision to enter into this program is entirely yours. However do not forget that there is a possible danger of FBAR review if you don't want to get involved in this program. There might not be felony charges (although it can be carried out) however, if caught in a FBAR audit, the results could be disastrous.

A 'soft’ or ‘quiet’ disclosure to us, is not a sensible option. Using its vast data collecting tools, the IRS already has identified about 10,000 persons and businesses that have made soft disclosures. The IRS says they will track down all of those who have made 'quiet' disclosure. Sometimes, we might feel the law is unfair. Though it is hard to accept, the best thing to do right now is to simply follow the rules.

6. If I made a ‘soft’ disclosure can I still make use of the OVDI?

Indeed, you can and you should. To repeat, the IRS has discovered 10,000 people who they suspect of making a 'quiet' disclosure. And these numbers belong just to the accounts over $1,000,000. It will become a lot higher if they start to look into the accounts with balance under $1,000,000.

7. How much the whole process will cost me?

Making a voluntary disclosure can help you to become tax complaint, but to take a best decision, you must know about how much cost involved to go through the entire OVDP process. And that includes accounting and lawyer fees. Our law firm follows the flat fee model for our different tax resolution services. While we can guarantee our flat fee, we can’t keep on top of the IRS. All we can actually do is guiding you to take right steps at the right time. If you have reasonable cause, the prospect of receiving favorable result is much higher.