Why Offshore Voluntary Disclosure Program is Important?

Having an offshore account does not mean the government considers you as a suspect for criminal activity. Offshore simply means you have financial investments in foreign bank accounts. But, not disclosing this information to The Internal Revenue Service is a criminal activity. Whether you consciously made the decision to keep these assets a secret, or you made a mistake while filing your taxers, the IRS can impose steep financial penalties and even criminal charges. However, the offshore voluntary disclosure program is a way for taxpayers with undisclosed offshore accounts to have a second chance at revealing this information.

The Program

The IRS designed a special program to bring individuals, estates, and businesses into offshore and foreign compliance. The Offshore Voluntary Disclose Program is specifically for taxpayers who face exposure to potential criminal liability and/or civil penalties due to willful failure to report and pay all tax on foreign financial assets. Those who have undeclared foreign assets can disclose in exchange for protection from criminal prosecution. Once these taxpayers have completed the program they are protected from criminal liability and are provided with terms to resolve their civil tax and penalty obligations.

In order to qualify for the Offshore Voluntary Disclosure Program, you must have unreported assets, income, or investments abroad. While you can also include domestic undisclosed money, taxpayers do not get the same protection as they would with their offshore assets. You must also enter the program on your own free will — hence the word voluntary. This means that you cannot be under audit or examination by the IRS and then submit to the program. But why doesn’t the IRS allow you to enter the program once you are under audit? Because you, as a taxpayer, have the responsibility to bring these issues to the forefront during an audit even if the DMCC approved auditor did not specifically ask.

Your Obligations

Once you enter the program, there are specific time requirements and reporting disclosures that must be done according to the IRS’s milestones. If you do not meet these milestones, you can be removed from the Offshore Voluntary Disclosure Program. Now that you are no longer a part of the program, the IRS can use the information they have regarding your offshore finances to enforce higher fines and penalties against you. We know that last part sounds a little scary — what is the point of disclosing all of this information for protection when the IRS can kick you out and use that information against you? No matter how hidden you believe an account is, you must perform a full disclosure and report all financial information when you enter the program.

The reason why successfully entering and completing the Offshore Voluntary Disclosure Program is so critical, is because the IRS can issue significant penalties against what may seem like a relatively minor infraction. If you fail to file a tax return than you can be imprisoned for a year and fined $100,000; however, failure to file an FBAR (Foreign Bank Account Report) can lead to ten years of prison time and criminal penalties of $500,000.  A person that is convicted of tax evasion or conspiracy to commit offence/defraud the United States is subject to a prison term of up to five years, and a fine of $250,000.

Those entering the Offshore Voluntary Disclosure program must understand that completing the program does not mean they are exempt from civil penalties entirely. These penalties are not insignificant either — they are substantial fees that must be taken into consideration by those considering the Offshore Voluntary Disclosure program. However, they should not deter you from applying. You must also consider the major benefit that the program provides you with, and that is protection from criminal prosecution. Even though the penalties can be high, they are also rather predictable. If the IRS uncovers your secret offshore accounts through an audit, then both the civil and criminal charges skyrocket.

If you or someone you know is facing tax issues with the IRS, it is important that they reach out to an experienced tax attorney to help them deal with the IRS directly. With qualified legal advice, disputes with the IRS are more likely to be resolved in a quick and satisfactory manner.


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