On February 8, 2011, the IRS announced a new Offshore Voluntary Disclosure Initiative (OVDI), which is described as an amnesty-type program for taxpayers with foreign bank accounts.  The IRS claims that this program will crack down on allegedly hidden offshore accounts and tax evasion.¹

Taxpayers who participate in the program will have to pay up to 25% of the highest annual amount in a disclosed account from 2003 through 2010… and that’s in addition to back taxes, interest, and other tax penalties.  The benefit of participation in this program should be the avoidance of criminal prosecution.  But, as with the 2009 program, there is some fine print about who is eligible to participate and the requirements for that participation.  For instance, taxpayers who are already being audited cannot participate in the program.  We have had a few clients who came to our firm after they attempted to participate in a voluntary program and were under criminal investigation.  In short, there are many dangers that taxpayers may want professional advice on if they are investigating whether to apply to participate in this program.

The terms of this new voluntary disclosure amnesty program are less favorable than the 2009 program, which required taxpayers to pay taxes on six years of undeclared income, plus a 20% penalty.  However, the IRS believes that it will still get a large number of taxpayer participants because of its recent success with using bullying tactics to get foreign banks to reveal their clients’ private information.  Of course, the IRS describes these banks quite differently—“offshore and abusive tax shelters”.

The OVDI program will be available until August 31, 2011.

¹See the IRS’s press release at
http://www.irs.gov/newsroom/article/0,,id=235695,00.html?portlet=7.