What Options Are Available for Case Resolution Under OVDP?
At the end of the Offshore Voluntary Disclosure Program process, the IRS will attempt to come to a closing agreement with the taxpayer. In order to close the OVDP process, the taxpayer must agree to come to a closing agreement with the IRS on IRS Form 906, “Closing Agreement on Final Determination Covering Specific Matters” (1). In reaching a closing agreement, certain terms are completely nonnegotiable and the taxpayer must agree with them. For example, under the terms of the OVDP, the penalty framework set forth by the IRS is nonnegotiable and the taxpayer must agree with it in order to benefit from the program (2). Similarly, the OVDP policy requires the taxpayer and the IRS to agree to limit tax exposure to an eight-year period, and this term is also nonnegotiable (3). As certain terms are nonnegotiable, the taxpayer cannot use an appeals or mediation process in an attempt to change or modify the content of the closing agreement; they must essentially be accepted by the taxpayer on a take-it-or-leave-it basis.
If the taxpayer cannot agree with the closing agreement, then he or she may reject it and be subject to a full examination with all taxes and penalties. If the taxpayer then disagrees with the results of the examination, he or she has the opportunity to then appeal the taxes and penalties. At the same time, the taxpayer still does not have the ability to appeal any term in the OVP closing agreement.
What Can I Do if I Disagree with the Offshore Penalty of OVDP?
If the taxpayer disagrees with the offshore penalty assessed under offshore voluntary disclosure program, the taxpayer may withdraw from the program or opt-out. The withdrawal or opt-out must be made in writing and once made, it is irrevocable. In making the election, the taxpayer then assents to have his or her tax situation follow the normal IRS audit procedures. In these cases, the IRS will often perform full scope examinations rather than more cursory audits. The downside to this approach is that if a taxpayer is subject to a full scope examination, the IRS may discover undisclosed evidence which may form the basis for a review by the Criminal Investigation division.
The specific procedures for opting out of the OVDP program are set forth in an IRS publication called “Opt Out and Removal Guide” (4). The guide clarifies that taxpayers may opt out of the OVDP process with respect to the civil penalty settlements, but they remain within the ambit of the IRS Criminal Investigation division. Thus, these taxpayers are still technically participants in the Criminal Investigation’s Voluntary Disclosure Process, and must cooperate with the examiner until the completion off the process. At the end of the criminal voluntary disclosure process, a taxpayer who opted out of OVDP will still have to pay taxes, penalties, and fine assessed through the criminal procedure. Thus, the opt-out process only applies to the civil penalties portion of OVDP.
How a Tax Attorney Can Help
If you have undisclosed offshore foreign accounts or assets, you may be eligible to participate in OVDP. In order to evaluate whether OVDP is the right decision for your international tax situation, you should consider consulting a knowledgeable international tax attorney. The OVDP program is rapidly changing, but an experienced tax attorney can help you navigate the confusing aspects of the IRS program.
The Tax Lawyer - William D Hartsock Tax Attorney Inc. has been successfully helping clients with tax issues related to their foreign assets since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.
Tax Law References
- IRS Form 906, http://www.irs.gov/pub/irs-utl/form_906.pdf.
- Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 49, http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised