How to Complete the Pre-clearance Phase of the OVDP

Before a taxpayer even makes a submission to the Offshore Voluntary Disclosure Program, he or she must successfully complete a pre-clearance phase. In this pre-clearance phase, the taxpayer or taxpayer’s representative presents certain information to the IRS Criminal Investigation division and awaits a “pre-clearance” letter indicating the taxpayer’s eligibility for participation in the program.

What Submissions Must be Made to the Criminal Investigation under OVDP?

As the first step in the pre-clearance process, the taxpayer of his or her representative should submit to the Criminal Investigation division an application identifying the taxpayer’s name, date of birth, tax identification number, addresses, or telephone numbers. On the pre-clearance submission, the taxpayer should also identify information on all financial institutions at which the taxpayer has undisclosed foreign financial accounts or assets for the purposes of the Offshore Voluntary Disclosure Program. At this point it is important to note that only certain foreign financial assets and accounts are considered undisclosed OVDP assets for the purposes of the program. The definition of OVDP assets is set forth in the IRS’s Frequently Asked Questions to the Offshore Voluntary Disclosure Program, FAQ 35. The required information regarding financial institutions includes the name of the institution (including all DBA and pseudonyms), addresses, and telephone numbers (1).

A further component of the pre-clearance submission consists of identifying information on all foreign and domestic entities through which the undisclosed OVDP assets were held by the taxpayer. For each foreign and domestic entity, the taxpayer should disclose the complete names, including any DBAs and pseudonyms, employer identification numbers, addresses, and any jurisdiction in which the entity was organized (2). Note, that this submission must be made for current as well as dissolved entities, but entities which are publicly traded on a stock exchange are not included.

What Happens After I Make a Pre-Clearance Submission for OVDP?

After the taxpayer makes a pre-clearance submission to the criminal investigation division, the criminal division will notify the taxpayer or his or her representative about the taxpayer’s eligibility to apply for the Offshore Voluntary Disclosure Program. After receiving pre-clearance, taxpayers must follow up with the next steps in the application process within 45 days in order to make a timely disclosure under the Offshore Voluntary Disclosure Program (3). Although pre-clearance is a necessary step in the OVDP submission, it does not guarantee acceptance into the program.

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 a 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:

1. Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 23, http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised.
2. Id.
3. Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 24, http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised.