On February 8, 2011, the Internal Revenue Service announced a second voluntary disclosure initiative designed to encourage taxpayers to report undisclosed income from hidden offshore accounts. The new initiative, referred to as the 2011 Offshore Voluntary Disclosure Initiative (OVDI), applies to tax years 2003 through 2010 and is available through August 31, 2011.
The first initiative, which began in 2009, offered a settlement for people who voluntarily disclosed their unreported offshore income for the tax years 2003 to 2008. Taxpayers who participated faced a 20 percent penalty covering up to a 6-year period. The extended deadline for the first initiative expired October 15, 2009.
OVDI differs from the 2009 program including a higher penalty structure. Some terms of the new initiative include:
- Taxpayers must file all original and amended tax returns and include payment for taxes, interest, and accuracy-related penalties by the August 31 deadline.
- Taxpayers must file original and amended offshore-related information returns and Report of Foreign Bank and Financial Accounts (FBAR) for calendar years 2003-2010.
- Taxpayers will pay a 20% accuracy-related penalty.
- Taxpayers can pay, in lieu of all other penalties that may apply, a penalty of up to 25 percent of the amount in the foreign bank account(s) in the period with the highest aggregate account balance covering the 2003 to 2010 timeframe (in limited cases this penalty may be 12.5% or 5%)
The 2011 initiative offers benefits to encourage taxpayers to report now rather than risk detection by the IRS. Taxpayers who do not submit a voluntary disclosure will face the risk of higher penalty scenarios as well as the possibility of criminal prosecution.
