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What Is the Offshore Voluntary Disclosure Program?
The Offshore Voluntary Disclosure Program (OVDP) is an IRS program to help lessen penalties for US taxpayers who knowingly did not report foreign earnings or assets. Here are ten of the main reasons why the OVDP is important.
- The OVDP enables US taxpayers to become compliant
The OVDP is meant for US taxpayers who intentionally did not disclose foreign assets; in other words, it is not a program for taxpayers who accidentally made mistakes in their tax filing, but rather for taxpayers whose failure to report earnings was deliberate. While the OVDP is not without penalties, it allows these taxpayers to become compliant with minimal consequences.
- The OVDP allows participants to avoid criminal prosecution
US taxpayers guilty of willful noncompliance can face hefty criminal charges; depending on what crimes a taxpayer is convicted of, he or she can face up to 10 years in prison and fines up to $500,000 USD. OVDP participants, however, will not be criminally prosecuted. While the program is not exactly a get out of jail free card (there are financial penalties), it is a way to avoid prison time and return to good standing with the IRS.
- The OVDP period only covers the last 8 years
The voluntary disclosure period of the OVDP is the most recent eight years, and any non-disclosure previous to that period is forgiven. This is a crucial benefit for individuals who have undisclosed offshore earnings and assets going back further than eight years; the potential consequences they would face if they didn’t participate in the OVDP are very severe, and the financial toll of the OVDP does not reflect all of their undisclosed earnings.
- The OVDP allows taxpayers to be financially informed
The Offshore Voluntary Disclosure Program offers taxpayers the opportunity to calculate the total cost of resolving all offshore tax issues with relative certainty, and to save money by paying a single penalty as opposed to many, as would be required outside the OVDP.
- The OVDP is far less risky than the Streamlined Compliance Filing Procedures
While it is true that the Streamlined Procedures, which are intended for taxpayers whose failure to disclose offshore earnings or assets was entirely non-willful, has significantly lower financial penalties than the OVDP, it is also extraordinarily risky; if the IRS rejects a taxpayer’s application, they can then pursue the taxpayer to the fullest extent of the law. The OVDP may have higher penalties, but it does not contain these high risks.
- The OVDP helps the IRS become more effective
The data the IRS gathers from OVDP participants, along with the information the IRS receives under tax treaties and through submissions from whistleblowers, allows the IRS to gain a better picture of how much money is being hidden overseas and how best to identify noncompliant US taxpayers.
- Not all taxpayers are qualified for the OVDP
While many US taxpayers are qualified for the OVDP, there are a few qualifications potential participants must meet. Perhaps the most important one is that a taxpayer’s undisclosed assets cannot be derived from criminal activity. Furthermore, a taxpayer cannot be under civil or criminal investigation by the IRS; taxpayers must disclose before they have been detected by the IRS in order to be eligible for the OVDP.
- The OVDP is open-ended
There is no set end date for the OVDP, and the IRS has the ability to terminate the program at any time. Taxpayers who are delaying entering the process should keep this in mind because it is possible that, if they wait too long, the terms of the program could be modified or the program itself could be ended.
- The OVDP offers taxpayers who come into compliance a clean slate
Once participating taxpayers have gone through the process of the OVDP, they are granted a clean slate with the IRS. Unlike taxpayers who are detected and penalized by the IRS, taxpayers who voluntarily disclose have the opportunity to clear the record.
- The OVDP saves government money
The IRS is a bureau of the US Department of the Treasury, and as a government service is funded by the US government. The OVDP allows the IRS to effectively do its job while expending far less in the way of money and resources.
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