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IRS Announces Details of 2011 Offshore Voluntary Disclosure Initiative (OVDI)

The 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) is different in several ways from the 2009 Offshore Voluntary Disclosure Program (“OVDP”).  The deadline to apply to the OVDI is August 31, 2011.

Similar to the 2009 OVDP, the 2011 OVDI is intended to encourage taxpayers with unreported offshore accounts to come forward voluntarily with the primary benefits of (a) no criminal referral; and (b) a reduced penalty.  However IRS does not want to reward taxpayers who failed to come forward in the 2009 OVDP, so the standard penalty for the new initiative is 25% of the balance of the highest aggregate year of non-reported account balances rather than the 20% penalty that was used in most cases in the OVDP.  Also, the new OVDI will include 8 years (2003 through 2010) rather than the 6 year period applicable to the OVDP (2003 through 2008).

Although the new OVDI has a standard penalty that is larger than the OVDP, IRS states some taxpayers with smaller accounts and/or less culpability for non-reporting may be subject to reduced penalties of 12.5% or 5%.  It should be noted that the original OVDP also promised a possible reduced 5% penalty for less culpable non-reporters, but in practice the reduced rate was difficult to obtain.

In announcing the new initiative, IRS Commissioner Douglas Shulman said “This is a fair offer for people with offshore accounts who want to get right with the nation’s taxpayers.  This initiative offers them the chance to get certainty about how their case will be handled.  Just as importantly, those who truly come in voluntarily can avoid criminal prosecution as well.”  Commissioner Shulman also said that IRS efforts in the international area are increasing and that IRS is pursuing information from several offshore banks.  He also stated that combating international tax evasion is a top priority for the IRS.

We will relay more details of the new initiative as they become available.