Recently, my spouse had temporary funds that were parked in a foreign bank account for only a day or two. My spouse did not earn a single dollar of interest excluded from the OVDI penalty base. These funds were after tax US funds wired from a US bank and were used to purchase an asset that did not earn any income. We are having these funds included in the penalty base and the auditor has imposed a severe penalty on us. The Auditor is treating us unfairly and we do not know what to do. Any advice?

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If you are in the OVDI, the penalty is a fixed penalty and cannot be negotiated with the agent. The penalty base includes all unreported foreign accounts and the fact that interest may not have been earned on the account does not mean it will not be included in the calculation, but this is certainly an argument you can try to make. Were other funds in the account for longer periods that did earn interest? Your facts are not fully stated.  Were there other foreign accounts involved, for example? <div><br /></div><div>You should carefully read FAQ 32 and 35 re the types of assets included in the penalty base  http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers</div><div><br /></div><div>FAQ 32 reads Assuming that there is unreported income with respect to all the accounts, they all will be included in the penalty base. No distinction is drawn based on whether the account is a business account or a savings or investment account.</div><div><br /></div><div>FAQ 35 reads in part: The offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset. The penalty applies to all assets directly owned by the taxpayer, including financial accounts holding cash, securities or other custodial assets; tangible assets such as real estate or art; and intangible assets such as patents or stock or other interests in a U.S. or foreign business....</div><div><br /></div><div><br /></div><div>A possible choice for you is to consider whether to "opt out" of the program. You need professional guidance on this.  I certainly hope you had legal representation going into the program as it is quite complicated. There is the possibility of a reduced OVDI penalty based on the particular facts. I have represented a number of people in the OVDI / OVDP.  Some unfortunately, had entered the program without understanding the full ramifications. If you would like assistance on considering whether to opt-out, we can provide it if formally engaged to help you.  </div>

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You should carefully read FAQ 32 and 35 re the types of assets included in the penalty base www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

FAQ 32 reads Assuming that there is unreported income with respect to all the accounts, they all will be included in the penalty base. No distinction is drawn based on whether the account is a business account or a savings or investment account.

FAQ 35 reads in part: The offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset. The penalty applies to all assets directly owned by the taxpayer, including financial accounts holding cash, securities or other custodial assets; tangible assets such as real estate or art; and intangible assets such as patents or stock or other interests in a U.S. or foreign business....

A possible choice for you is to consider whether to "opt out" of the program. You need professional guidance on this. I certainly hope you had legal representation going into the program as it is quite complicated. There is the possibility of a reduced OVDI penalty based on the particular facts. I have represented a number of people in the OVDI / OVDP. Some unfortunately, had entered the program without understanding the full ramifications. If you would like assistance on considering whether to opt-out, we can provide it if formally engaged to help you.

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