What Does the Shutdown Mean for the IRS Offshore Voluntary Disclosure Program (OVDP)?
Taxpayers wishing to enter the OVDP usually submit a request for a so-called “pre-clearance” regarding the taxpayer’s eligibility to join the program. This initial inquiry is made to the Internal Revenue Service Criminal Investigation Lead Development Center which responds by fax advising whether the taxpayer has been initially cleared to make a voluntary disclosure. Prior to the shutdown, there was a short delay due to high volume. With the shutdown, we have learned that pre-clearance inquiries are still being accepted at the following fax number — (+1 267-941-1115), but you can expect a processing delay.
Assuming a pre-clearance request is given the “green light”, taxpayers have 45 days from the receipt of the fax to submit a so-called Offshore Voluntary Disclosure Letter and its attachment which details all information regarding the unreported accounts. Once IRS receives that Letter, it will reply advising a taxpayer if he has been “preliminarily accepted” into OVDP. Preliminary acceptance into the OVDP is conditioned upon the information provided by the taxpayer being, and remaining, truthful, timely, and complete. The taxpayer must submit the FULL OVDP package along with payments of tax, penalties and interest to the IRS within 90 days of the preliminary acceptance letter.
No one knows how the shutdown will affect these time deadlines. The inevitable delays caused by the shutdown has clearly thrown significant uncertainty into the mix and many taxpayers are afraid that their foreign banks may close out their accounts before they have had a chance to be accepted into OVDP.
Please see FAQs 23, 24 and 25 discussing the procedural steps involved in the OVDP.
A few weeks ago, Mohanbhai Ramchandani, pled guilty to violating the laws implementing the United States Treasury Department’s Foreign Bank and Financial Accounts Report (FBAR) as well as to filing false tax returns to conceal $3.2 million earned in his swanky New York City tailoring business. While the tailor could probably easily estimate a customer’s suit size, he had completely underestimated the tenacity of the Internal Revenue Service to “follow the money”… But, find it they did, in bank accounts located at the Bank of India, in Hong Kong and at accounts in Canada and India (some in his son’s name). Between 2007 and 2009, Ramchandani did not pay tax on the hidden $3.2 million he had stashed in the foreign bank accounts and, in violation of FBAR laws, he failed to report that he had those accounts. Ramchandani’s cheating resulted in a tax loss of US$ 736,002 for the 3-year period 2007, 2008 and 2009. When sentenced, Ramchandani faces up to five years in prison (let’s hope the tailor likes black stripes!). Also, he faces a penalty of $1.6 million for the FBAR violations, restitution to the Internal Revenue Service of $736,002.00 for unpaid taxes and probably oodles and oodles of interest!
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