by Geoffrey Weg

On Jan. 9, 2012, the Internal Revenue Service ("IRS") reopened the Offshore Voluntary Disclosure Program ("OVDP"), which provided taxpayers with undisclosed income from offshore accounts an opportunity to "get current with their taxes" and limit potential penalties.

IRS Commissioner Doug Shulman stated, "Our focus on offshore tax evasion continues to produce strong, substantial results for the nation's taxpayers. We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation's tax system."

Commissioner Shulman added, "people need to come in and get right with us before we find you," and that IRS is "following more leads and the risk for people who do not come in continues to increase."

With a few key differences, this OVDP is similar to the 2011 program, which allowed participating taxpayers to avoid potential criminal prosecution by filing missing tax returns and paying applicable taxes, penalties and interest. Unlike the 2011 program, there is no set deadline for taxpayers to apply to the 2012 OVDP. It is important to note, however, that the terms of the 2012 program could change at any time - IRS could end the program entirely at any point, or increase penalties for all or some of the affected taxpayers.

The overall penalty structure is essentially identical to prior programs, but with an increase in the highest penalty rate to 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. During the 2011 program, the highest penalty was 25 percent. Like the 2011 program, taxpayers whose offshore accounts did not exceed $75,000 in any calendar year covered by the 2012 OVDP will be eligible for a lower 5% or 12.5% penalty. In addition, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

In announcing the 2012 OVDP, IRS highlighted the success of past offshore voluntary disclosure programs, which to date have resulted in $4.4 billion in collections for the federal government from some 33,000 taxpayer voluntary disclosures. Taxpayers who have made voluntary disclosures to IRS since the closure of the 2011 program will be eligible to participate in the 2012 OVDP.

Any taxpayer who wishes to participate in the 2012 OVDP must file all original and amended tax returns and include payment for back taxes and interest for up to eight years, as well as pay accuracy-related and/or delinquency penalties.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.

Should you have any questions or concerns about the OVDP, please contact any of the attorneys in the Valensi Rose Tax and Wealth Planning Group for assistance.