Using The OVDP What Are Your Options

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Using The OVDP: What Are Your Options?

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Is OVDP The Best Fit?

• The IRS has released changed to its Offshore Voluntary Disclosure Program encouraging a broader group of U.S. taxpayers to come into compliance. • The streamlined procedures allow for those who were non-willful in their non-compliance to pay a lesser miscellaneous penalty. But, is this the best option?• There are many questions to consider when deciding which avenue to proceed down to clean up your tax closet. For individuals with smaller financial accounts the aggregate offshore penalty for multiple years is less outside of the OVDP. • Additionally, those residing in a foreign country and having assets in that country make the OVDP penalty make no sense.

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. In many cases, the banks and financial institutions request that these forms be provided to them. The foreign banks and financial institutions are also requesting that the account holder submit an IRS Form W-

9, which is generally required to be completed by U.S. customers for tax reporting purposes.

What The OVDP Does Provide


• The OVDP does provide protection from numerous additional potential penalties associated with income tax returns and foreign information reports.• It limits the number of tax years included and provides certainty about avoidance of criminal tax prosecution from the Department of Justice.


Why did I receive this letter?The Foreign Account Tax Compliance Act ("FATCA"), is a law enacted by Congress in 2010 and effective beginning July 1, 2014. The law was enacted to identify noncompliance by U.S. taxpayers using offshore financial accounts. Under FATCA, foreign financial institutions

will generally be required to comply with certain due diligence and annual reporting requirements regarding their U.S. account holders and enter into information sharing agreements with the United States. Foreign financial institutions that do not provide such information to the United States will face a penalty in the form of a withholding of 30 percent of certain U.S. source payments such as interest and dividends.

Many U.S. taxpayers are receiving these letters because, in advance of the effective date of FATCA, foreign banks are undertaking the process of identifying account holders that have a U.S. tax connection. A foreign bank may find that an account holder has a U.S. tax relationship from information held by the bank such as a U.S. mailing address, a U.S. phone number, account holder birth place or the fact that upon opening the account information the bank was provided a U.S. passport, Green Card or U.S. Visa or other information

indicating U.S. residence. If a foreign bank has identified an account as potentially having a relationship to United States, the institution is likely to send this letter to the account holder.

Opting-out of The OVDP


• If you are currently in the OVDP you still may be able to opt-out of the program by providing a reasonable cause letter. • The letter should explain why you should be subjected to a lesser penalty than those set forth in the OVDP. • Opting out of the program could allow the IRS to perform and examination over more than the eight tax years covered under the OVDP, but the facts and circumstances for your situation should be evaluated.


What is a “Non-Prosecution Agreement” and why was it mentioned in my letter?If your account is based in Switzerland, your letter may have referenced that your Bank has entered into a “non-prosecution agreement” with the U.S. Department of Justice (“DOJ”). Basically, what this means is that the bank has agreed to participate in a program to proactively resolve potential issues that they have with the U.S. Department of Justice if they have “reason to believe” they violated tax laws of the U.S. There have been 106

banks in Switzerland that have entered into this initiative.The non-prosecution initiative requires the participating banks to disclose how they helped Americans hide assets, disclose the total number of U.S. accounts since 2008, provide their highest dollar value, and turn over the

names of employees who managed these assets. The banks also must use independent examiners to certify findings to the DOJ. According to a January 26th, 2014 article in Bloomberg, “the program is the largest assault in a five-year U.S. Department of Justice crackdown on offshore tax evasion”. The price for participating in non-prosecution

agreements with the DOJ is very high. Banks must pay 20 percent of the value of accounts not disclosed to the Internal Revenue Service on Aug. 1, 2008, 30 percent for such accounts opened between then and February 2009 and 50 percent for accounts opened after this date.

US Residents Opting-Out of The OVDP

For U.S. residents the following criteria should be considered:• Income source and amount of funds• How long the account has been maintained• Were there withdraws or deposits?• Was the account moved from another institution?• Was the account concealed from advisors?• Did the foreign financial institution hold mail outside the U.S. for the account• Sophistication and education level of the taxpayer



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About Freeman Tax Law

Freeman Tax Law is a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

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