IRS Relaxes Deadline for 2011 Offshore Voluntary Disclosure Initiative, Provides Opt Out and Removal Procedures

Jun 14, 2011   

As the August 31, 2011 deadline nears, the IRS has announced that taxpayers may request a 90-day extension to participate in the 2011 Offshore Voluntary Compliance Initiative (“OVDI”). The IRS also laid out guidance for taxpayers to opt out of the disclosure program as well as circumstances when the Service will remove taxpayers from the program.

OVDI

The 2011 OVDI is a follow-up to a similar 2009 disclosure program targeted at taxpayers with unreported foreign accounts. The initiative offers taxpayers a reduced penalty framework in exchange for full disclosure of unreported foreign accounts. The penalties range from 5 to 25 percent of the balances held in such accounts. You can read more about the initial 2011 OVDI Program announcement and its penalty framework here.

Extension

Although the IRS initially stated that the August 31, 2011 was a firm deadline, it is now permitting taxpayers to file for a 90-day extension. The taxpayer must have made a good-faith attempt to comply with the terms of the OVDI. One such term requires the taxpayer to consent to an extended period during which the IRS can assess additional tax or penalties. If taxpayers wish to request an extension, they must submit a written statement before August 31, 2011. The statement must explain the taxpayers reasons for seeking an extension.

Opt-Out and Removal

According to IRS guidance, the OVDI opt out is an irrevocable election by a taxpayer to have his or her case handled under the standard audit process. The election is made at the sole discretion of the taxpayer. In contrast, removal occurs when the IRS decides to remove a taxpayer from the disclosure program. Nevertheless, the IRS initiates an examination after either opt-out or removal. In its FAQ guidance, the IRS proposed different scenarios where opt out would be an appropriate election for taxpayers. Although the IRS predicts opt-out to be suitable for only for a discrete minority, it reminds examiners that an election should not be cast in a negative light. Alternatively, documented refusal to cooperate with the program is grounds for removal. You can read the full opt out and removal guidance here.

The attorneys at Fuerst Ittleman, PL are well-versed in matters of voluntary disclosure, PFIC taxation, Controlled Foreign Corporation (CFC) taxation, and tax litigation. You can contact an attorney by emailing us at contact@fidjlaw.com.