prepare for round 3: irs reopens offshore voluntary ...€¦ · prepare for round 3: irs reopens...

Business Tax/White Collar Alert

www.BlankRome.com January 2012 No. 1

© 2012, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

One Logan Square • Philadelphia, Pennsylvania 19103-6998 • 215.569.5500

Prepare for Round 3: IRS Reopens Offshore Voluntary Disclosure Program

By Matthew D. Lee and Jennifer L. Bell

On January 9, the Internal Revenue Service (“IRS”) reopened

its Offshore Voluntary Disclosure Program (“OVDP”) for U.S. tax-

payers holding undisclosed foreign bank accounts. The OVDP

permits eligible taxpayers with secret foreign bank accounts, and

unreported income associated with those accounts, to obtain

amnesty from criminal prosecution in return for the payment of

back taxes, interest, and penalties.

Two previous IRS programs for taxpayers with foreign bank

accounts, which ran in 2009 and 2011, brought in more than

$4.4 billion in taxes from tens of thousands of U.S. taxpayers,

according to the IRS. “Our focus on offshore tax evasion contin-

ues to produce strong, substantial results for the nation’s taxpay-

ers,” said IRS Commissioner Doug Shulman in a statement. “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 gov-

ernment. This new program makes good sense for taxpayers still

hiding assets overseas and for the nation’s tax system.”

The new OVDP is similar to the 2011 program in several

ways, with a few significant differences.

First, the third program will be open for an indefinite period

of time until otherwise announced. However, the terms of the

program could change at any time. For example, the IRS may

increase penalties in the program for all or some taxpayers or

defined classes of taxpayers – or decide to end the program

entirely at any point.

Second, the overall penalty structure for the new program is

the same as for 2011, except for the taxpayers in the highest

penalty category. The penalty framework requires individuals to

pay a penalty of 27.5 percent, up from 25 percent in the 2011

program, 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. Like the 2011 program, this

penalty may be reduced to either 12.5 or 5 percent under

limited circumstances.

Participants must generally pay back taxes and interest for the

past eight years, as well as accuracy-related and/or delinquency

penalties of 20 percent of the taxes due. Participants must also

file all original and amended tax returns, and pay all taxes,

interest, and penalties. Taxpayers who made voluntary disclo-

sures since the 2011 program closed last year will be able to be

treated under the provisions of the new OVDP.

It is widely believed that many U.S. taxpayers did not seek

amnesty under the first and second programs and are still on the

fence regarding whether to report their offshore assets.

Individuals who continue to hide assets offshore and choose not

to participate in the 2011 OVDI can face substantial civil penal-

ties as well as the possibility of criminal prosecution. “As we’ve

said all along, people need to come in and get right with us

before we find you,” Commissioner Shulman said. “We are

following more leads and the risk for people who do not come

in continues to increase.”

ALERTBUSINESS TAX/WHITE COLLAR

2BLANK ROME

To date, federal prosecutors have criminally charged more

than thirty individuals with violating U.S. law by maintaining

secret foreign bank accounts. A number of foreign bankers, attor-

neys, and advisors have also been criminally charged, and many

foreign financial institutions, including banks in Switzerland,

Israel, and India, are under investigation as the U.S. government

continues its global crackdown on offshore tax evasion.

Individuals with questions about foreign bank accounts, or

who are considering making a voluntary disclosure to the IRS

regarding foreign bank accounts, should consult experienced tax

counsel to understand the benefits and risks of the voluntary dis-

closure process. Blank Rome LLP has significant experience with

IRS voluntary disclosure practice and can assist individuals in

navigating the voluntary disclosure process.

Jerry D. Bernstein, Chair 212.885.5511 • JBernstein@BlankRome.com

Laura Brill Deegan 212.885.5533 • LBrill@BlankRome.com

Ian M. Comisky 215.569.5646 • Comisky-IM@BlankRome.com

Nicholas C. Harbist 609.750.2991 • Harbist@BlankRome.com

Matthew D. Lee 215.569.5352 • Lee-M@BlankRome.com

Gregory F. Linsin 202.772.5813 • Linsin@BlankRome.com

Inbal Paz 212.885.5010 • IPaz@BlankRome.com

Jennifer Peru Gary 202.772.5863 • Gary@BlankRome.com

Joseph G. Poluka 215.569.5624 • Poluka@BlankRome.com

Marc Rothenberg 212.885.5121 • Rothenberg@BlankRome.com

Laurence S. Shtasel 215.569.5691 • Shtasel@BlankRome.com

Shawn M. Wright 202.772.5968 • Wright@BlankRome.com

White Collar Defense and Investigations Practice

To ensure compliance with IRS Circular 230, you are hereby notified that any discussion of federal tax issues in this letter is not intended or written to

be used, and it cannot be used by any person for the purpose of: (A) avoiding penalties that may be imposed on them under the Code, and (B) pro-

moting, marketing or recommending to another party any transaction or matter addressed herein. This disclosure is made in accordance with the rules

of Treasury Department Circular 230 governing standards of practice before the Service.

Joseph T. Gulant, Chair 212.885.5304 • 215.569.5648 • JGulant@BlankRome.com

Jennifer Lynn Bell 212.885.5402 • JBell@BlankRome.com

Daniel R. Blickman 215.569.5373 • Blickman@BlankRome.com

Megan A. Christensen 202.772.5897 • Christensen@BlankRome.com

Susan A. Cobb 202.772.5859 • Cobb-S@BlankRome.com

Joseph M. Doloboff 424.239.3424 • Doloboff@BlankRome.com

Cory G. Jacobs 215.569.5481 • CJacobs@BlankRome.com

David M. Kuchinos 215.569.5729 • Kuchinos@BlankRome.com

Jeffrey M. Rosenfeld 215.569.5752 • Rosenfeld@BlankRome.com

Michael I. Sanders 202.772.5808 • Sanders@BlankRome.com

Barry E. Sweet 215.569.5722 • Sweet@BlankRome.com

Business Tax Practice

© 2012, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

One Logan Square • Philadelphia, Pennsylvania 19103-6998 • 215.569.5500