Post-OVDP Opt Out – IRS Increased Penalty Risk (5 Considerations)
Just because IRS OVDP ended, does not mean you lose the right to opt-out of an OVDP that was submitted, and accepted before OVDP was ended. But, you have to be careful.
Post-OVDP Opt Out
Recently, we have been contacted by multiple individuals and businesses who are in this same tough spot — they are considering an opt-out, post-OVDP ending.
And, due to all of the misinformation online regarding the close of OVDP, post-OVDP procedures, and Opt-Out — we wanted to shed a bit of light on the issue.
In one recent instance, the individual applied to OVDP back in 2015, was accepted into the program — and completed their submission in 2017.
In 2019 they received their 906 letter (which is a typical timeframe), but Taxpayers were not inclined to pay the penalty.
They wanted to Opt-out, and they did – now they are facing a 50%+ penalty. Had they known the change of the laws, and the terms of the revised voluntary disclosure program, they told us they would have never opted-out.
This is the problem of using inexperienced counsel.
Here are 5 considerations to be aware of before opting out, post-OVDP.
27.5% Penalty is not a bad deal (Sometimes)
Some people tend to lose sight of the forest for the trees (which is common for all people, in all cultures).
In most instances, a person entered OVDP because they were, to some degree, willful – although this is not always the case. The IRS ended OVDP and in general (absent extremely mitigating circumstances) will penalize a person 50% instead of 27.5%. In other words, the updated procedures tend to lean toward a worse penalty than the OVDP penalty.
Practice Pointer: Consider the 27.5% penalty vs. 50+% penalty and the time value of your money (and time spent in an audit) before proceeding.
The Wave of Offshore Disclosure has Changed
In years past, the IRS needed your information.
Now, with the enforcement of FATCA, increased information exchanges, and more deferred prosecution agreements, the IRS no longer needs your information. That makes your hand less powerful, and easier for the IRS to call your bluff.
Practice Pointer: The IRS will more likely make the Audit more difficult and comprehensive than in prior years, so be very prepared.
Do You have a Legitimate Penalty Waiver Argument?
Sometimes, the IRS automatically excluded certain assets and accounts from the penalty under OVDP. One example is the Canadian RRSP and RRIF. Double-check your assets and be sure that you excluded any asset that was entitled to be excluded in your penalty calculation.
Practice Pointer: Review your assets and accounts in detail before making any submission.
How Bullet-Proof is the Rest of Your Life?
Loaded question, right?
But, when you opt-out of OVDP, you are taking the IRS agent to task.
Sometimes, the agent is amenable and fair (we have had this in many opt-out situations). Sometimes, the agent is not fair, and looking to grind you out (less common, but it does happen). In the latter, they see you as someone trying to avoid paying tax, and they do not want to give you any opportunity to reduce your penalty.
Practice Pointer: Be sure the rest of your potential audit situations (self-owned business, U.S. reporting) can withstand a full IRS Audit.
Is Your Counsel Experienced?
Year-after-year, it is the same story. A client comes to us after retaining less experienced counsel.
They attorney handles various areas of Tax law beyond exclusively Offshore and Domestic disclosure.
The attorney has not taken the time (and does not have the experience or skill) to earn advanced credentials such as a Master’s of Tax Law, Board Certified Tax Specialist certification, or Enrolled Agent or CPA status — all which are standard for attorneys in this area of tax law.
Many of these attorneys see Streamlined as a “Mill” practice, and are ill-equipped to assist you.
Practice Pointer: Were you even willful in the first place, or were you willful and told to go streamlined, which is another problem to be aware of, in which we can help you.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.