Golding & Golding – Offshore Disclosure & FATCA Compliance

OVDP is the Offshore Voluntary Disclosure Program. It is a program (usually) designed to facilitate tax compliance for “willful” individuals, estates, and businesses that are out of tax compliance — involving the reporting of foreign accounts, foreign assets, and Foreign Income.

Since the program’s inception back in 2009, the program has become significantly more complicated, and the requirements for submission have become stricter. Namely, the applicant is required to divulge much more information regarding the source of the money than it did in years past.

As such, it is important to understand what must be disclosed during the OVDP process in order to get a better idea of what information you are going to need to provide — and what the ramifications may be to you on a personal and professional level.

Using OVDP to Clean “Dirty” Money

As one of the only tax law firms worldwide that limits its practice exclusively to offshore disclosure, we have seen hundreds of different scenarios with respect to reasons and justifications for submitting to OVDP. It is not uncommon for some of our more “creative” clients (intentional or not) to consider using OVDP to launder dirty money.

This is not a great idea…

What is Dirty Money?

When it comes time for offshore disclosure (OVDP), there are various aspects to the submission. One of the crucial points in the submission process is actually the initial submission – following preclearance – in which the applicant must describe/categorize the source of the money.

In years past, the IRS was less invasive regarding the source of the funds; in other words, it was easier to submit information that would not be as heavily scrutinized. Fast-forward to 2016, in which the IRS has become more sophisticated in uncovering attempts to clean dirty money — which applicants do by hiding the initial source of the money (aka Money Laundering).

OVDP Money Laundering Example

Peter operated a Ponzi scheme throughout the East Coast. Peter was one of the lucky ones and was able to actually terminate operations of a Ponzi scheme, while paying off the more sophisticated clients — and still have a profit left at the end of the day to the tune of $3 million. He was able to pull this off with a multi-layered “sleight of hand,” coupled by clients who were simply unaware that they were scammed.

Peter had moved this money offshore to the Cayman Islands and Luxembourg, but after receiving a FATCA letter from his foreign bank decided it was time to try and legitimize the money before it was too late.

Peter’s idea was to enter over OVDP, but not identify the source of the funds. Rather, Peter would instead mischaracterize the source of the funds to show that it was income instead of ill-gotten gains; unfortunately, the IRS has stepped up its game.

Form 14457 – Offshore Voluntary Disclosure Letter

In order to properly submit an OVDP, the applicant must submit 14457. The form 14457 request specific information about the money that is being disclosed overseas. Specifically, question five (5) asks for the source of the funds-and one of the alternatives for the source of the funds is whether it is derived from Illegal Sources.

The main issue to keep in mind is that the IRS is authorized to tax individuals on their ill-gotten gains. Since money derives from a Ponzi scheme is an ill-gotten gain, what you are actually doing is making a domestic disclosure (income earned in the U.S. via a Ponzi Scheme) as well-to include the legal source income derived from the United States.

There are very important implications in doing this, since is you disclose illegal income from domestic operations there are potential complications and additional penalties that may be levied against you during the submission.

What if I Lie about the Sources of Funds?

Intentionally providing misinformation regarding the source of the funds to the IRS can have a severe impact on your application.

Please note the following:

  1. It is not considered a full disclosure, and you have just opened yourself up to criminal prosecution.
  2. You are committing a form of tax fraud and tax evasion to the IRS by lying about the source of the income.
  3. Your failure to provide a full disclosure may result in additional fines and penalties.
  4. The IRS may launch a criminal investigation against you.
  5. The matter may be referred to the Department of Justice for Criminal Prosecution.

Golding & Golding, A PLC

We have successfully represented clients in more than 1,000 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.

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