Thrown into OVDP or Baited into Streamlined – You Have Options
It seems to be the same three or four law firms that are giving the same bad advice to clients.
Thereafter, as the client continues to research and learn more about the process and IRS offshore disclosure as a whole, they are coming to the conclusion that they were taken or baited by counsel to act quickly.
At this point, we are working with multiple clients that are in the same situation, as a result of terrible legal advice they received from the same group of law firms.
If you are in this type of situation and believe your current attorney is either too inexperienced or sold you a false bill of goods, you still have options.
The Three (3) Main Issues with Bad OVDP Representation
Streamlined When the Client was Willful
This has become a serious issue which is jeopardizing the safety of many clients. In this situation, the client contacts multiple firms. The client knows he or she was willful because the client had every opportunity to disclose his or her foreign accounts but chose not to. In this situation, the client was well aware that there was a reporting requirement and was aware that the income earned abroad has to be reported in the United States (no matter how small the income was) but chose not to.
Usually, the client either thought they would never receive a FATCA Letter, and/or would not continue residing in the United States or be renewing their visa/green card. Also, the client was earning significant income in the United States, was transferred to the United States (typically on L1 visa), and also had a CPA as a result of equalization services provided by the employer.
After speaking with experienced attorneys, the client realizes that they have no alternative but to go OVDP (if they’re going to make a proactive offshore disclosure).
The client continues researching and speaks with much less experienced counsel or experienced counsel who are looking for a quick payday. These attorneys falsely tell the client that the client will qualify for either the streamlined program or reasonable cause because the amount of unreported income was low or that the chances of audit are low.
Not only is this incorrect, but it places the client in an impossibly difficult position. That is because these attorneys are baiting the client with incredibly low fees in order to go Reasonable Cause or Streamlined – when in fact, it should not even be an option. A person cannot go Streamlined or Reasonable Cause when they know they were willful.
At our firm, we always try to believe in the best in people. We didn’t actually believe that this could be happening (since it is a complete ethical violation), until the fifth or sixth client contacted us and told us about the same few attorneys selling them on the same false bill of good.
They tell us the same thing;
– These other attorneys made it seem as if the chances of getting caught were so slim that OVDP was an overkill.
– These attorneys told us that the other attorneys were just trying to “push us” into OVDP, and again, OVDP is not necessary even though I knew I should have reported, because the unreported income was small.
Thereafter, the client continues researching and comes to the conclusion that they made a horrible mistake, are in no position to go streamlined or reasonable cause but were baited into doing so, and are now petrified of what to do.
OVDP When Non-Willful (Unless a Specific Reason)
This is another impossibly difficult and sad situation we have to deal with often at our firm. Usually, it is a nice elderly couple that has never been in trouble with the law. They may have used a CPA or tax accountant for many years, and the tax professional simply did not understand international tax law.
As a result, the tax professional never asked whether the individual had foreign accounts or not, and/or told the client that it was not necessary to report foreign accounts in the United States.
Usually, after attending a dinner party, speaking with friends, or receiving a FATCA Letter, the clients learn that they had been receiving bad advice and go to speak with different attorneys.
These attorneys scare the clients into OVDP, by telling them that if they do not enter OVDP, they can go to jail or prison for at least five years. This is an absolute lie, especially in situations when the person was clearly non-willful.
Unfortunately, what these attorneys do not tell the unsuspecting clients is that it is extremely difficult if not impossible for a person to get out of OVDP. In other words, while there are processes to either intentionally remove or opt out of the program, it leaves the client in a very vulnerable state.
Why? Because it leaves the client open to a comprehensive audit by the IRS, which could subject the individual to significant fines and penalties depending on the agent or auditor assigned to the case.
Sometimes, OVDP is still the Right Option
It is important to note, that just because a person was non-willful does not mean traditional OVDP is a bad option. There are times in which the person is either:
- Unsure of their willfulness vs. non-willfulness status (and is risk-averse and wealthy and prefer to go into OVDP)
- Wants to make a mark-to-market election
- Is out of tax compliance for many tax authorities worldwide but wants to remain in the United States
- Does not want to be audited and would prefer to just pay the penalty – and still submit to traditional OVDP.
These are not the situations we are talking about. We are talking about the individuals who are scared and bullied into OVDP when they have no right for being in it. Usually, these clients may have some bank accounts or investments offshore, but paid all of the foreign taxes, told their tax professional that they had the foreign accounts, but simply relied on that advice from a tax professional.
OVDP for Literally No Reason
This is another phenomenon that is impacting clients and infuriating our attorneys. In many situations, the client has unreported accounts but no unreported income.
Possibly they have some foreign bank accounts that do not earn any interest income or maybe they have a foreign business or received a foreign gift but do not have any unreported income.
In this situation, usually a client can avoid penalties and some of the more stringent reporting requirements by making certain proactive representations to the IRS. It does not require traditional OVDP or even a 5% penalty under the streamlined program.
Nevertheless, when speaking with inexperienced attorneys, they are told that the only way to get into compliance and avoid jail and horrific fines and penalties is to enter OVDP. This advice is nothing less than egregious, because it is putting the client into a horrible position of having to defend themselves in a possible opt-out audit when in reality all they had to do was submit the proper forms along with a reasonable cause letter.
*As with the above referenced analysis, there may be additional facts which impact that prior attorneys determination that OVDP is the better option, but 9 out of 10 times it was overkill and a simple attempt to obtain a bigger payday from the client.
What to Do Next?
It is important that you have a confidence level with your attorney.
If you believe your attorney has lied to you or otherwise misrepresented to you your options in terms of getting into compliance, you should consider your options.
We are currently representing many clients that are in the same boat as you.
Contact Us Today, We Can Help You!