VDP – IRS New Voluntary Disclosure Practice Can Benefit Taxpayers
The traditional voluntary disclosure program from the IRS has been in existence for many years. Recently, the Internal Revenue Service overhauled the traditional voluntary disclosure program (soon after it terminated OVDP) — which stands for “Offshore Voluntary Disclosure Program — in accordance with recent updates in U.S. and Offshore enforcement protocols.
VDP (Voluntary Disclosure Practice)
There are only a handful of International Tax Law firms, such as Golding & Golding, that specialize exclusively in this area of law.
And, in the past few months, we have been contacted by individuals who were unnecessarily scared by tax practitioners who don’t understand how voluntary disclosure practice works — but dabble in it just enough to be dangerous to the industry, the client — and themselves.
VDP is a Specialized Area of Tax Law
Handling a few FBAR, FATCA and “IRS Streamlined” cases does not make someone a voluntary disclosure specialist.
In an all too common scenario, the tax practitoner is not qualified to handle a VDP, so they refer any and all clients who contacts them into the Streamlined Program. This is even after the consumer has represented to the attorney that he or she is pretty sure they were willful.
Still, the practitioner will do everything they can to scare the applicant out of VDP (because they do not even handle VDP) — even going so far as taking a willful person through the streamlined program (which the IRS has said can result in massive fines, and criminal prosecution) — as part of their “mill” general tax practice.
*Oftentimes the Streamlined Program is much more complex than a person is being sold on, including issues with transition tax, PFIC and more.
Benefits to VDP
Here are three (3) important aspects of revamped VDP:
Possible Penalty Avoidance on Information Reporting Forms
Not every client who wants to enter voluntary disclosure has tens of millions of dollars held in foreign accounts. Some clients may have ownership of multiple foreign corporations, which they use to earn a living — but never reported to the IRS, such as Forms 5471 and 8865.
Under the revised procedures of VDP — a person may be able to avoid a penalty on the non-filing of informational returns.
In fact, in the IRS most recent memoranda they specifically state this fact when explaining the new penalty structure.
Negotiating the FBAR Penalty
Under most circumstances, a person is going to be hit with a 50% penalty on the maximum balance of their account (or $100,000, whichever is greater).
With that said, unlike traditional OVDP, the Foreign Asset/Account penalty can be negotiated.
We have handled more than 1000 offshore disclosure submissions involving the streamline program, OVDP, VDP and reasonable cause.
Each individual submission has its own set of unique facts and circumstances.
Sometimes the facts qualify a person for a reduced penalty.
Real Estate Rental
Under traditional OVDP, the IRS required real estate rental property to be included as part of the penalty base. Under VDP, the penalty structure is not as firm, and there is no absolute real estate penalty as there was under the traditional OVDP.
**The program is still being updated, shows important to note that the information this article may change and you should stay abreast of any future rules or regulations promulgated by the IRS.
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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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.