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Risk management: offshore account disclosure decisions

Moving forward in life inevitably involves taking calculated risks.

Some people, such as Warren Buffett, are of course much better at this than others. But few would deny the importance of the basic principle of calculating and managing risk.

This principle certainly applies to decisions about whether to disclose previously undisclosed offshore bank accounts. After all, taxpayers who do not disclose foreign accounts run the risk of tax evasion charges. But telling the IRS about previously undisclosed accounts can mean substantial tax penalties.

In this post, we will discuss some of the recent developments that affect decisions to participate in the Offshore Voluntary Disclosure Program (OVDP).

Last week, the IRS announced that it had allowed a number of former customers of an Israeli financial institution called Bank Leumi le-Israel Ltd. back into the OVDP.

Last spring, the IRS had revoked the participation of these customers in the program. This revocation prompted concern that other taxpayers who were considering entering the OVDP would reconsider doing so.

Now, however, the IRS has readmitted to OVDP the Bank Leumi customers that it kicked out earlier. 

The IRS has declined to say why these customers were kicked out in the first place. But the case clearly calls attention to the delicate dance of negotiations that often accompany decisions to participate in a partial amnesty program like the OVDP.

A taxpayer who decides to enter the OVDP is essentially making a risk management decision. In exchange for cooperation and disclosure, the taxpayer gets assurances that authorities will not bring criminal tax evasion charges.

Source: Forbes, "In Reversal, IRS Gives Amnesty To Owners of Secret Israeli Bank Accounts," Janet Novack, September 19, 2013

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