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Offshore amnesty offers: part 1: a contrast with quiet disclosure

"Amnesty" is a powerful word. Its roots are in the ancient Greek language, from words that mean to not remember something.

It is similar to the word pardon, in that it allows a form of forgiveness and way to move forward after some form of wrongdoing in the past. In effect, an amnesty is an offer of pardon to a certain category of people, not just to one person.

The Offshore Voluntary Disclosure Program (OVDP) offered by the IRS is somewhat like this. It offers a way for U.S. taxpayers who did not make required disclosures of offshore accounts or income to avoid criminal prosecution. In exchange for this offer, taxpayers must agree to disclose the accounts and pay any appropriate tax penalties.

Each taxpayer with undisclosed accounts should realize, however, that the OVDP is not a full amnesty. It is only a partial one, because civil penalties still apply and continued cooperation is required in order to avoid possible criminal prosecution.

In practice, then, the decision about whether to participate in a program like the OVDP is a complicated one. It should be compared to other options, such as so-called "quiet disclosure."

Quiet disclosure refers to filing amended tax returns for years in which a taxpayer did not comply with offshore reporting requirements.  In addition to amending tax returns, it involves paying the relevant tax and interest on previously unreported income from offshore sources.

This can be a risky choice because of the possibility of an IRS audit. Though an audit is a civil process, it could lead to a referral of the case to the IRS's Criminal Investigation (CI) division.

It should also be noted that the OVDP is merely the latest iteration of a larger IRS initiative to encourage offshore account compliance. We will discuss this, and the notion of "opting out" of the OVDP, in part two of this post.

Source: IRS.gov, "Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers"

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