Offshore Voluntary Disclosure Program: The Basics (2013)

Let us start with the fact that the 2009 Offshore Voluntary Disclosure Program and the 2011 Offshore Voluntary Disclosure Initiative had deadlines but the new Offshore Voluntary Disclosure Program (OVDP)  does not. This new program will be available until further notice to taxpayers who wish to come forward and disclose their foreign bank assets. 

What Does the OVDP do?  This program seeks to bring taxpayers who had undisclosed foreign bank accounts or undisclosed foreign entities for the purpose of evading or avoiding tax into compliance with the laws of the United States.
This program is a counter-part of the Criminal Investigation's Voluntary Disclosure Practice. It addresses the civil side of the taxpayer's voluntary disclosure of the foreign accounts and assets by defining the number of tax years covered and civil penalties that will apply. 

Penalties that Apply for Non-Compliance with FBAR Requirements:  These penalties are
quite substantial. The FBAR penalty, which is a one-time penalty, is based on the highest aggregate balance in a taxpayer's offshore account over an eight year period. This penalty is 27.5% of the above balance. Some taxpayers may qualify for a reduced 12.5% or 5% rate. Taxpayers might also have to pay a 20%-40% accuracy-based penalty for under-payment for eight years and failure-to-file &/or failure-to-pay. 

There are also criminal charges to be faced if a taxpayer has undisclosed foreign bank accounts & doesn't qualify for the OVDP. A person convicted of such tax evasion can face up to $250,000 in fines and a prison term up to 5 years. And failing to file an FBAR could subject a person up to $500,000 in criminal penalties and a prison term up to 10 years. More details of said criminal charges are on the IRS website. 

What Forms Part of the OVDP?  The FAQ 8 of the Offshore Voluntary Disclosure Program on the Internal Revenue Service's website gives details of how the OVDP works with examples. In a nut-shell, a taxpayer will need to take the following actions: 

  • File both the original and the amended returns for prior eight years that report all income & disclose foreign accounts. 
  • File all missing FBAR reports. 
  • Cooperate fully with the OVDP process. 
  • Sign agreements to extend statute of limitations. 
  • Pay the penalties set. 

Should You Make a Voluntary Disclosure?  Since this could be one of the most important decisions you could make if you have undisclosed foreign accounts or assets, please read the following paragraphs carefully. To be eligible to make a voluntary disclosure,      

  • One must not be under audit or criminal investigation;
  • One must not have received notices from the IRS regarding undisclosed foreign bank accounts;
  • Or the IRS should not have already received your name from a cooperating bank. 

The decision to be part of the OVDP is based on each person considering it. Once entered into, all the participants are measured by the same yardstick. Moreover, the OVDP does not include any chances to offer mitigating evidence in support of a defense for non-filing which include reasonable cause and/ or good-faith reliance on advice of others. 

If the taxpayer has prior failures which are not willful but are caused by inadvertence or negligence, and is able to prove it, he may be able to reduce the amount of penalties under special circumstances. However, there is no guarantee. 

All of this will make any taxpayer apprehensive or indecisive about entering the OVDP. If you are one of those who is "willing to take a chance" and keep your foreign accounts undisclosed, know this: the IRS enforcement initiatives have taken on a very determined nature. 

The US government has entered into tax treaties (as of 11/22/2013) with France, Germany, Italy, Spain, the UK, Denmark, Mexico, Switzerland, Norway & Japan under FATCA, 2010 {Foreign Account Tax Compliance Act}. These tax treaties increase the odds of the IRS becoming aware of undeclared bank accounts of US taxpayers. If this happens, the OVDP is no longer an option. 

The banks are more than likely to comply with the FATCA notwithstanding the reputation of bank secrecy that some of the named countries have. This is because compliance guarantees immunity from prosecution from the US Govt. 

So if you have undisclosed foreign bank accounts or assets, contact a tax professional right away to make an informed decision before it is too late. 

Bibliography: FAQs for OVDP;; OVDP submission requirements; Various posts on by expert Robert Wood

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,


  1. Action is already occurring under the new tax treaties. This week, a client of mine received a letter from the custodian of his mutual funds in France asking if he is a US resident. As Enrolled Agents like you are aware, a US resident is taxed on worldwide income but a nonresident is only taxed on US income. My client met one of the rules for classification as a US resident starting in 2011. (The test based upon presence in the US is one of the more complicated subjects studied for the Enrolled Agent exam.) Unfortunately, my client forgot to tell me about his French mutual funds. The good news is that he has no unreported income from these holdings – at least, that’s what he says now. Nevertheless, he missed the requirement for filing FBAR reports.

    1. Brian, thanks-it's always good to get back information about "real time" clients. There are some groups in the US & some countries like Canada & India lobbying for a delay in implementing FATCA. However, it is safe to say that the implementation is coming-sooner or later.

    2. Yes, For this comments discussion. This is good post with helpful information and comments also very helpful.


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