If I opt out of the OVDP and undergo a regular examination, is there a chance my case could be referred back to Criminal Investigation for penalties or prosecution?

Yes. Criminal Investigation’s Voluntary Disclosure Practice provides a recommendation that you not be prosecuted for violations up to the date of your disclosure. If your disclosure is ultimately determined to have not been complete, accurate, and truthful, or if you commit a crime after the date of your voluntary disclosure, you are potentially subject to penalties and prosecution.

If, after making a voluntary disclosure, a taxpayer disagrees with the application of the offshore penalty, what can the taxpayer do?

If the offshore penalty is unacceptable to a taxpayer, that taxpayer must indicate in writing his decision to withdraw from or opt out of the program. Once made, this election is irrevocable. An “opt out” is an election made by a taxpayer to have his case handled under the standard audit process. Some taxpayers may prefer this approach; in some cases the results under the OVDP may appear too severe given the facts of the case. In other cases, this is less clear. In these less clear cases, the IRS will protect its interests and the integrity of the voluntary disclosure program. In these cases, the IRS will likely conduct full scope examinations. Given that opting out will be appropriate for a discrete minority of cases, you should first seek tax counsel before making a decision especially since to the extent that issues are found in a full-scope examination that were not disclosed by the taxpayer, those issues may be the subject of review by Criminal Investigation. In either case, opting out is at the sole discretion of the taxpayer and the taxpayer will not be treated in a negative fashion merely because he chooses to opt out.
Even after opting out of the IRS’ civil settlement structure, a taxpayer remains within Criminal Investigation’s Voluntary Disclosure Practice. Therefore, taxpayers are still required to cooperate fully with the examiner by providing all requested information and records and must still pay or make arrangements to pay the tax, interest, and penalties they are ultimately determined to owe. If a taxpayer does not cooperate and make payment arrangements, or if after examination, issues exist that were not disclosed prior to opt out, the case may be referred back to Criminal Investigation.

On May 13, 2015 the IRS released the memorandum titled “Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties.” Does the May 13, 2015 Interim FBAR Guidance impact the computation of maximum FBAR penalties? If so, how?

Yes. The May 13, 2015 Interim FBAR Guidance impacts the maximum penalty analysis. The maximum willful FBAR penalty under the May 13, 2015 Interim FBAR Guidance is “100% of the highest aggregate balance of all unreported foreign financial accounts during the years under examination.” Hence, the analysis now requires using the lesser of the maximum willful FBAR penalty under the May 13, 2015 Interim FBAR Guidance or the statutory maximum penalty for all years within the disclosure period.

Will examiners have any discretion to settle offshore voluntary disclosure cases?

No. Offshore voluntary disclosure examiners do not have discretion to settle cases for amounts less than what is properly due and owing. However, because the offshore penalty is a proxy for the FBAR penalty, civil fraud penalty, other penalties imposed under the Internal Revenue Code, and potential liabilities for years prior to the voluntary disclosure period, there may be cases where a taxpayer making a voluntary disclosure would owe less outside of the OVDP. Under no circumstances will taxpayers be required to pay a penalty greater than what they would otherwise be liable for under the maximum penalties imposed under existing statutes for the years included in the disclosure period.

Examiners will compare the amount due under this offshore program to the tax, interest, and applicable penalties (at their maximum levels and without regard to issues relating to reasonable cause, willfulness, mitigation factors, or other circumstances that may reduce liability) for all years within the disclosure period  that a taxpayer would owe outside of the OVDP. The taxpayer will pay the lesser amount. If the taxpayer disagrees with the result, the taxpayer may request that the case be referred for an examination of all relevant years and issues.

If the taxpayer and the IRS cannot agree to the terms of the OVDP closing agreement, will mediation with Appeals be an option with respect to the terms of the closing agreement?

No. The penalty framework for offshore voluntary disclosure and the agreement to limit tax exposure to an eight year period are nonnegotiable terms under the OVDP. If any part of the closing agreement is unacceptable to the taxpayer, the taxpayer may opt out and the case will be examined and all applicable penalties will be imposed. After a full examination, any tax and penalties imposed by the IRS may be appealed, but the IRS’ decision on the terms of the OVDP closing agreement may not be appealed.

A taxpayer has two foreign financial accounts. No FBARs were filed. The taxpayer reported all income from one account but not the other. Mechanically, how does the taxpayer report this?

Taxpayers are required to file a single FBAR reporting all foreign financial accounts meeting the reporting requirement.  The taxpayer should make a voluntary disclosure for the omitted income and file the delinquent FBARs with respect to both accounts.  The account with no income tax issue is unrelated to the taxpayer’s tax noncompliance, so no penalty will be imposed with respect to that account.

Will I be required to complete and sign agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties for any years that are otherwise set to expire while my voluntary disclosure is being processed by the IRS?

Yes. Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties are required to be submitted as part of the voluntary disclosure package.

How can the IRS propose adjustments to tax for more than three years without either an agreement from the taxpayer or a statutory exception to the normal three-year statute of limitations for making those adjustments?

As a condition to participate in the OVDP and receive the benefits of the OVDP’s penalty structure, the taxpayer must agree to the assessment of tax and penalties for all voluntary disclosure years. If the taxpayer does not agree to the tax, interest, and penalties proposed by the voluntary disclosure examiner, the case will be referred to the field for a complete examination of all issues. In that examination, normal statute of limitations rules will apply. If no exception to the normal three-year statute applies, the IRS will only be able to assess tax, penalty and interest for three years. However, if the period of limitations was open because, for example, the IRS can prove a substantial omission of gross income, six years of liability may be assessed. Similarly, if there was a failure to file certain information returns, such as Form 3520, Form 5471, or Form 8938, the statute of limitations will not have begun to run. If the IRS can prove fraud, there is no statute of limitations for assessing tax. In addition, the statute of limitations for assessing FBAR penalties is six years from the date of the violation, which would be the date that an unfiled FBAR was due to have been filed. 31 U.S.C. § 5321(b)(1).

If there are multiple individuals with signature authority over an OVDP asset held in the name of a trust, does everyone involved need to file delinquent FBARs? If so, must everyone pay the offshore penalty?

Only one offshore penalty will be applied with respect to voluntary disclosures relating to the same OVDP asset. The penalty may be allocated among the taxpayers with beneficial ownership making the voluntary disclosures in any way they choose. The reporting requirements for filing an FBAR, however, do not change. Therefore, every person who is required to file an FBAR must file one