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Niles Elber and Victor Jaramillo Talk to Law360 on Offshore Voluntary Disclosure Program Ending
Caplin & Drysdale

Niles Elber and Victor Jaramillo Talk to Law360 on Offshore Voluntary Disclosure Program Ending

Date: 5/14/2018

While the IRS’ termination of the Offshore Voluntary Disclosure Program has left many hopeful it will be extended or replaced, potential violators who have yet to disclose their foreign bank accounts need to weigh their options, with the most important question being whether to enter the program before it shuts down.

. . .

“The taxpayer wants to consider whether anybody else will be affected, like if an account is held by a parent or a sibling,” said Niles A. Elber, a member at Caplin & Drysdale Chtd. “That information gets provided as part of the voluntary disclosure.”

The finality of the OVDP’s closure may cause a situation in which a taxpayer is prepared to make a disclosure, but doing so could put a family member or other significant person in jeopardy without giving that person a chance to make his or her own disclosure, Elber said.

“Given limited opportunities or maybe not preferable opportunities to deal with this, you definitely want to give that consideration now,” he said. “You don’t want to put that off to the last minute, either.”

. . .


Ciraolo and Elber co-wrote a letter on behalf of the American Bar Association’s Section of Taxation to the IRS earlier this month, urging the agency to extend (2018 Law360 122-165) the Sept. 28 deadline.

Elber said Sept. 28 is still a hard deadline, at least for the time being, so if a client likes a concrete idea on how to resolve a potential FBAR issue, making use of the OVDP eliminates uncertainty.

For clients who see him for advice, he said it was: “Do what’s going to let you sleep at night — and if you’re coming to see me it’s likely because you can’t sleep at night.”

“And the OVDP does get you there,” he added, “but at a cost.”

. . .


Victor A. Jaramillo, who is of counsel at Caplin & Drysdale Chtd., said it was important to weigh the risk factors between entering the OVDP, or entering an alternative such as the streamline program if a taxpayer is likely to be a nonwillful violator. A client may also consider a quiet disclosure or a manual disclosure, he said. All have different risks, requirements and penalties.

“Assess the risk tolerance of your clients,” Jaramillo said.

Streamlined Foreign Offshore Procedures were announced in 2012 for people living outside the United States and were extended to taxpayers residing in the U.S. in 2014. Streamline requires a taxpayer to file three years of amended returns and six years of delinquent FBARs. While no penalty is applied to nonresident taxpayers, resident taxpayers must pay a 5 percent miscellaneous penalty, but the streamline process does not have a preclearance procedure like that under the OVDP.

“For streamline you run your risk assessment on your story or willfulness,” Jaramillo said. “Your penalty is either 0 or 5 percent depending on whether you qualify as foreign.”

If a streamline procedure is disclosed for a smaller account and is found to be nonwillful, the penalty could be $10,000 per account or less, he said.

In a quiet disclosure, on the other hand, a taxpayer amends tax returns and files previously unreported FBARs.  [. . .]  If the IRS pursues an investigation, the taxpayer could face penalties of at least $100,000 or up to half of the foreign accounts for certain misconduct, and even potentially receive criminal charges.

“Obviously the IRS has expressed its disdain for quiet disclosures,” Jaramillo said.

Another option is a manual disclosure, where a taxpayer slaps a cover letter on amended returns, lets the IRS know he or she is willing to cooperate, then see what happens, he said.

“If you go under the manual, you’ll owe tax and wait for them to assess penalties — which is failure to file, or failure to pay, plus accuracy-related penalties,” Jaramillo said.

He said sometimes the manual disclosures are assessed automatically by the IRS and a taxpayer gets audited, so if a person uses this method it’s similar to streamline and has a similar penalty rubric, he said.

For the full article, please visit Law360’s website (subscription required).

Excerpt taken from the article “5 Points To Consider As Overseas Disclosure Program Ends” by Amy Lee Rosen for Law360.

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