The US Treasury Department’s Inspector General for Tax Administration has determined that the IRS missed an opportunity to collect over $39 Million in OVDP penalties from taxpayers who were either rejected or withdrew their application to the OVDP or Offshore Voluntary Disclosure Program. In a press release, Inspector General J. Russell George suggested the IRS “must ensure that taxpayers with foreign-derived income comply with their US tax obligations.”
The Inspector General’s report was critical of the IRS, noting that the agency “needs to improve its efforts to address the noncompliance of taxpayers who are denied access to, or withdraw from, the OVDP.” The report was based on a group of 3,182 US taxpayers who had voluntarily withdrawn from the OVDP program, or who were rejected by the IRS in their OVDP applications. A random sampling of 100 taxpayers from the group showed that the IRS had not collected more than $21.6 million in past due OVDP penalties.
The Inspector General’s report identified “internal control weaknesses” that resulted in delayed or incorrect processing of OVDP requests. While the IRS usually assigns more experienced revenue agents to complex cases such as offshore income and OVDP applications, the report counter-intuitively suggested this work would be better performed by “lower-graded employees.” The agency isn’t performing any analysis at this point, simply verifying the accuracy of the taxpayer’s OVDP penalties and associated calculations as well as the accuracy of the overall return.
The report further suggested that denied or withdrawn OVDP requests be reviewed more carefully by the IRS, in search of potential “penalty assessments and criminal investigation.” In an interesting development, the IRS’ response to the report by Douglas O’Donnell (IRS commissioner of large business/international division) agreed with the findings of the IG’s report, but noted that some actions would be deferred as the agency considers the “future of the OVDP.”
This is an interesting development for those monitoring offshore income and asset reporting tactics by the IRS. O’Donnell’s response went on to note that “the (OVDP) program was not intended to exist into perpetuity.” He went on to note successes of the OVDP with more than 54,000 voluntary submissions since October of 2015 raising more than $8 Billion for the US Treasury. Is this a veiled hint that the opportunity for non-compliant taxpayers with offshore income and assets to come into compliance is nearing an end?
If you have yet to come into compliance with IRS FBAR reporting and the disclosure of offshore income and assets the time to do so is NOW. Once the OVDP is withdrawn US taxpayers will be exposed to the full fury, penalties and criminal prosecution of the IRS. We invite you to call for a free consultation at 866-631-3470.