Offshore Voluntary Disclosure Program Still Open for Quiet Disclosures and Formal Disclosures

July 22, 2013

In January 2012, the IRS extended the Offshore Voluntary Disclosure Program. The program allows U.S. taxpayers to pay penalties and taxes for prior years in connection with the filing of delinquent U.S. international tax reporting forms. The forms that may be filed in a disclosure include the Form 5471 regarding ownership of a foreign corporation and Foreign Bank Account Reports. The program is currently open for an indefinite period of time and there is not a fixed deadline.

The IRS has issued Frequently Asked Questions and Answers which set forth the terms and conditions of the Offshore Voluntary Disclosure Program. The IRS FAQs provide for certain disclosures to be made where penalties are not imposed and the U.S. taxpayer is not required to go through the formal program. This type of disclosure is allowed as a “quiet disclosure,” where the U.S. taxpayer did not underreport any taxable income and there is no change to taxable income or tax liability on the prior year federal tax returns. In this event, the U.S. taxpayer is allowed to file delinquent U.S. international tax reporting forms such as the Form 5471 and Foreign Bank Account Reports for prior years going back to 2004, without being subject to any penalties. The condition is that the U.S. taxpayer cannot have failed to have paid federal tax in the prior years on any income such as interest income from foreign bank accounts and dividends or Subpart F income from foreign corporations. Otherwise, if the U.S. taxpayer has any unreported taxable income relating to the filing of the delinquent forms for the prior years, then the quiet disclosure is not allowed. U.S. taxpayers who do not qualify for the quiet disclosure must make a disclosure in the formal program to come into compliance with their prior year filing and payment obligations.

The IRS is seriously opposed to quiet disclosures that are made when the U.S. taxpayer does amend prior year federal tax returns to include previously unreported taxable income and delinquent foreign reporting forms. The IRS tends to pursue very aggressively quiet disclosures with a change in prior year taxable income and tax liability.

The permissible quiet disclosure is a valuable option that U.S. taxpayers should not overlook while it is still available. It provides the opportunity for U.S. taxpayers to come into compliance with their U.S. international tax reporting obligations without paying any penalties at all. U.S. taxpayers should consult with a qualified U.S. international tax advisor to make sure that they are in compliance with the U.S. international tax reporting obligations. It is recommended that a permissible quiet disclosure or disclosure in the formal program are considered and planned for as soon as possible, considering that the IRS has the authority to end the program at any time.

See the following link for the IRS Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:

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