Orange County residents with undisclosed offshore bank accounts now have more time to disclose information to the IRS. The IRS has offered a 90 day extension to taxpayers in California and the rest of the country who are trying to comply with the current Offshore Voluntary Disclosure Initiative (OVDI) deadline of August 31 in good faith.
The OVDI is a way for United States citizens living abroad to disclose offshore accounts without facing criminal penalties. The OVDI program does not spare taxpayers from harsh penalties and interest on the unpaid tax however. While many see the extension as a positive step by the IRS, at least one tax expert said that this may be followed by a crackdown on offshore accounts. Individuals who have offshore accounts and fail to report them under the OVDI program will have a hard time claiming that they were unaware of their reporting requirements, the expert said.
"The day and age of sticking your head in the sand and assuming nothing will happen is not only inappropriate, but will be far worse than if you come forward now," he said.
The current OVDI program has higher penalty rates than the last voluntary disclosure program that ended on October 15, 2009. IRS Commissioner Doug Shulman said that the program is necessary because more individuals are at risk for prosecution as the IRS becomes better at detecting offshore assets.
"This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them," Shulman said.
The current OVDI program provides for penalties of 25 percent of the value of an undisclosed bank account. This penalty is applied to the highest aggregate account balance in a year between 2003 and 2010. Penalty rates as low as 5 percent are available to certain taxpayers and a variety of other interest charges and penalties may also apply. An experienced California tax litigation attorney can help local taxpayers navigate the current OVDI program and help taxpayers organize a complete OVDI application by the new extended deadline.
Source: The Nassau Guardian, "IRS extends OVDI deadline," Stewart Miller, 6/7/11; IRS, "Second Special Voluntary Disclosure Initiative Opens; Those Hiding Assets Offshore Face Aug. 31 deadline," IR-2011-14, Feb. 8, 2011