Many U.S. taxpayers plan to “opt-out” of the IRS offshore disclosure programs, but what does “opt-out” mean? How can a taxpayer “opt-out”?
In its question and answer publication on the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”), the IRS formally introduced the concept of “opt-out” (Question and Answer 51). Q&A 51 states that if the offshore penalty (or as many taxpayers know it, the 25% Slap Penalty of 25% of the taxpayer’s highest off-shore account balances, in the aggregate, for the OVDI years) is unacceptable to the taxpayer, the taxpayer must indicate, in writing, that they have elected to “opt-out” and formally withdraw from participation in the OVDI (or the 2009 Offshore Voluntary Disclosure Program “OVDP”). Q&A 51 continues to state that the procedures for this “opt-out” will be set forth in a separate guide entitled “Opt-out and Removal Guide for 2009 OVDP and 2011 OVDI” posted to the IRS website.
To date, there is no such posting. At this point, there is no guidance on how to effectuate this “opt-out.” The lack of guidance from the IRS here is curious considering the fact that so many taxpayers are relying on the opt-out so that they can demonstrate the absence of willfulness in their filings and undergo a garden-variety IRS audit. Being able to eliminate “willfulness” is crucial to those taxpayers who want to come clean to the IRS and avoid criminal penalties and/or prosecution.
We are monitoring the posting of this IRS guide as are many practitioners. Consult your tax advisor for updates.