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Taxpayers Who Participated in 2009 OVDP Can Potentially Qualify for 5% Penalty

Posted on April 24th, 2012 | Author: Norris McLaughlin & Marcus

The IRS has been accepting information from taxpayers who participated in the 2009 Offshore Voluntary Disclosure Program (“2009 OVDP”) to support a reduction in the 20% penalty they paid with their submissions or their closing statements (Form 906) if the facts of their case satisfy the 5% penalty outlined in the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”).  This reduced 5% penalty (5% of the highest aggregate balance of the taxpayer’s offshore accounts for the program years) was not available in the 2009 OVDP.

Taxpayers who meet all four of the following conditions may qualify: (a) did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account holder information such as a change in address, contact person, or email address; (c) have, except for a withdrawal closing the account and transferring the funds to an account in the United States, not withdrawn more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). For funds deposited before January 1, 1991, if no information is available to establish whether such funds were appropriately taxed, it will be presumed that they were.

The IRS has said that taxpayers who participated in the 2009 OVDP whose cases have been resolved and closed with a Form 906 closing agreement who believe the facts of their case qualify them for the 5% reduced penalty criteria of the 2011 OVDI, but paid a higher penalty amount under the 2009 OVDP should provide a statement to this effect. Consult your tax advisor if you think your situation fits these parameters.