On June 18, 2014, the IRS announced significant (and mostly helpful) changes to all Offshore Voluntary Disclosure Programs (OVDPs). One of the bigger changes involves the Pre-Clearance Process. In this article, we will be discussing how the new Pre-Clearance differs from the previous version.
Update February 2017: There have been few pre-clearance changes to speak of since 2014. Once difference is that the IRS says it will start auditing those who filed a pre-clearance and nothing else along with those who started a voluntary disclosure and did not complete the process.
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In 2011, the IRS announced an Offshore Voluntary Disclosure (OVDI) Pre-Clearance procedure. Why? Because many taxpayers wished to file an OVDI submission immediately but did not have all the required information ready. The IRS created this new Pre-Clearance process, which allowed taxpayers some protection and validation that they would be accepted into the OVDI program (yet they did not want to wait the weeks or months to get together to get something to the IRS).
When they extended the 2011 OVDI with the 2012 OVDP, the IRS kept the Pre-Clearance rules the same. Prior to July 2014, this Pre-Clearance was simple. All it required was essentially your name, address, social security number, date of birth, and a Form 2848 of your legal representative.
The 2014 OVDP rules for Pre-Clearance
The rules have been changed. The 2014 OVDP Pre-Clearance letter, per the IRS OVDP FAQ 23 now requires, among other things, the following:
- Identifying information of all financial institutions at which undisclosed OVDP assets were held personally. Identifying information for financial institutions includes complete names (including all DBAs and pseudonyms), addresses, and telephone numbers.
- Identifying information of all foreign and domestic entities through which the undisclosed OVDP assets were held by the taxpayer for both current and dissolved entities (like trusts, foundations, LLC, partnerships, and corporations).
Pre-Clearance is not a Voluntary Disclosure, but only the start
The IRS has routinely stated that in order for a Voluntary Disclosure to be complete, it must include the best available information for all unpaid tax liabilities, and unfiled FBARS (now Form 114). The 2014 Pre-Clearance letter, while now requiring more than the 2012 Pre-Clearance letter, is still a long way away from actually submitting and getting a case to completion. If you're confused and are unsure if you should get into a program, or which program you should get into, contact us. We can help.