Read more about what exactly an IRS OVDP Opt-out is here.
No, you will not go to prison if you opt-out.
Remember you are not removing yourself from the entire OVDP program, but just the standard offshore penalty component of it. Any criminal protections in place within the standard OVDP apply if you opt-out.
Our biggest source of Opt-outs — clients convinced they need full OVDP and not Streamlined
Whether by their own research or with professional advice, many taxpayers we find made a less-than-optimal choice of entering into the Full OVDP when they were truly more suitable for lesser penalties in the Streamlined Disclosure program. The problem is once you go into full OVDP, you cannot withdraw. Or if you do withdraw, you wind up in a removal audit which is basically the same thing as an Opt-out Audit.
Another big reason for Opt-Outs — Nothing to lose
Opting-out can be a fairly onerous decision to make. Agree to the Full 27.5% or 50% penalty, or opt-out and risk more. However due to FBAR penalty mitigation guidelines for people who do come forward, sometimes a willful penalty will be less than the standard penalty. Thus, there is little risk (if any) to opting out. And really, for the people who are facing 50% FBAR penalty, only in a few instances could we imagine opting out not being the better decision.
IRS Appeals needs to do a better job of understanding the FBAR litigation landscape
Revenue Agents are still quite wrong about the law on FBARs on reasonable cause and willful blindness. We get this — their training is obviously designed to treat people like targets instead of people. But what we are more disappointed with is IRS FBAR appeals that seem to ignore the litany of recent FBAR cases that are not favorable to the IRS. They continue to rely on two cases; One is unpublished, Williams, and the other a Utah district court case, McBride. Either way, their cases are limited to their facts; facts that seldom repeat and have incredibly little precedential value. As such, IRS FBAR appeals should not be relying on these cases much, if at all.
As it is now, we believe the IRS District counsel is loaded with FBAR assessments that they are unsure if they can win. They may actually never bring suit to perfect those judgments.
Our OVDP Opt-out Outlook:
We are continuing to have fantastic success with opt-outs. One caveat — whereas the IRS has not been assessing foreign informational returns penalties, we now expect them to. That is a factor that goes into our calculus of whether an Opt-out makes sense.