If you have made what you thought was a timely and complete Pre-Clearance or Offshore Voluntary Disclosure Program (OVDP) submission, you may be wondering why you were denied or rejected. If you've received a letter back from the IRS Criminal Investigation Division informing you that your IRS OVDP has been declined for not being timely and/or complete, we will discuss the possible reasons you received this letter and the alternatives open to you.
The voluntary disclosure rejection letter is the same whether you made a Pre-Clearance or full OVDP submission
One of the oddities that we have noticed is that the Voluntary Disclosure rejection letters that we have seen are the same whether you have made a complete OVDP or have filed the less intensive "Pre-Clearance" letter. That is, the rejection letter implies that a Pre-Clearance is a voluntary disclosure. So should we take too much stock in that? No. It is likely just a form letter that the IRS simply generates when something triggers a rejection of an OVDP submission or a Pre-Clearance.
What should you do if you received this OVDP rejection letter?
First thing: This is a serious issue. We recommend that you get legal representative to call the IRS Criminal Investigation Department — the people who issued your OVDP denial letter — to determine why your OVDP submission was rejected for not being complete or timely. The person who calls should be able to legally advise you of all the consequences of a particular action.
If your OVDP or Pre-Clearance is incomplete
If your OVDP was not complete that is usually a more straight-forward, but still tricky, task. It involves getting together all the required documents, neatly organized and presented in a way that benefits you the most. We've seen far too many professionals present disclosures to the IRS in ways that benefit the IRS, not the taxpayer. So many practitioners "mail it in" and cross their fingers and hope the IRS will not hurt their client too much. But guess what? While it is true that years ago, very few IRS agents could understand the incredible complexity of things like foreign life insurance, PFICs, Controlled Foreign Corporations and Subpart F income, that is no longer true.
IRS OVDP Examiners are learning by doing and getting high-level training. They are getting better — a lot better. But they are getting better at representing the government! You absolutely have to make sure you don't have a rookie — whether they are in a big firm or are solo — learning the OVDP ropes with your fortune at stake.
If your OVDP was declined for not being timely
If your OVDP was declined for not being timely there are a few reasons why this could be the case:
- The IRS already has a civil examination or criminal investigation one against you.
- The IRS has notified you that it intends to commence a civil examination or criminal investigation.
- The IRS has received information from a 3rd party alerting the IRS to your specific non-compliance.
- The IRS has initiated a civil examination or criminal investigation of another entity which is directly related to the specific liability of you, or
- The IRS has acquired information directly related to the specific liability against you from a criminal enforcement action (e.g, search warrant or grand jury subpoena).
In either case — if your OVDP or Pre-Clearance was rejected for not being complete or timely — it is imperative that you know how important your future communications with the IRS is. If you need assistance, contact us. We can help.
