I thought my OVDP closing agreement was completed — Why am I getting new requests from the IRS?
We have been seeing a relatively new phenomenon lately: The IRS and Department of Justice (DOJ) requesting testimony or documentation from a person going through the OVDP (Offshore Voluntary Disclosure Program ) — or a person who has already completed an Offshore Voluntary Disclosure, signed a Letter 906 and paid all taxes, interest, and penalties.
How can the IRS do this?
It's not a matter of fairness, it's whether the IRS can do it. And they can.
Each of the IRS’s different Offshore Voluntary Disclosure programs (from 2009 and onward) have contained requirements that the taxpayers cooperate with the IRS and the examiner to submit to an interview upon request. Starting with the 2012 Offshore Voluntary Disclosure Program, the IRS made it very explicit that participants would need to provide information about their dealings with the financial institutions upon request, in order to aid an IRS or Department of Justice (DOJ) investigation into the financial institution. But most people ignored this requirement because it never really happened.
*Note: There is no such similar requirement if you enter into the Streamlined OVDP, and with perhaps a logical reason; there is no protection from criminal prosecution under the Streamlined disclosure protocols.
Part of the OVDP deal is to cooperate — that means even after you thought your OVDP was behind you
The IRS is finally dusting off this requirement, contained explicitly in the 2012 Offshore Voluntary Disclosure Program FAQ #7.
After receiving several of these requests, virtually out of the blue, we started asking some questions of the agents requesting this information. It turns out that there are a couple of different reasons that the IRS is asking this information. Some of the requests, as expected, are being made to help the IRS and the Department of Justice build their cases against different financial institutions for various different tax and financial crimes. Some of the requests are being made to help the IRS evaluate requests made by certain financial institutions which have approached the IRS in search of a deferred prosecution agreement for encouraging tax evasion by U.S. account holders.
In both cases, the IRS and the DOJ need a great deal of information in order to make a solid case against the institutions, either to seek the maximum criminal penalties or fines, or to get the most out of any settlement agreement to pay civil penalties to avoid prosecution.
What a raw deal for those people who are now being contacted by the IRS, after sleeping soundly for months (or potentially years as this continues), thinking that this mess was all behind them. Now, they may be forced to produce documentation far in excess of what the Offshore Voluntary Disclosure ever required or be forced to sit for hours (or days) in interviews with the IRS investigators.
Can you tell the IRS to pound sand?
Not cooperating with the IRS additional offshore disclosure requests is really not an option. A term of the program is that if you decline to cooperate, the IRS's Closing Agreement and all of the efforts, fines, and fees could be thrown out. If you fail to cooperate, the IRS could potentially revoke the Closing Agreement that they reached and open an audit into “what penalties may be appropriate” outside of the program. This is essentially throwing out all of the years of time and frustration, and incurring new representation expenses for the person who already did everything they needed to do under the program.
IRS: I get it. You need information and you have a large group of people there who have already committed to providing it. You want to tap into that resource. But, couldn’t you at least make cooperation be truly voluntary for those who have already finished the process and moved on?
If you need assistance getting into a disclosure program, or reviewing your information before you submit it, contact us. We can help.
