Will the IRS prosecute me criminally if I opt-out of the OVDP?
No. The reason why there is confusion is that when you opt-out of the OVDP, you aren’t really opting out of the OVDP. What you are actually opting out of is the OVDP standard penalty cap. You are not opting out of the entire program at all. You cannot be charged criminally for opting-out of the OVDP.
Assume I am willful. Do the willful penalty mitigation penalties apply?
We have opted out in cases where we determined that even if a client was assessed a willful penalty, the result would still be better than the 27.5% or 50% penalty due to the penalty mitigation guidelines. Remember, a 50% willful FBAR penalty is the worst case. Depending on account size, that penalty could be brought down substantially.
Did you get bad advice? Did your tax preparer or tax software fail to specifically address offshore assets and/or income?
An unhelpful opt-out fact would be if your preparer specifically asked you about your offshore assets and accounts. What can make this worse is if you mentioned bank accounts, but you didn’t mention foreign life insurance as you didn’t know it was something that had to be reported.
Another bad situation is if someone is lying about you to save their own skin (we’ve seen it happen). If their testimony can be discredited, the IRS may not be willing to rely upon their words.
Was there associated tax non-compliance?
The IRS can still assess FBAR penalties even when there was no additional tax due.
As it is now, we assume that all FBAR cases will have a penalty assessed. Warning letters with no penalty used to occur, but now a best case is usually a non-willful penalty mitigated down.
Also, the IRS is assessing penalties on other unfiled or misfiled foreign reporting. For instance, the IRS can assess $10,000 for failing to file a Form 5471 for your foreign corporation, if required.
Measuring risks vs. rewards
This is an area where we will think about the risks, and have some basis to calculate the rewards. We will determine if you have reasonable grounds, or if you should just pay the offshore penalty and be done with it and move on with your life.
Confused about your best option?
Opting-out should not be considered lightly, but it should always be examined as a possible option. While you may lower FBAR penalties significantly from the 27.5% or 50% offshore penalty, other penalties may arise. It is important to understand the true risks, and also the opportunities.
If you are considering an opt-out we invite you to contact us to schedule a free, confidential consultation. Call us at 888-727-8796 or email us at email@example.com.