voluntary disclosure

IRS Agrees to Increased Enforcement of IRS's Offshore Voluntary Disclosure Program

Both Prior Submissions and Future Submissions Effected

(Announced by Government June 21, 2016)

Treasury Inspector General's Report Issued to Internal Revenue Service Criminal Division and International Division

In a report issued to the Internal Revenue Service  International Division and Criminal Division, the Treasury Inspector General for Tax Administration (TIGTA) found that taxpayers trying to avoid criminal charges and monetary fines by participating in the Offshore Voluntary Disclosure Program (OVDP)  had been incorrectly analyzed.

The OVDP is designed to allow taxpayers to report previously unreported offshore bank accounts and  allows taxpayers to report offshore accounts in exchange for a set lower penalty and no criminal investigation or prosecution.  TIGTA' s findings were that the IRS should have assessed millions more in penalties, and thus, made the following recommendations to the IRS civil and criminal divisions (note for brevity, only three of the six recommendations are discussed below).    IRS management agreed to take TIGTA's recommendations and has taken plans to implement them.



  1. Review all denied or withdrawn offshore voluntary disclosure requests identified in this report for potential FBAR penalty assessments and criminal investigation:

    TIGTA recommended that the IRS International Division review all denied or withdrawn requests for FBAR penalty assessments and possible referral to IRS Criminal Investigation Division.  In the Management's Response the IRS agreed with this recommendation and has had technical specialists review all withdrawn and denied requests.

    From a tax defense perspective, a re-review subjects the taxpayers to potential civil and criminal exposure - not to mention, attorney fees, stress, fear, and monetary and liberty considerations.   Another potential ramification is that the re-review will open the door to potential false statement allegations if the original submission is found to be not fully accurate or complete.

  2. Develop procedures for reviewing denied and withdrawn cases for further compliance actions:

    The TIGTA did not define "further compliance actions" and the IRS management stated that it agreed to come up with procedures for reviewing denied and withdrawn cases.   From a tax defense perspective the procedures developed will likely include a re-review of denied and withdrawn cases for criminal and civil action.

  3. Centrally track and control OVDP requests to ensure better communication between Criminal Investigation and OVDP:

    Currently, in order to complete the OVDP, several IRS groups are involved - Criminal Investigation Division, the OVDP Unit, and examination units.  Each is responsible for its role in the OVDP and TIGTA has determined that information garnered by each group is not being adequately shared (and thus leveraged) between the units.  By centralizing control, it is believed that the IRS will be far more efficient in analyzing information for maximum government benefit, both as to the criminal prosecutions and as to the imposition of more and larger monetary penalties.


What is TIGTA?

The Treasury Inspector General for Tax administration (TIGTA) is an office in the United States Federal Government.  It is independent of the Internal Revenue Service and reports directly to the Secretary of the Treasury and to Congress promoting the administration of the federal tax system.


Moskowitz LLP's Recommendations to Taxpayers

If you have or have had offshore bank accounts or foreign asset or foreign income, we recommend that you immediately consult with an experienced international tax attorney.   The U.S. government has imposed unprecedented criminal and monetary penalties related to offshore accounts, assets, and income, and is clearly looking to make sure that no one is slipping through its system without receiving 'punishment'.    Basically, there is blood in the water, and the sharks are now here. 

Moskowitz LLP is a tax law firm representing individuals and businesses both internationally and domestically.   It is our mission to successfully defend our clients, while preserving their personal freedom and financial lives, through the experienced pursuit of all legal strategies available to achieve the desired favorable outcome. 

The Qualified Quiet Disclosure: Operating Outside of the IRS Offshore Voluntary Disclosure Initiative

Individuals with previously undisclosed foreign assets and/or income have a variety of options to become compliant with the IRS, with two avenues for resolution being the most common:  Qualified Quiet Disclosure and the Offshore Voluntary Disclosure Program ("OVDP").

Absent facts indicating willful or reckless intent, an individual may be better off ‘explaining’ the undisclosed foreign bank accounts through amended tax returns, rather than opting into the Offshore Voluntary Disclosure Program.  Though the IRS prefers everyone opting into the OVDP because the IRS has collected so much money from it, there is another avenue known as a "Qualified Quiet Disclosure."  The IRS has also blessed the "qualified quiet disclosure" which, if a person qualifies, gives the same forgiveness as the OVDP but without paying the heavy penalties, without giving up rights, and without forced admissions of intent to evade U.S. income tax, that can come back to haunt.    Note, a Qualified Quiet Disclosure is very different from a "quiet disclosure," of which the IRS has promised a detection and punishment campaign.      Moreover, the Qualified Quiet Disclosure approach allows a taxpayer to operate outside the OVDP and to thereby, freely and fully, administratively and/or judicially contest the offshore penalties.   Through, an Administrative Agency Procedure Act before the District Court, for instance, an individual may contest the offshore penalty demand as it is applied by the IRS.

Conversely, if a taxpayer enters into the OVDP, he or she must agree to the penalties outlined in the program. The penalties and taxes imposed within the OVDP, are extremely expensive and punitive. For instance, a participant must pay a penalty of 27.5 percent based on the value of the undisclosed assets - as they are defined by the IRS.  In addition to the OVDP penalties, a participant must also pay the original tax, an additional 20 percent accuracy related penalty, failure to timely pay penalties of up to 25 percent of the income tax, and interest.  The taxpayer must also consent to re-open tax years which are already beyond the statute of limitations, thereby allowing the IRS to assess tax and penalties that the IRS otherwise would not be unable to do.    Thus, in many cases, participants are forfeiting assets, including entire lifetime savings and more to the government so that any income, inheritances, or gifts these people may receive in the future will belong to the IRS. 

To make matters worse, participants entering into the OVDP must waive Constitutional Protections against: self-incrimination (5th amendment), unreasonable search and seizure (4th amendment), and excessive fines (8th amendment).  This "Trifecta" of constitutional protections disappear once an individual enters into the OVDP disclosing: their names, social security numbers, undisclosed income, undisclosed assets, and the names of the advisors/3rd parties who facilitated the alleged "offshore tax evasion." Further, the government is not bound by transactional or use immunity for the participant participating in the Program.   For instance, numerous participants of the OVDP have been removed from the program and have been prosecuted with the government using (and the taxpayer being limited by) the very information provided by the taxpayer as part of the OVDP process.     Therefore, a taxpayer should be fully advised of OVDP advantages and disadvantages before deciding to make a disclosure because an OVDP begins first, with a waiver of constitutional rights, and then requires directly disclosing to the IRS criminal investigation division offshore transactions that could be (mis)construed as money laundering, wire fraud, mail fraud, tax evasion, or failing to disclose foreign financial accounts on an FBAR.  An example of such treatment is the Ty Warner matter.

In the case of Ty Warner (Beanie Bag founder, a former member of the Forbes 400 richest Americans, with a previous net worth of $2.6 billion) entered into the IRS OVDP only to be removed from the program for unknown reasons. The risk of entering into the OVDP for Ty Warner can be best understood in the settlement his attorneys reached with the IRS for the civil part of his case; his criminal case is still pending. Ty Warner failed to pay approximately $885,000 of taxes generated from undisclosed Swiss accounts. Even though Ty Warner failed to pay $885,000 taxes, the settlement agreement requires him to pay the government $53 million in taxes, penalties, and interest. This amounts to 60 times the original tax due. In addition, Ty Warner faces up to five years in a federal prison for tax evasion.  There have been a number of other individuals removed from the OVDP program and prosecuted, including most recently a 79 year old widow residing in Palm Beach because she did not report her inheritance of late husband’s foreign accounts.

On the other hand, even though the government has issued ominous threats to individuals who have not entered the OVDP (or previous, similar programs), since 2009, the government has not carried out this threat in any significant way.   For example: a taxpayer made a partial disclosure (i.e., not a Qualified Quiet Disclosure) to the IRS in which he omitted a secret Bermuda account on his amended tax returns.  Evidence suggests that individuals making Qualified Quiet Disclosures outside of OVDP have mostly fared better than individuals making disclosures through OVDP.  Those outside of OVDP, are assessed far less in taxes and penalties than individuals who have elected to make a disclosure through OVDP. In addition, these individuals have not waived their constitutional rights.

To sum it up, despite the fact that the IRS continues to threaten those who chose not to enter OVDP with prison sentences, monetary penalties, and more, those qualified to make a Qualified Quiet Disclosure have a far greater ability to contest IRS allegations of criminal and civil wrongdoing than the participants of the IRS OVDP. As of this date, individuals making disclosures outside the OVDP as a whole are far better off than their counterparts.

For a related article, "A Closer Look at the Non-Willful FBAR Penalty", California Tax Lawyer, Published by the State Bar of California, (Winter 2012).  

Stephen M. Moskowitz is the founding partner of Moskowitz LLP.   He is a member of the California State Bar, and holds an LLM in tax along with admission to practice in the United States Supreme Court, all Federal Courts, and all courts within the State of California.   Before Steve began practicing as a tax attorney, he practiced as a CPA.     He has been a professor of law, tax, and accounting at Golden Gate University, University of San Francisco, and San Francisco State University.   He routinely addresses the public, professionals, students and governments on tax matters impacting individuals and businesses.    

Anthony V. Diosdi is a tax attorney with Moskowitz LLP.   He is a member of the Florida State Bar and holds an LLM in tax.    Anthony concentrates his practice on federal tax controversies, planning, and international taxation. 

Moskowitz LLP is a tax law firm.   We save financial lives by relentlessly pursuing all avenues to successfully resolve client tax matters.  From audits, appeals, trials and tax planning to tax opinions and civil and criminal defense, we help individuals and businesses understand their entire tax picture and act accordingly.  We defend personal liberty and dignity through our skill, experience and an aggressive approach.  Whether it’s spending time in court or negotiating with the government, we passionately treat your case as if it were our own.  We do whatever it takes, within the bounds of the law, to deliver top quality, non-judgmental legal representation to help you save your life’s work, resolve tax matters pending, and to enjoy your life and thrive.  

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Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

South Korean government cracks down on offshore accounts

Seoul is a capitalist paradiseIn the last 10 years, South Korea has seen an incredible surge in economic expansion. The country now represents the fourth largest economy in Asia, and the capital city of Seoul - particularly its Gangnam neighborhood - has become a capitalist paradise teeming with big-name brands and luxury boutiques. However, the increased wealth enjoyed by some Koreans has drawn the attention of the country's National Tax Service (NTS), leading financial regulators to question whether they have enough information about the offshore assets of their citizens.

According to Tax-News.com, the NTS began cracking down on this issue this year, expanding its data collecting abilities to get a more comprehensive sense of Korean assets abroad. This measure is reportedly an effort to increase revenues for the Korean government by expanding the pool from which it can effectively extract taxes.

This increased activity has spurred an increase in voluntary disclosure - 62 percent  more assets have been declared compared to this time last year - as more Koreans have stepped forward to provide details about their international holdings. The documented rise could be due, in part, to the fact that, along with boosting its investigative efforts, the government body has also reassured the population that those who come forward won't face some form of punitive action.

"The NTS has declared that it intends to develop further its ability to identify and investigate undeclared accounts held abroad" the source states. "However, [...] those who declare their overseas assets voluntarily will retain their confidentiality and, while they will be required to pay the tax and interest due, will not be audited."

Offshore account compliance can be uncertain territory for taxpayers and government bodies alike. While regulators may encounter difficulties when it comes to monitoring their citizens' activities, individuals may be unclear about the assets they must declare, and who they are legally required to disclose them to. Steve Moskowitz, Senior Partner of Moskowitz, LLP, a Tax Law Firm in San Francisco, CA, just returned from meeting with Korean tax officials in Seoul, Korea. We will post highlights of his trip soon.

Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.