Internal Revenue Service Announces the Third Installment of Its Offshore Voluntary Disclosure Program

January 25, 2012

On January 9, 2012, the Internal Revenue Service (the “Service”) announced the third installment of the offshore voluntary disclosure program (“OVDP”), which allows taxpayers with undisclosed offshore assets to come forward, disclose such assets and pay tax on any unreported income associated with such assets, all under a prescribed civil penalty framework. According to the Service, the first two installments of the OVDP, in 2009 and 2011, were successful in terms of both the number of voluntary disclosures and the collection of revenues.

The terms of the new OVDP are similar to those of the 2011 program, with several important differences. The new OVDP does not have a fixed application deadline. However, the Service may change the terms of the OVDP at any time. For example, the Service could terminate the OVDP or adopt a less favorable penalty framework. In addition, the penalty under the new OVDP for taxpayers in the highest penalty category is 27.5%, up from 25% in the 2011 program.

As in the 2011 program, reduced penalty rates may be available to taxpayers with insubstantial foreign assets or taxpayers having little contact with the foreign assets. Further, taxpayers who feel that the penalty under the OVDP is disproportionate may opt for examination instead.

Participants in the OVDP must file all original and amended tax returns and include payment for taxes and interest for up to eight years, as well as paying accuracy-related and/or delinquency penalties. The Service is developing procedures by which taxpayers who may be delinquent in filing, but have no unsatisfied U.S. tax liabilities, can come into compliance with U.S. tax laws.

The Service stated that more details regarding the new OVDP will be available within the next month. We will continue to monitor any significant developments regarding the new OVDP.

If you have any questions regarding this memorandum, please contact one of the attorneys listed below.