Eligibility for OVDP
The IRS has the following requirements to enter the OVDP:
2) The OVDP is available only to address a taxpayer’s personal liability.
3) Individuals who facilitated the tax noncompliance of others are not eligible to participate in OVDP.
4) A taxpayer must cooperate with the IRS in determining his/her correct tax liability;
5) The taxpayer needs to make good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. (An IRS payment plan is permitted if you are unable to pay the balance due at the time the OVDP submission.); and
6) The taxpayer is not under an IRS civil audit/examination or criminal investigation. (The IRS permits a taxpayer to submit a preclearance request to determine whether he is under investigation by the IRS and eligible for the OVDP.)
The OVDP does not require a taxpayer to certify that he was non-willful in his tax non-compliance, failure to file FBARs and information returns. The other programs all require a certification that the failure to file said forms was non-willful.
To satisfy the requirements of the OVDP, the taxpayer will have to submit an OVDP letter and attachments; eight years of corrected income tax returns, FBARs, and any unfiled informational returns; a check to pay the taxes, penalties and interest; and a separate check to pay the offshore penalty. There may be additional documents depending on the size of the accounts/assets.
There are two penalty regimes under the OVDP:
1) 50% - A 50% offshore penalty applies if either the taxpayer's foreign financial institution or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation. The 50% penalty applies to all assets including those that are at different institutions, and the 50% penalty applies even if the asset has been moved to a different bank or brokerage.
The list of foreign banks and facilitators subject to the 50% penalty can be found here.
2) 27.5% - The 27.5% penalty applies to all other taxpayers.
The 27.5% and 50% penalties applies to the year with the highest aggregate balance off all accounts during the eight year OVDP period.
3) In addition to the OVDP penalty, there is a 20% penalty and interest on past due balances.