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The Offshore Voluntary Disclosure Process – Part Three

Offshore Voluntary Disclosure - Interview with your examiner

Typically a taxpayer participating in the Offshore Voluntary Disclosure process must at some point have a meeting with the IRS examiner assigned to the case. This meeting is likely to involve other federal agents from the Department of Treasury and the Department of Justice. The primary purpose of this meeting is to determine if the conduct was willful or non-willful. In addition, it is a federally sponsored fishing expedition to determine what they taxpayer may know about the institution with whom they dealt and any individuals who helped them create the account. If the taxpayers conduct was willful, great care must be exercised because they may not find themselves ineligible to participate in the Offshore Voluntary Disclosure process, and facing additional criminal charges. Not attending the meeting is generally not an option. A person can attend and use the 5th amendment to refuse to answer questions, but obviously that will carry with it a negative inference. It is crucial that a taxpayer be represented by competent legal counsel at this meeting. Again, any accountant retained to assist with coming into compliance should be retained by the attorney under the Kovel case. [1]

Offshore Voluntary Disclosure - Waiver of the Statute of Limitations

If a taxpayer is accepted into the Offshore Voluntary Disclosure process, in order to receive the benefit of the program, the taxpayer must agree to the assessment of tax and penalties for all voluntary disclosure years. In other words, the taxpayer is waiving the three year statute of limitations. This should be of limited concern to an individual contemplating OVDP because the IRS would probably be able to get past the three year statute of limitations by showing a substantial omission of gross income which broadens the statute of limitations to six years. Also in the case of a failure to file certain forms such as 3520 and 8938, the three year statute of limitations does not begin to run until those forms have actually been filed. Also, if the IRS can prove fraud, there is no statute of limitations. Additionally, the statute of limitations for assessing penalties associated with the FBAR is six years from the date of the violation which would have been when the FBAR was due. [2]

[1]United States v. Kovel, 296 F.2d 918 (2d Cir 1961).

[2]31 U.S.C. §5321(b)(1).


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