The IRS Offshore Voluntary Disclosure Incentive Program provided U.S. taxpayers with undisclosed foreign accounts a structured path to compliance and resolution of potential civil and criminal tax exposure. With the program nearing its deadline, Steven Holt, Chair of Mandelbaum Barrett PC’s Tax, Trusts and Estates Practice Group, and Alan Glazner, Of Counsel to the firm’s Tax Practice, authored an article for the New Jersey Society of Certified Public Accountants to help tax professionals, accountants, and advisors understand the program and its implications for their clients.
The article was aimed at practitioners who advise clients on tax matters and who may work with individuals having undisclosed foreign accounts. Understanding the mechanics of the offshore disclosure program and the consequences of missing the deadline was essential for any practitioner in this area.
Why Offshore Disclosure Mattered
U.S. taxpayers are required by law to report worldwide income and to file Reports of Foreign Bank and Financial Accounts, commonly known as FBARs, for foreign financial accounts exceeding $10,000 in aggregate value at any point during the year. Many taxpayers, particularly those with dual citizenship, inherited foreign accounts, or accounts established years before the modern compliance environment developed, were unaware of these obligations or had not met them.
The IRS Offshore Voluntary Disclosure Incentive Program offered those taxpayers a defined penalty structure in exchange for voluntary disclosure, full cooperation, and prospective compliance. The program’s penalties, while significant, were generally more favorable than what a taxpayer would face following an IRS examination or criminal referral. The incentive was straightforward: come forward voluntarily before the IRS finds you.
Key Issues for Tax Professionals
Steven Holt and Alan Glazner’s NJCPA article was directed at practitioners who might have clients with unreported foreign accounts. Accountants and tax advisors are often the first professionals a client consults about tax matters, making them a critical line of identification for potential offshore compliance issues. A practitioner who understands the voluntary disclosure framework is better positioned to recognize the issue and refer the client appropriately.
Key considerations for practitioners included:
- The distinction between willful and non-willful FBAR non-compliance, and how that distinction affected both penalty exposure and available compliance pathways
- The documentation and tax filings required to participate in the voluntary disclosure program
- Alternative compliance options for taxpayers whose non-compliance was non-willful, including the Streamlined Filing Compliance Procedures
- The risks associated with informal “quiet disclosure” approaches that did not involve formal program participation
The Current Offshore Compliance Landscape
Although the dedicated Offshore Voluntary Disclosure Incentive Program ended in September 2018, the underlying reporting obligations and the IRS enforcement environment remain fully in force. The IRS continues to prioritize offshore compliance enforcement, and taxpayers with undisclosed foreign accounts continue to face substantial civil penalties and potential criminal exposure.
The Streamlined Filing Compliance Procedures remain available for taxpayers whose failures to comply were non-willful. For taxpayers with willful conduct, the IRS Criminal Investigation division accepts voluntary disclosures through a separate process. The appropriate path for any individual client depends on the specific facts, including the nature and history of the accounts, the source of funds, and the likely characterization of the taxpayer’s conduct.
Tax and International Compliance at Mandelbaum Barrett PC
Steven Holt and the tax attorneys at Mandelbaum Barrett PC have advised clients on offshore disclosure matters, FBAR compliance, and international tax reporting obligations. The firm works with both individuals and their professional advisors to evaluate available options and develop compliance strategies appropriate to each client’s circumstances.
Tax professionals and accountants who have clients with potential offshore exposure are encouraged to involve qualified legal counsel before advising those clients on next steps. To reach Mandelbaum Barrett PC’s Tax Practice Group, contact the firm through the contact page. Our attorneys are prepared to work alongside tax advisors to develop appropriate compliance strategies for their clients’ specific situations.