While the most recent offer – the 2012 Offshore Voluntary Disclosure Program (OVDP) – remains open indefinitely, the IRS’s recent decision to disqualify approximately 50 taxpayers who disclosed Bank Leumi accounts could undermine the program’s continued success.
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The about-face was evidently caused by miscommunication between the IRS, which administers the OVDP, and the DOJ, which apparently obtained the names of these accountholders through a separate investigation. Rather than living with its mistake, the IRS disqualified these individuals from the program. While taxpayers who were disqualified after they had been “pre-cleared,” but before they completed the next stage of the process arguably were not prejudiced by the IRS’s reversal, taxpayers who had relied on the pre-clearance and submitted detailed information will be materially worse off in the event criminal charges are brought.
Perhaps recognizing the potential hazards caused by the snafu, Assistant Attorney General for the Tax Division Kathryn Keneally publicly assured the disqualified taxpayers that the DOJ would “consider the facts and circumstances under which any substantive disclosures were made, and the fairness of proceeding” criminally. Precisely what this means is unclear; at a minimum it likely means the DOJ will not use information obtained from the OVDP submission in the event it prosecutes any of these taxpayers.
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[i]t is doubtful that the Bank Leumi accountholders who not only applied for the OVDP, but had been pre-cleared or preliminarily accepted only to find themselves bounced from the program, will face incarceration if prosecuted. Under the circumstances, perhaps the IRS should reconsider its treatment of the Bank Leumi accountholders, readmit them to the OVDP and thus restore confidence that it is administering the program fairly and consistently.