OVDP Closes Friday; So What? (9/26/18)

There is a lot of buzz in the legal community and among commentators about the closing of the OVDP program this Friday.  I picked up substantial buzz from a listserv I am on and from posting on the web, including most prominently Peter Reilly's posting, Window Closing On IRS Program To Lessen Penalties, Avoid Prison For Offshore Shenanigans (9/25/18), here.

Some readers might find the following short comments helpful.

1.  The OVDP program is for the bad actor -- the taxpayer who was willful in filing or failing to file income tax returns and FBARs.  The willful bad actor is at risk of criminal prosecution and civil monetary costs (income tax, income tax penalties, interest and FBAR willful penalties).  The bad actor can square up with the IRS via OVDP and get substantial peace of mind.  After OVDP closes on Friday, the bad actor has no clear path to squaring up and getting peace of mind.  However, the IRS will have the traditional voluntary disclosure program which most the bad actor can use to square up and get peace of mind, assuming the bad actor qualifies, although, even if he mitigates the risk of criminal prosecution, the risk of higher financial costs is greater.

2.  For those who are not bad actors, the Streamlined Programs are still available.  The key to the Streamlined Programs is the nonwillful certification and narrative supporting the nonwillful certification.  The risk in entering the Streamlined Programs is that a taxpayer's certification and supporting narrative may be false or perceived by the IRS to be false or even suspect.  This could lead to an audit in which the IRS can test the validity of the certification and supporting narrative.  And, if those are false or misleading, the IRS could take away the financial benefit of the Streamlined Programs by making the taxpayer pay the income tax, income tax penalties (possibly the 50% civil fraud penalty), interest on both, and the FBAR willful penalty which is generally, by IRS exercise of discretion, a single 50% of high amount penalty, but might be more).  And, if the certification and supporting narrative are false, the taxpayer is at risk of criminal prosecution for that submission, as well as for the prior conduct the taxpayer was trying to absolve in the Streamlined Program.  Of course, that risk in the Streamlined Programs only apply to bad actors who should not have gotten into the program in the first place.

In short, the closing of OVDP on Friday only posits risks for bad actors -- those whose tax and FBAR noncompliance was willful.  Even for that category, there are fixes.  Those at risk of falling in that category should consult counsel.