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As Panama Papers Leak Illustrates, IRS Discovery of Undisclosed Assets Just a Matter of Time

As the recent leak of the "Panama Papers" reminded the world, some secrets don't keep well, particularly those related to undisclosed foreign assets. And once a person's identity is disclosed as a holder of undisclosed foreign assets, a criminal investigation can become a virtual certainty. This week's headlines, which include the Internal Revenue Service ("IRS") announcement of its commencement of criminal inquiries relative to some of the 200 United States persons referenced in the Panama Papers, confirm this change.

In the current environment, it no longer is a question of whether the offshore bank accounts will be found; it has become only a question of when. For taxpayers hoping to beat the media (and the authorities) to the punch, the IRS offers a number of programs that provide both a means, and an incentive to become compliant.

The IRS Offshore Voluntary Disclosure Program (OVDP) is designed for taxpayers holding undisclosed foreign accounts or assets and facing potential criminal liability. Through the OVDP, eligible taxpayers have the opportunity to proactively disclose these accounts or assets to the IRS while avoiding certain civil penalties and, in most cases, criminal prosecution. However, it is important that taxpayers act quickly to take advantage of this program; the IRS may terminate the OVDP at any time, and its financial – and criminal liability protection – benefits may become unavailable after investigation of an individual or financial institution has commenced.

For those taxpayers who do not face potential criminal penalties but still need to make things right, the IRS offers compliance opportunities with reduced penalties or simplified filing procedures. The Streamlined Filing Compliance program provides relief from certain civil penalties and is available to taxpayers who have failed to report foreign assets due to non-willful conduct. Taxpayers who have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) or other international information return may take advantage of delinquent submission procedures that allow an opportunity to explain the reason for the delayed filing.

Although each of these programs includes its own specific requirements and procedures, all of the programs permit a taxpayer to retain legal counsel throughout the disclosure process. In addition, many state taxing authorities offer similar programs for those who have unfulfilled state filing obligations. It's not too late for concerned taxpayers to seek advice, take action, and begin breathing a bit easier.

© 2020 Varnum LLPNational Law Review, Volume VI, Number 117


About this Author

Eric M. Nemeth, Tax Planning Attorney, Varnum, Financial Controversy Lawyer

Eric is a partner and leads the tax team. He concentrates on tax and financial controversy (IRS and various States) from examinations appellate conferences, criminal investigations, witness representation and civil and criminal tax litigation. He works with government regulatory and general tax matters. He has served as Senior Trial Attorney for the District Counsel of the Internal Revenue Service and as Special Assistant U.S. Attorney for the Department of Justice. He is a frequent speaker on tax enforcement and has served as an expert witness and binding arbitrator....

Wayne D. Roberts, Corporate tax attorney, Varnum

Wayne is a member of Varnum’s Tax Team. His practice includes all aspects of federal and state tax planning and tax litigation. He represents both closely-held and Fortune 100 companies in tax disputes with the IRS, the Michigan Department of Treasury, and revenue departments in Pennsylvania, Indiana, Tennessee, New York, California and numerous other state and local taxing jurisdictions.