To OVDI or Not to OVDI - That is the Question (Of Quiet Disclosures and Doing Nothing) (5/23/11)

We have had a lot of discussion in the threads of other topics discussing some of the rough edges in the OVDI 2011 initiative (and its predecessor OVDP 2009 initiative).  The alternatives to participating are (i) quiet disclosure for some number of years or (ii) do nothing.  In either event, the U.S. account owner and signatories will have to comply in the future (include the income and answer the FBAR question on the 1040s and file the FBARs).  The question is, with those alternatives, should a taxpayer OVDI or not?  While each specific case is dependent upon the unique facts involved, the question I would like readers to address in comments is the issues the taxpayer and the practitioner should address in making the decision whether to OVDI.  To start that discussion, I quote the following from Charles P. Rettig and Kathryn Keneally, The Last, Best Chance to Disclose Foreign Financial Accounts and Assets—The 2011 Offshore Voluntary Disclosure Program and Beyond!, Journal of Tax Practice and Procedure 33 (Feb.-March 2011):

There are many considerations before a taxpayer should determine whether to participate in the 2011 OVDI. Is the taxpayer a realistic candidate for a criminal prosecution referral by the IRS or prosecution by the Department of Justice? (If so, the determination to participate should be simple and quick). Can that prospect somehow be reduced or eliminated by filing amended or delinquent returns and FBARs in lieu of a direct participation in the OVDI? (and what would be the potentially applicable penalties upon a examination of such returns and FBARs?). Could the government carry the burden of demonstrating that the taxpayer “willfully” violated the FBAR filing requirements? Since the OVDI asserts an offshore penalty based on foreign financial accounts and asset valuations, would the actual offshore penalty determination somehow be less outside the OVDI if limited to financial accounts? Will the government pursue noncompliant taxpayers through the required judicial process following assessment of an FBAR penalty? n9 Might the FBAR related mitigation guidelines set forth in the Internal Revenue Manual (IRM) somehow benefit the taxpayer outside the framework of the 2011 OVDI? Do these mitigation guidelines have any continued viability? How will various of the FAQs under the 2011 OVDI be interpreted in specific taxpayer situations?

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