2011 Offshore Voluntary Disclosure Initiative

Authored by: Neeli Shah


On February 8, 2011, the U.S. Internal Revenue Service (“IRS”) announced a new voluntary disclosure initiative designed to bring additional taxpayers back into compliance and offshore funds back into the United States tax system.  The IRS’s new program, formally titled the “2011 Offshore Voluntary Disclosure Initiative” (“2011 OVDI”), which has a deadline of August 31, 2011, covers eight tax years (2003–2010) and includes a penalty structure that is harsher than the previous program (the 2009 Offshore Voluntary Disclosure Program or “2009 OVDP”).

The IRS’s 2011 OVDI has the following general requirements:

  • A miscellaneous offshore penalty equal to 25 percent of the amount held in foreign accounts/entities or value of foreign assets in the year with the highest aggregate asset value covering the periods 2003 through 2010.
    • A reduced penalty of 12.5 percent for those situations where the taxpayer’s foreign assets did not exceed $75,000 in any calendar year covered by the program.
    • A 5-percent penalty for taxpayers who did not open the foreign account and for foreign residents who were unaware they were U.S. citizens.
  • The filing of original and amended tax returns and the payment of taxes, interest and an accuracy-related penalty no later than August 31, 2011.


All voluntary disclosures, whether under traditional voluntary disclosure principles or the 2011 OVDI, must be “timely”—i.e., the disclosure must be made before the IRS becomes aware of the taxpayer’s noncompliance. Taxpayers who are currently under civil examination, regardless of whether it relates to undisclosed foreign accounts or foreign entities, are not eligible for the 2011 OVDI.

Similarly, taxpayers under criminal investigation by the IRS’s Criminal Investigation division are also ineligible. However, the mere fact that the IRS has issued a John Doe summons seeking information that may identify a taxpayer as holding an undisclosed foreign account does not disqualify the taxpayer from this initiative until the IRS obtains information (under the John Doe summons) that provides evidence of a specific taxpayer’s noncompliance.

Taxpayers who did not participate in the 2009 OVDP, but who made so-called “quiet disclosures” by filing amended returns and paying taxes, are eligible for the 2011 OVDI by making application to the initiative along with submitting copies of their previously filed returns. Taxpayers who continue to make “quiet disclosures” and do not participate in the 2011 OVDI face the risk of civil examination and criminal prosecution for all applicable years. If a taxpayer who has made a “quiet disclosure” is selected for examination, the taxpayer will not be eligible for the penalty structure set forth in the 2011 OVDI.


Pre-clearance and Preliminary Acceptance

Taxpayers who are unsure whether their disclosure would be “timely” may request a “preclearance” before submitting their offshore voluntary disclosure materials. Preclearance is secured by faxing to the Criminal Investigation Lead Development Center in Philadelphia, identifying information (name, date of birth, social security number, and address), executed power of attorney (if represented), and a request for preclearance before making a disclosure.

Criminal Investigation personnel will then notify the taxpayers or their representatives via fax whether or not they are cleared to make a voluntary disclosure. Taxpayers who are cleared should, within thirty (30) days of receipt of the fax notification, make their voluntary disclosure by submitting their offshore voluntary disclosure letter to the IRS, Offshore Voluntary Disclosure Coordinator, in Philadelphia. Criminal Investigation personnel will review the offshore voluntary disclosure letter and notify taxpayers or their representatives by mail whether their offshore voluntary disclosures have been preliminarily accepted or declined.

Documents the Taxpayer Must Submit to Qualify for the 2011 OVDI

Taxpayers who are preliminarily accepted will be required to submit to the IRS a significant amount of information and documentation, including:

  • Original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure.
  • Complete and accurate amended federal income tax returns for all years covered by the disclosure with all applicable schedules.
  • A complete Foreign Account or Asset Statement for each previously undisclosed foreign account or asset during the voluntary disclosure period.
  • For applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $1 million or more, a completed Foreign Financial Institution Statement for each foreign financial institution with which the taxpayer had undisclosed accounts or transactions during the voluntary disclosure period.
  • A properly completed and signed Taxpayer Account Summary with penalty calculation.
  • A check payable to the U.S. Department of the Treasury in the total amount of tax, interest, accuracy-related penalty and, if applicable, the failure-to-file and failure-to-pay penalties for the voluntary disclosure period. For those taxpayers who cannot pay the total amount of the tax, interest and penalties, a complete Collection Information Statement Form 433-A (for individuals) or Form 433-B (for entities).
  • For applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $500,000 or more, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by the disclosure. For applicants disclosing offshore financial accounts with an aggregate highest account balance of less than $500,000, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by the voluntary disclosure must be readily available upon request.
  • Properly completed and signed agreements to extend the period of time to assess tax and to assess FBAR penalties.


An IRS examiner will review the materials submitted and will certify that the voluntary disclosure is correct, accurate, and complete by reviewing the taxpayer’s records, along with the amended or delinquent returns. The examiner also verifies the amount of tax, interest and civil penalties.

An actual examination of returns submitted under this program will not be conducted, although the IRS reserves the right to do so. The process under this initiative is to assign the voluntary disclosure to an examiner to certify the accuracy and completeness of the disclosure, which is less formal than an examination and does not carry with it all the rights and legal consequences of an examination.  Therefore, the taxpayer will not have rights to appeal the IRS’s determination. Although the program’s certification process is less formal than an “examination,” the examiner will have the right to ask any relevant question, request any relevant documents, and even make third-party contact if necessary to certify the accuracy of the amended returns without converting the certification into an examination.


According to the commissioner of the IRS, the 2011 OVDI is “the last, best chance for people to get back into the system.”  The IRS encourages U.S. citizens, residents, and entities who are not currently in compliance with their U.S. tax reporting obligations with respect to their non-U.S. assets and financial affairs to take immediate action to consider whether they are good candidates for the 2011 OVDI.

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