IRS Disqualifies Taxpayers from OVDP

The Internal Revenue Service (IRS) has been actively promoting the Offshore Voluntary Disclosure Program (OVDP) as a way for U.S. taxpayers with previously undisclosed bank accounts to come into compliance and pay back taxes while avoiding heavy fines and criminal prosecution. Now, the IRS is sending mixed signals.

Tax attorneys have been receiving notifications that clients who were previously accepted into the OVDP program have now been disqualified. No explanations have been provided and there is no indication what the ramifications will be to the taxpayers.

Will the taxpayers face criminal prosecution? Will they be hit with heavy fines? Should others be leery about participating in the OVDP program?

Accounting Today reports one tax attorney’s account of how his clients had been officially accepted into the program, and after filing amended tax returns and paying all unpaid taxes and interest, received a notice saying his clients had been disqualified. The attorney, Bob McKenzie, has not received any further explanation from the IRS.

Forbes and Accounting Today report that many, but not all, of the taxpayers who received recission notices were clients of Bank Leumi, and Israeli bank under investigation by the IRS.

It is unclear if the IRS uncovered the taxpayers’ accounts during their investigation thus making them ineligible for the OVDP program.  What is clear is that this creates a large amount of uncertainty in the program potentially discouraging taxpayers from electing to participate in the OVDP program in the future.

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