Offshore Voluntary Disclosure Program (OVDP, also was called the Offshore Voluntary Disclosure Initiative – OVDI) was established in 2009 in an effort to eliminate tax evasion from those who invest in offshore accounts. While the program has been modified many times since, the effort to investigate all sources of tax evasion will continue. If there is tax evasion, it will be found and prosecuted.
The encouragement to stop tax evasion is to voluntarily file, getting a more lenient penalty than if offshore accounts are found by the IRS and the FATCA (The Foreign Account Tax Compliance Act). Those who do not file voluntarily will suffer a harsh penalty of 50% of the account balance over the last eight years, among the possibility for other such penalties.
With the program changes in 2015, there are many levels of opting-in and opting-out depending on what you choose is best for your foreign accounts. There are a few ways to opt-out of the program, although with the penalties and the IRS is working hard to find these accounts with the investigations happening through the FATCA. The first option is to do nothing and ignore the plans. However, this is not advised, period.
Second, you can choose to file previous years’ taxes without disclosing it to the IRS that they are offshore accounts. This is referred to as a quiet disclosure. This is also not advised because it is at the discretion of the auditor to assess the situation and assign penalties. Typically, the auditors try and make an example of those who are not opting into the program assigning harsh penalties. Make well-advised decisions on opting in or opting out of the OVDP.