In 2012 the IRS re-opened the Offshore Voluntary Disclosure Incentive Program (OVDI), which allows taxpayers who have offshore accounts (but have either e.g., failed to report foreign income or foreign assets when required), to report their undisclosed foreign bank accounts.
If you are such a taxpayer you have two alternatives with the following consequences:
you can join the OVDI to disclose your offshore accounts; as a consequence you will be subject to the penalty rate of 27,5% or even 50% of the highest aggregate amount on the accounts during a certain year. If you had a large amount on your foreign bank account at any point during the year, the quite high penalty rate can entail huge fines.
you can choose not to join the OVDI; as a consequence the IRS can initiate proceedings, and if it does so, you can be subject to a possible criminal prosecution and criminal penalties of up to $500,000.
Once a taxpayer makes a submission under the Streamlined Filing Compliance Procedures, the OVDI is no longer available. It should also be noted that if you are ineligible to use the OVDI you are also ineligible to participate in the Streamlined Filing Compliance Procedures.
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