IRS Auditing Taxpayers Rejected by Offshore Disclosure Program

IRS Auditing Taxpayers Rejected by Offshore Disclosure Program

BNA Snapshot

• IRS evaluating 6,000 people
• IRS sending some taxpayers “soft letters” with several compliance options

This article has been reproduced with permission from Tax Management Weekly Report, 36 TMWR 1407 (Nov. 20, 2017). Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) <>

By Alison Bennett

The IRS has begun auditing taxpayers in a new campaign that focuses on people who withdrew or were denied entry into the IRS’s offshore voluntary disclosure program.
The OVDP lets people tell the IRS about untaxed money overseas and pay a set penalty to avoid prosecution. There is also a streamlined version for taxpayers who didn’t willfully avoid paying their taxes.

The Internal Revenue Service is doing a risk assessment of about 6,000 people who either chose to withdraw from the OVDP or weren’t allowed in, said John Cardone, director of withholding and international individual compliance in the IRS’s Large Business and International Division.

“Some of those cases have already been sent for classification, and early audits are underway,” Cardone said Nov. 15 during a webinar sponsored by Moodys Gartner Tax Law LLP.

The IRS Criminal Investigation division is the unit that decides whether or not a taxpayer should be accepted into the OVDP.
Soft Letters

For taxpayers who aren’t being audited, the IRS is sending a “soft letter” that outlines a variety of compliance options, Cardone said. One option would ask taxpayers to “file your return and tell us why we’re wrong,” he said. Another would urge them to apply to the streamlined program.

Cardone said as the IRS gets more information from other sources, it is starting to lose patience with taxpayers who aren’t complying. Those sources include whistleblowers and the Foreign Account Tax Compliance Act, which requires overseas banks to report U.S.-owned accounts to the IRS, Cardone said.

“Taxpayers have kind of run out of excuses for willfully avoiding some of the liabilities,” he said.


Cardone joined other IRS officials on the webinar in answering some hot-button questions on the campaign dealing with taxpayers who didn’t get into the OVDP or pulled out.

For taxpayers who were declined entry, a big issue is whether they can fix their past noncompliance.

Elise T. Gardner, LB&I director of international individual compliance, said the best advice she can give is to start complying sooner rather than later. The biggest reason taxpayers are denied entry into the OVDP is that they’re already under a civil audit, Gardner said.

Those taxpayers need to fully cooperate with their examiners and disclose everything. “They just need to be very open and compliant” and provide information when asked, Gardner said.

Another question is whether the IRS will audit taxpayers as part of the campaign if they withdrew from the OVDP and then start fully complying with their tax obligations.

Gardner said if a taxpayer’s conduct rose to the level of tax fraud or failure to report their accounts in violation of IRS requirements, “they should consider applying to OVDP before a contact is made.”

If a taxpayer withdrew from the OVDP and made a submission to the IRS’s streamlined filing program, Gardner said the IRS will research the steps that might be needed to remedy noncompliance going forward. That could include an audit, she said.

Gardner said that as part of the campaign, the soft letters will initially go only to the taxpayer and not to the taxpayer’s representative.

Officials predicted the IRS would provide at least a year’s notice before ending either the main OVDP or the streamlined version of the program, but did not give any potential time frame for that to happen.

To contact the reporter on this story: Alison Bennett in Washington at

To contact the editor responsible for this story: Meg Shreve at

For More Information

For a discussion of the Offshore Voluntary Disclosure Program in the Tax Management Portfolios, see 636 T.M., Tax Crimes, and in Tax Practice Series, see ¶3830, Penalties.

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