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Offshore Voluntary Disclosure, Part 2: More on Precautions and Pre-Clearance

In the first part of this post, we began discussing how important it is to proceed carefully when considering participation in one of the IRS's limited-amnesty programs for offshore accounts.

As we explained, a skilled tax attorney can guide you effectively in this process. In this part of the post, we will elaborate on the pre-clearance procedure that is available before someone formally enters the program.

It's a procedure that exists to try to address the conundrum that would otherwise give many taxpayers with undisclosed offshore accounts significant pause.  The problem is this: Why would you disclose violations of offshore reporting requirements without sufficient certainty of the likelihood of acceptance into an amnesty program? After all, the very act of applying for the program alerts tax authorities to violations that could conceivably be construed as criminal.

The pre-clearance procedure enables a taxpayer (or an authorized representative) to submit certain personal information to the IRS and obtain preliminary approval to enter the Offshore Voluntary Disclosure Program (OVDP). This information is to be sent by fax to the IRS - Criminal Investigation Lead Development Center.

To be sure, a pre-clearance does not provide an iron-clad legal guarantee that a taxpayer will be accepted into the OVDP.  But it is a useful way to get some assurances from the IRS that the application for limited amnesty is on track, as long as the taxpayer cooperates and continues to submit the necessary information.

Keep in mind, however, that submitting a pre-clearance request now requires giving up more information to the IRS than in the past. In 2014, the rules were changed.

Now, when submitting a pre-clearance request, the taxpayer is required to submit information such as name, date of birth and tax identification numbers, as well as, the names of the financial entities that helped to hold the undisclosed accounts.

Source: IRS.gov, "Offshore Voluntary Disclosure Program, Frequently Asked Questions and Answers"

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