On January 9, 2012, the Internal Revenue Service (IRS) reopened the Offshore Voluntary Disclosure Program (“2012 OVDP”) “on the heels of strong interest in the 2011 and 2009 programs.” Although the IRS maintains that it may “end the 2012 program at any time in the future,” there is no indication that it will abandon its well-established pattern of announcing new iterations of the OVDP with slight changes to form and slightly more significant changes to substance. The steadily increasing rate of the miscellaneous penalty—currently 27.5 percent of the highest aggregate value of foreign accounts and/or assets that are connected in any way to the taxpayer’s noncompliance, a significant increase from the 20-percent miscellaneous penalty in the 2009 Offshore Voluntary Disclosure Program (“2009 OVDP”)—suggests that the IRS is seeking to deter noncompliant taxpayers from taking a “wait and see” approach.
As Doug Shulman stated four days before the expiration of his term as IRS Commissioner, the IRS has “fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas . . . .” The problem with “fundamentally chang[ing] the risk calculus” is that the OVDP has consistently focused on deterrence for a specific group of individuals—“[w]ealthy people who unlawfully hide their money offshore [and who] aren’t paying the taxes they owe” —without addressing the potential impact of the program on permanent residents, “substantial presence” residents and new citizens of the United States whose compliance issues stem from misunderstanding of tax laws rather than intentional concealment of income.