Offshore Voluntary Disclosure Initiative ("OVDI") Update

Posted by: Roy Berg JD, LL.M (US Tax) | November 1, 2011 | Filed under:  Tax + Estate Planning

As many regular readers of our blog or our Twitter feeds (@RoyBerg1, @Moodystax) already know, applications for the 2011 US OVDI ended on September 9, 2011.  However, there has been no shortage of activity regarding non-compliant US citizens.  Yesterday, our firm received some news from a highly-placed source regarding some further activity.  Apparently, a very influential US body has drafted a letter that should be made public later this week.  The letter advocates lenient tax treatment for US Citizens residing in Canada who are not current with their filing obligations.

Here is what we believe to be the case:

The letter is addressed to President Obama, Secretary of State Clinton and Ambassador Jacobson.

  • Notably absent on the distribution list are Secretary of Treasury Geithner and IRS Commissioner Shulman.
  • We believe the omission of Geithner and Schulman indicate that the issue is being framed as a diplomatic matter and not as a tax matter.

The letter purports to advocate the following relief for US Citizens residing in Canada for X years provided they are compliant with Canadian tax filing and reporting obligations:

  • Full abatement of the penalty regime under the IRS Amnesty Program;
  • Penalty relief for those who missed participation in the Amnesty Program; and
  • Ability to renounce US Citizenship without the imposition of the Exit Tax.

What we do not know is the effect, if any, the letter will have.

If the letter does manage to effectuate change to the current protocol then that would be great news.  The work that practitioners have undertaken so far for their non-compliant US clients may place them in an expedient position to be compliant with their tax affairs.  However, it is puzzling to think how the lobbied for changes could be implemented without causing significant other fallout.  For example, if the letter effectuates change, would non-compliant US citizens be rewarded for waiting out the previous voluntary disclosure programs?  Tricky issues.

We continue to monitor this space closely and will communicate any changes as they become available.