OVDI Refund: On the one hand #Americansabroad should “beware” and on the other hand they should “be aware”


It’s been a week of “ups and downs”. As you know, the Republicans Overseas lawsuit was NOT successful in obtaining an injunction. The Alliance For Canadian Sovereignty was NOT successful in obtaining their own injunction in the Canadian lawsuit. The rulings in both lawsuits included judicial observations, and were supported by affidavits, that are likely to be helpful as these lawsuits continue. These “observations” are good news.

But, on the “coming into U.S. tax compliance front” I bring you some additional good and interesting news.

I am happy to report (with the permission of the taxpayer, although the specifics of the information continue to be privileged) that:

A U.S. citizen abroad, who had NOT been filing U.S. taxes and who entered the Offshore Voluntary Disclosure Program (“OVDI”) in August 2011 (do  you remember that month?), has just received a full refund for the amount of the penalties that she paid under “OVDI” (well in excess of $100,000). The payment of the “in lieu of” penalty” was made with the initial “OVDI” submission in 2011. She did not receive a refund of the taxes and interest (which were very minor amounts)  or her legal and accounting fees (approximately $50,000).

After entering “OVDI” in 2011, filing eight years of back tax returns,  and paying an “in lieu of” penalty of approximately $120,000, she transitioned into “Streamlined” (which first became available in 2012). The bottom line is that she received a refund of all penalties paid under “OVDI”.

My point in writing this post is to illustrate that “compliance issues” can have better and worse outcomes. (Obviously the outcome depends on the “facts and circumstances” of one’s specific situation.) Given that this taxpayer, “voluntarily” (on the advice of lawyers) entered “OVDI”, this strikes me as an extremely good outcome. Furthermore, this outcome could not have been anticipated at the point of entering “OVDI” in 2011. Therefore, it’s important to understand that the resolution to compliance (or non-compliance) issues is always in a state of evolution.

Note that in 2012, the “OVDI” program was renamed “OVDP” (which continues to exist).

This story suggest that:

On the one hand, you should BEWARE, but

On the other hand, you should BE AWARE.

Finally …

The current “OVDP” program is suitable ONLY for those who have been committed “willful” tax and compliance omissions. You should NOT enter “OVDP” without being advised by at least three lawyers (who don’t know each other).

John Richardson