Michael DeBlis III, Esq, LLM, Partner at DeBlis Law is a recognized expert in OVDP, an area of tax law dealing with taxpayers who may not have properly disclosed offshore accounts to the US government. In recent years, countries formally known for not disclosing foreign holdings (such as Switzerland) have begun to work with the US government and have started notifying account holders that the names of account holders will be released. In 2009, the US Government created the Offshore Voluntary Disclosure Program (OVDP) in order to provide a non-criminalized way for taxpayers in violation of the requirements to disclose offshore accounts and entities a way to resolve the issue.
DeBlis explains, “Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties, and eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues.” According to DeBlis, consumers who receive a letter from their bank notifying them that their name will be released to the IRS as an offshore account holder need to act immediately and seek counsel. It could save you thousands of dollars in penalties. The OVDP program has requirements that must be met in order to take advantage of it and potentially avoid costly fines, but once the IRS is aware of the accounts or an investigation has been opened, it is too late.
Depending upon a taxpayer’s individual case, the following penalties could apply for failing to disclose offshore accounts or entities (businesses). First, there is a penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents, and certain other persons must annually report their direct or indirect financial interest in, or signature authority over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
Beginning with the 2011 tax year, there is a penalty for failing to file form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, and certain foreign securities and interests in foreign entities, as required by I.R.C. §6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
There are also fraud-related penalties. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that essentially amount to 75 percent of the unpaid tax. There can also be accuracy-related penalties. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.
There are serious ramifications for failing to disclose beyond the fines and penalties. There can also be criminal charges including tax evasion which carries a prison term of up to five years and a fine of up to $250,000. Charges might also include filing a false return which carries a prison term of up to three years and a fine of up to $250,000, failure to file an income tax return which carries a prison term of up to one year and a fine of up to $100,000. Finally, willfully failing to file an FBAR and willfully filing a false FBAR carry a prison term of up to ten years and criminal penalties of up to $500,000.
On June 18, 2014, the IRS completed an overhaul of the OVDP program. The changes that were announced are expected to help both taxpayers living abroad and those living within the United States come into compliance with their US tax obligations. The changes are two-fold and affect two classifications of taxpayers: those that have willfully failed to disclose foreign accounts and those who have done so innocently or without their conduct rising to the “willful” level. One rule change relaxes the penalties a US taxpayer with an overseas account can face if the account was not properly disclosed, if that non-disclosure was unintentional.
The other change is to the Offshore Voluntary Disclosure Program, meant for taxpayers who willfully tried to evade taxes. Penalties for this program have increased and taxpayers will have to submit more information. Those who thought that the government was going to go easy on taxpayers whose failure to report foreign accounts was deemed willful got a wake-up call. Under the new terms of the OVDP, taxpayers who are “willfully” non-compliant face a 50% offshore penalty – up from 27.5%. Taxpayers whose failure to disclose does not rise to the level of willfulness can breathe a sigh of relief. The offshore penalty under OVDP has been reduced to only 5% of the balance of the foreign account(s) at issue. This is a substantial decrease from the terms of the 2012 OVDP program that required taxpayers to pay a 27.5% penalty of the highest aggregate balance of the foreign account(s) during the disclosure period.
DeBlis was recently published in the CCH Journal of Tax Practice & Procedure, a well-recognized tax journal. The article, “The Good, the Bad, and the Ugly of Opting Out of the OVDP” discusses OVDP options in depth. Kat Jennings, CEO of TaxConnections says, “Michael DeBlis is an extraordinary Tax Attorney who brings the knowledge, experience and passion required to protect his clients. It is rare to find a Tax Attorney who has these skills inside and outside the courtroom.”
Michael DeBlis, III graduated – cum laude – from the Thomas M. Cooley Law School. He then earned his LLM in International Tax and Financial Services at Thomas Jefferson School of Law, graduating summa cum laude. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of federal taxation make him uniquely qualified to handle any white-collar case, no matter how sophisticated it might be. He believes that justice for a person accused of a crime is only won through a full understanding of the client and the case. To that end, Michael attempts to understand each client’s case as a convincing narrative, not just as a set of innocuous facts and arcane legal rules.
DeBlis works with his partner, Michael DeBlis Jr. in their shared law practice which combines elements of criminal defense and high stakes tax defense. Michael J. DeBlis, Jr., has been in private practice since 1984. He is an extremely seasoned criminal and civil attorney who has broad experience in all insurance matters, real estate, DWI, and matrimonial matters. In addition, he is a civil negligence/auto arbitrator in Essex and Hudson counties, a R. 1:40 mediator (including foreclosure), and an economic mediator in family law cases. He is also a civil arbitrator for the Federal District of NJ.
DeBlis Law is located at1012 Broad Street, Bloomfield, NJ. The partners can be reached by phone at (973) 783-7000. For more information about OVDP and Tax Attorney Michael DeBlis, III or DeBlis Law visit: http://www.deblislaw.com/.