Many years ago, we had a client come to us because they had failed to report some foreign rental income, a net profit of a few hundred dollars. It was legal sourced income. The client had moved to the U.S. the year prior, and it was their first tax return filed in the United States. In fact, they had just filed it, and the extended filing deadline had not even passed yet. The client had also filed their FBAR and all income form foreign accounts had been reported on the tax return.
The client informed me that he had already retained an attorney, and the attorney wanted to place him the OVDP program for a nice tidy sum.
Per the IRS, the Offshore Voluntary Disclosure Program (OVDP), a new-defunct program, was a “voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets.”
This was not even a situation involving the failure to report a foreign financial asset (real estate is not a financial asset).
The client reached out us because his attorney’s recommendation didn’t seem right, and it conflicted with recommendations from other attorneys he had spoken with. So he wanted another opinion.
Upon closer inspection, while this attorney claimed to have substantial trial and criminal tax prosecution experience, a list of their own previous cases on their website indicated none such experience.
The client was extremely worried and was convinced into believing there would some sort of international manhunt because he failed to report rental income on his first U.S. tax return. Yes, it is not a good idea to have ANY unreported income. You should immediately fix any non-compliance issues. However, there are varying degrees of non-compliance, and not all require drastic measures to fix them.
Anyway, so back to the client. My first instinct was to simply amend the tax return because there were no delinquent FBARs or other international information returns. However, because of conflicting advice the client had received, I had the client reach out to another attorney for yet another opinion. The attorney also recommended him to simply amend the tax return, and I referred the client to him. Out of several opinions, only one attorney (the one that the client previously hired) had recommended the OVDP program.
This was simply not a case that required OVDP. I believe the attorney thought it would be “harmless” to put him through OVDP and better “safe than sorry.” However, placing this client in OVDP would have had serious implications for his immigration status. By entering the OVDP or the traditional voluntary disclosure program, a client concedes willfulness. Fortunately for this client, he was able to get a refund from the attorney. He paid the taxes he owed and moved on with his life.