No one can say how long exactly it will take, but the OVDP is typically a lengthy transition into compliance. Various factors are at play, such as: how quickly you submit necessary documents to the IRS, how complex your case is, how busy your assigned IRS agent is, etc. Very often, the OVDP takes around 12 to 14 months from the moment individuals submit their initial paperwork to the moment they get Form 906 and Closing agreement and pay the reduced penalties. The IRS emphasizes that every case is evaluated on its own merits and that it’s impossible to say with certainty how long the process will take for you.
You should note that the OVDP functions on a first-come, first-served basis, which means that your case will last longer if there are many other cases ahead of you. Late and incomplete paperwork further convolutes and extends the process.
What are the stages of the OVDP?
The process starts with a pre-clearance letter. In general, it will take the IRS around a month to respond to this letter and tell you whether you have been accepted or rejected into the program. Even though you may have heard rumors that everyone gets accepted, this is not true. Although not common, your application can be rejected.
Stage two is the initial disclosure, which is not comprehensive, but is still quite detailed. Once the applicant gets a positive response to their pre-clearance letter, they have 45 days to submit information and documents regarding their foreign bank accounts, transfers and related matters. Once you submit the necessary forms and documentation, you wait for the IRS acceptance, usually for a few months.
Stage three comprises of full disclosure. After your initial disclosure is accepted, you have 90 days to submit full disclosure. It is possible to get filing extensions when necessary. Stage 3 is the bulk of the process. This is when you submit original or amended tax returns, FBAR reports, bank and financial documents. If you plan to opt out, that affects the documents that you will be submitting. On top of documents, you also enclose checks for penalties and taxes due, for each individual tax year. One check should cover the general penalty of 27.5% (or 50% if you are in a bank red-flagged by the IRS).
The process is closed when you receive the closing letter by the IRS. By that time, the IRS can ask you for additional documents and you may wait anywhere from several months to two years or more. By signing the closing letter, you show you agree with the IRS representations and penalties calculated and the process is over. However, if you decide to opt out, the IRS has the right to perform a full audit on you and the process is extended.
The decision to opt out is best made with the guidance of an experienced tax lawyer. If you choose to opt out of the civil penalty structure and request the penalties to be waived due to reasonable cause, your OVDP process will take another 6 or 9 months to complete. It will take longer if your original tax returns are complex, if the agent assigned to you is inexperienced or overloaded with cases and if you are not prompt in providing additional documents.
What you can do to expedite the process
Even though no one can predict with certainty how long your OVDP will last, there are some things you can do to expedite the process on your part.
First, be ready well before time when it comes to filing your delinquent or amended tax returns. You will be given a deadline for this, but since you know you have to do it at some point, better do it sooner than later.
Be prompt and efficient in collecting all the necessary documentation. Don’t delay the examination with untimely submissions.
IRS is ending the OVDP
In March 2018 it was announced that the IRS is closing the OVDP. Taxpayers can apply until the program is officially closed on September 28, 2018. The IRS says the third-party reporting and increased awareness of taxpayers of their reporting obligations has enabled them to ramp down the program.
Contact Brunoro Law for help
Brunoro Law is here for you if you need help entering the OVDP. Reach out to us today and book your free one-hour consultation!