If you have foreign real estate and you are preparing to apply for the OVDP in California or another state, it would be best to talk to an experienced OVDP tax lawyer who can assess your case and choose the course of action that will cause the least financial loss. Remember, you only get one chance at coming clean with the IRS. You cannot shift from the OVDP to the more lenient Streamlined program or vice versa, so making the right choices from the very start could save you a lot of money and nerves.
The following scenarios may or may not apply to your case, so if you want your case reviewed on its own merits, sign up for a case consultation. Brunoro Law is here for you if you’d like a one-hour no-cost case review. Note that the case review doesn’t create an attorney-client relationship and Brunoro Law will not provide legal advice unless a formal relationship is established.
Foreign real estate and reporting obligations
If you just own a piece of real estate abroad and you don’t earn any income from it, such asset doesn’t have to be reported on your tax return. But, if there is rental income or a corporate holding structure connected to the property, then you are obligated to report the real estate and the income it is generating for you.
OVDP doesn’t treat holders of foreign real estate leniently
If you own rental property in a foreign country and the rent is paid into a foreign bank account, you would be interested whether the value of the property goes into the penalty computation. In the OVDP, if property is in any way related to tax non-compliance, its value will be used to calculate the 27.5% penalty. This goes even if the real estate is not strictly yours, and even if it’s not listed on the FBAR or 8938. The OVDP penalty computation will take into account the value of the property, regardless of the amount of mortgage you might have or the amount of your interest in it.
If foreign taxes were paid on the rental income, you could be eligible for foreign tax credits.
Opting out of the OVDP
Opting out of the OVDP process is called a qualified quiet disclosure. Opting out of the OVDP means you are asking for a penalty reduction. However, opting out comes with a risk. By asking the IRS to review your penalties, you risk getting penalties higher than the original 27.5%. Still, there are cases when opting out may be more beneficial even with the risk, but such decision is best made with guidance from an experienced tax lawyer. Opting out may enable you to get property worth out of the penalty calculation.
Get professional legal representation
With a seasoned tax attorney by your side, you get knowledgeable guidance and attorney-client privilege. Every case is unique and there are no one-size-fits-all solutions in the OVDP and Streamlined Procedure. A tax lawyer is best equipped to evaluate the unique circumstances of your case and choose the best avenue to resolve your tax issues. Call Brunoro Law today to book your free one-hour case consult!