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The 2012 Offshore Voluntary Disclosure Initiative(OVDI), like its predecessor programs, the 2009 and 2011 Offshore Voluntary Disclosure Programs, is offered to those taxpayers with undisclosed offshore accounts or assets. This is not a permanent program, and it can be ended at any time.
Under the voluntary program, the IRS is allowing taxpayers to voluntarily disclose foreign assets and the income they generate in exchange for not charging these taxpayers with tax fraud and the criminal penalties that it brings.
In response to your Question 1, even with no tax due, you still have to pay penalties. The penalties you are still open to are:
- The 20% accuracy-related penalties under IRC § 6662(a) on the full amount of your offshore-related underpayments of tax for all years (in your case, if no tax liability, it would be zero);
The failure to file penalties under IRC § 6651(a)(1), if applicable (in your case, zero);
The failure to pay penalties under IRC § 6651(a)(2), if applicable (in your case, zero);
Then, an amount in lieu of all other penalties that may apply to your undisclosed foreign assets and entities, including FBAR and offshore-related information return penalties and tax liabilities for years prior to the voluntary disclosure period, a miscellaneous Title 26 offshore penalty, equal to 27.5% (in some cases, you can get a 12.5% rate if the account has never had more than $75,000 in it).
If you cannot full pay the penalties, the IRS will allow you to enter into an installment agreement. In order to do this, you must submit a Form 433-A along with the information.
In response to the Question 2, there is no relief available for low income taxpayers or taxpayers with no assets under this program. The FAQs even state that in some instances it is advisable to elect out of the OVDI and go through the regular civil audit procedures. This would allow an assessment of tax, penalties and interest, and you could then make an Offer in Compromise to have the liability reduced or removed under this program. The FAQs are clear in that the OVDI personnel are not allowed any discretion in assessing or removing penalties.
In response to your Question 3, New Jersey residents must pay NJ income tax on all income received, including pensions. The NJ-1040 instructions for Line 19, Pensions (page 21 of the 2012 NJ-1040 instructions) say that the amount may be different than the Federal amount. Therefore, if the pension is not taxable for Federal purposes due to a tax treaty that we have with a foreign country, it is still taxable in full for NJ purposes.
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