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February 2014

IRS Offers Incentives to Taxpayers with Unreported Foreign Income

As bank participation raises the risk of detection, taxpayers seeking protection are urged to consult with a tax attorney.

The IRS’s Offshore Voluntary Disclosure Program (OVDP) offers taxpayers with undisclosed income from offshore accounts an additional opportunity to get current with their tax returns. The OVDP, which was launched in January 2012, offers certain benefits, such as non-prosecution and deferred prosecution, to encourage taxpayers to disclose foreign accounts now rather than risk IRS detection and possible criminal prosecution.

The OVDP was among the topics discussed at the 2014 Midyear Meeting of the ABA Section of Taxation, held January 25 at the Arizona Biltmore. Frazer Ryan tax attorneys Derek Kaczmarek and David Jojola were among the participants.

Reporting by Banks

Speaking at the ABA meeting, Kathryn Keneally, “America’s Top Tax Cop” and an assistant attorney general in the U.S. Department of Justice Tax Division, reported that 106 banks and other financial institutions have applied for OVDP participation.

Banks entering into an agreement with the DOJ are expected to provide to the IRS both personal identification and financial information regarding U.S. citizens or residents. Keneally stated that the names of those institutions have not been published and that many of the applicants were not on DOJ’s radar screen.

Impact on Taxpayers

Our experience with participating banks leads us to believe that account holders will receive written notification from their bank about the bank’s intent to disclose information to the IRS. This, of course, may not always be the case; thus, a taxpayer’s failure to act may negatively impact their options.

Taxpayer Options

If you own a foreign financial account or other foreign asset and wish to discuss the available options that exist prior to information being turned over to the IRS, please contact Derek Kaczmarek ( or David Jojola ( at 602-277-2010. Derek and David can assist in evaluating the various scenarios and costs of compliance to allow taxpayers to make an informed decision regarding the reporting of offshore assets and accounts.