Under the OVDP, these penalties were all eliminated in exchange for its one-size-fits-all approach. For most taxpayers, the flexibility of the new guidance will likely result in an overall increase to the cost of making a voluntary disclosure. This was likely the intent of the IRS as it would be deemed unfair to impose a lower cost on those whose noncompliance has continued despite the OVDP's near ten-year existence. However, this increased flexibility may ultimately work to address some of the shortcomings of the otherwise successful OVDP, which mainly stemmed from the rigidity of its penalty structure. Take, for example, the taxpayer noted above who entered the OVDP to disclose a small amount of rental income from a foreign property. Under the OVDP, the full value of the property was subject to a penalty, and examiners had no discretion to mitigate that penalty, even if the income from the property was minimal. Under the new guidance, only the tax liability at issue would be subject to a penalty. Similarly, under the OVDP, examiners had no discretion to exclude certain bank accounts from the OVDP's penalty base, even if the circumstances surrounding one account were different than the circumstances surrounding other foreign accounts held by the taxpayer. Under the new guidance, a taxpayer may be subject to a large willful FBAR penalty for any foreign accounts that were willfully not reported, but can seek leniency with respect to any accounts where the noncompliance was not willful.Conclusion In issuing new guidance for the voluntary disclosure of offshore matters, the IRS is sending a clear message that the door remains open for those taxpayers looking to come clean. The IRS and the DOJ have also made clear that they will continue seeking out, penalizing, and, if appropriate, prosecuting taxpayers who continue to hold noncompliant offshore assets. Taxpayers and their advisors need to carefully consider all options available to a taxpayer with prior noncompliance. Taxpayers whose conduct may result in criminal prosecution should utilize the new voluntary disclosure guidance. However, other options including the Streamlined Compliance Procedures and the Delinquent Submission Procedures, may be more appropriate for those taxpayers who simply made a mistake and have not engaged in any willful or criminal conduct
