The OVDI program is a way for taxpayers who failed to timely disclose their ownership interest or signature authority over foreign financial accounts and other assets as required by law to come into compliance with the promise of no criminal prosecution (most cases) if they participate in the program.
The program which began in 2009, essentially promises a taxpayer who failed to file foreign bank account reports and other foreign information returns that they will not be recommended for criminal prosecution and will not be subject to substantial civil penalties for each year of non compliance if they agree to the following: pay the IRS a onetime penalty of 27.5 percent on the value of the foreign assets they failed to disclose; file delinquent foreign information returns going back 8 years; amend or file delinquent income taxes to report their correct income and expenses for the past 8 years; and pay interest on the tax deficiency and a 20 percent accuracy related penalty.
In order to participate in the program the taxpayer is required to file Form 14457 Offshore Voluntary Disclosure Letter with the IRS. If the Form 14457 letter is approved, the taxpayer will receive a preliminary clearance letter from IRS Criminal Investigation Division and allowed to continue with their disclosure.