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Sunday, May 21, 2017

Applying Overpayments of Tax to Tax and the Offshore Penalty in the OVDP Program

The OVDP program allows taxpayers to remedy deficient disclosure filings relating to offshore accounts for a fixed penalty amount. As part of the program, taxpayers must file either original or amended tax returns which include the income earned by their foreign accounts for the most recent eight tax years for which the due date has passed. In addition to other applicable penalties, an offshore penalty is imposed in lieu of other penalties relating to failure to properly disclose foreign accounts.

In preparing or amending returns for the prior eight years, it is possible that an overpayment of tax and one or more of those years can arise. The issue has been raised whether this overpayment of tax can be applied towards taxes due in one or more of the other seven years, and/or towards the offshore penalty.

A recent Chief Counsel Advice advises that the answer is "sometimes." One prerequisite that will always apply is that a claim for refund for the overpayment year(s) must be filed. If a refund is allowable under general applicable statute of limitation rules (generally a refund claim must be filed within three years of the due date for the subject return or within two years of payment of tax for the year per Code §6511), then offsets are permitted. However, since taxpayers are going back eight years, it is likely that the earlier years will be outside the general statute of limitations period on refunds and thus any overpayments in those years will not be available for refund or offset.

Note that the statute of limitations under the OVDP program for the eight years of filings is extended as part of the program. The CCA notes that if the statute is extended within the general refund statute of limitations period, then the statute of limitations for these refund offsets will likewise remain open during the extended statute of limitations period.

CCA 201719026 (May 12, 2017)

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