As expected, the IRS has announced a new amnesty program for taxpayers with previously undisclosed offshore accounts. But since amnesty is such an ugly word, the IRS is calling it “a special voluntary disclosure initiative” (it has the feel of an after school special, huh?). The official title, for what it’s worth, is the 2011 Offshore Voluntary Disclosure Initiative (OVDI).
This is the second such program in two years. In 2009, the IRS took a first stab at it and about 15,000 taxpayers came forward. Not too shabby, huh? Since that time, only a few thousand taxpayers have come forward, so the IRS offering one more chance.
But that’s it. No more chances, IRS Commissioner Doug Shulman insists:
As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing. This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.
There is a catch. The new program isn’t quite as generous as before. This time, your penalties won’t be wiped completely. Taxpayers will have to pay some percentage (from 5-25%) of the amount in foreign bank accounts; the amount will be determined by the highest aggregate in the accounts in any year applicable to the disclosure. Taxpayers will also be required to pay back taxes and interest, as well any accuracy-related and/or delinquency penalties.
Yikes. But it’s better than the alternatives. Taxpayers who don’t come forward will be subject to higher penalties and the possibility of criminal prosecution.
If you need to come clean, contact your tax professional for more details – and do it soon. The new voluntary disclosure initiative will be available through August 31, 2011.