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.
Wow, last chance from the IRS?
With so many advanced estate planning techniques in the tax code to defer, save and write off taxes(give it, gift it, etc), it puzzles me why people still have money offshore. Working with the wrong professional advisors? Complacent? Ignorant? Can’t outsmart the IRS, and frankly they are the last people on earth you want to mess around with.
Network Sommelier,
Your point is well taken. I will say, however, that the rules for offshore accounts are not logical nor apparent for most taxpayers. You can easily run afoul of them quite by accident (having a bank account overseas while your child is a student, for example, or coming to the US on a visa to work or study while leaving assets in your own country) and the associated penalties are far more draconian than your run of the mill tax hiccup. The folks affected in some situations wouldn’t necessarily have gift or estate tax issues and thus, wouldn’t have necessarily consulted a tax pro since tax avoidance/mitigation was never their aim.
Kelly,
I agree with you in part. The filing of the FBAR (which is the informational disclsoure form due at the end of June) is quite opaque – it is in 31 CFR, not the internal revenue code – so many people do not know about it and it is also the largest penalty. It is not mailed to the IRS nor with your tax return, just to add to the confusion. It is not all bad though as you must have over $10,000 in assets at any point in time during the year (which I believe is more than enough to help pay for your kids’ living expenses for a semester).
However, as far as reporting the income, it is pretty clear that US taxpayers are taxed on their worldwide income and so you should be prepared to report rents, royalties, or other income from offshore locations on your tax return. So I have little sympathy, in that regard.
Thanks for the information. I didn’t realize that you can’t already be under investigation by the IRS or participated in the 2009 version of this program to participate in this new initiative. Here’s a tax rate newsletter than is helpful… figured I’d share. Thanks!