By Timothy R. Weeks, Esq., LL.M.
January 11, 2012
On January 9, 2012, the IRS announced that it is reopening its offshore voluntary disclosure program “to help people hiding offshore accounts get current with their taxes.” The IRS press release announcing the reopening of this program can be found here: http://www.irs.gov/newsroom/article/0,,id=252162,00.html.
The terms of the new Voluntary Disclosure Program are similar to the terms of the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”). Taxpayers who have undisclosed offshore accounts or assets are eligible to apply to the IRS for inclusion in this program. However, the IRS will not accept individuals into the program if it has already commenced an investigation into that individual’s foreign accounts. Inclusion in the program requires taxpayers to file or amend United States income tax returns for 2003 through 2010 and pay the corresponding taxes and interest. Finally, taxpayers must file Forms TD F 90-22.1: Reports of Foreign Bank and Financial Accounts, commonly referred to as FBARs, for tax years 2003 through 2010.
The penalty terms of the reopened disclosure program are expected be more onerous than in the 2009 Offshore Voluntary Disclosure Program (“2009 OVSP”) or the 2011 OVDI. Instead of the 20 percent and 25 percent miscellaneous offshore account penalty for the 2009 OVDP and the 2011 OVDI, respectively, the new program will require individuals to pay a “penalty of 27.5 percent of the highest aggregate balance in the foreign bank account/entities or value of foreign assets during the eight full years prior to the disclosure.” However, as in the previous programs, taxpayers may be eligible for a 12.5 percent penalty if their accounts do not exceed $75,000 or a 5 percent penalty for certain accounts unopened and generally untouched by the taxpayer. Additional failure-to-file, failure-to-pay, and accuracy-related penalties may also apply.
These disclosure programs have been a success for the IRS. To date, the IRS has handled 33,000 voluntary disclosures from the 2009 and 2011 programs and has collected $4.4 billion from those taxpayers. Since many of the 2011 OVDI cases have not been concluded yet, that amount is expected to grow.
Importantly, according to the IRS, those “who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.” Additionally, there is no set deadline for people to apply to the program, although the IRS recommends disclosures sooner rather than later since it cannot guarantee that the terms of the new OVDP will not change over time. “For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.”
Taxpayers who have been accepted into the new program may opt out of the civil settlement structure of the new disclosure program if, after careful analysis, they believe the typical statutory penalties are more beneficial to their specific case.
More details on this new voluntary disclosure program will be available on the IRS website, IRS.gov, within the next month.
Attorney Advertising. This Tax Alert is a periodical publication of M. Robinson & Company, P.C. and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult an attorney concerning your own situation and any specific legal questions you may have. Any tax information contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties.