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January 2012

 

Tax and Business Planning Alert:

IRS Reopens Offshore Voluntary Disclosure Program

 

There is welcome news for taxpayers with unreported foreign accounts and/or unreported foreign income. On January 9, 2012, the Internal Revenue Service reopened the offshore voluntary disclosure program for such taxpayers. Subject to the exceptions noted below, this program is similar to the two prior offshore voluntary disclosure programs (2009 and 2011) and may represent the last such program offered by the Internal Revenue Service.

What Does This Mean?

Taxpayers participating in the program may avoid criminal prosecution and resolve all outstanding offshore tax issues on a much more favorable basis than that afforded by the IRS on audit. A failure to participate in the program could expose a taxpayer to increased risk of criminal prosecution as well as additional tax and substantial penalties (including the civil fraud penalty and foreign information return penalties).

The program is similar to two previous programs but has a few striking differences. Most notably, there is not yet a fixed deadline for taxpayers to apply and the program's terms may be changed or the program terminated at any time. Since this program will be open for an indefinite period, taxpayers should take immediate action.

The Internal Revenue Service has routinely been using these programs as well as various tax treaties and whistleblower programs to identify taxpayers with undisclosed foreign accounts. This heightened scrutiny represents the policy goal of getting taxpayers in compliance, whether by voluntary or involuntary means. In the words of the Commissioner of Internal Revenue: "As we've said all along, people need to come in and get right with us before we find you. We are following more leads and the risk of people who do not come in continues to increase."

Often, taxpayers who could benefit from participating in the offshore voluntary disclosure programs have not engaged in intentional tax evasion schemes but are simply not fully aware of their tax compliance obligations. This includes awareness by dual citizens and taxpayers who obtained foreign assets via bequest, gifts, or property settlements.

The program is available for individuals and entities such as corporations, partnerships and trusts. Even taxpayers who have made "quiet disclosures" (i.e., filed amended returns reporting additional unreported income) may benefit from participation in the program.

In addition to filing reports concerning foreign bank and financial accounts, participants must file all original and amended tax returns. Participants in the program generally must pay (i) all tax due with interest for up to eight years, (ii) an accuracy penalty equal to 20 percent of the underpayment of tax, with interest, for each year, and (iii) an "offshore" penalty equal to 27.5 percent (or a 12.5 percent or 5 percent penalty in certain cases) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure.

What You Should Do Now

If you have undisclosed foreign accounts and/or assets or have previously filed amended returns with respect to such accounts and/or assets but not participated in the prior offshore disclosure programs, please contact us so that we can discuss your particular facts as they relate to qualifying for the reopened offshore voluntary disclosure program and the advantages and disadvantages of such participation.

Polsinelli Shughart tax lawyers have assisted taxpayers under both of the prior two offshore voluntary disclosure programs and, in the course of such representation, have successfully addressed both civil and criminal concerns. All of our clients, to date, have avoided criminal charges.

For More Information

To read the official IRS release on the Voluntary Disclosure Program, click on the [link]. If you have questions about the program, please contact:

 

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