Voluntary disclosure of foreign accounts allowed until Aug. 31;
WASHINGTON — The Internal Revenue Service has announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
Last year, the IRS cracked down on United States citizens with offshore bank accounts who were not reporting income or filing the proper reports.
It created a first voluntary disclosure period when people could come forward. The voluntary compliance period ended last year, but with people still coming forward the IRS decided to create another amnesty period.
“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” said IRS Commissioner Doug Shulman. “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.”
The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. The first special voluntary disclosure program closed with 15,000 voluntary disclosures on Oct. 15, 2009. Since that time, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world. These taxpayers will also be eligible to take advantage of the special provisions of the new initiative.
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Kent Lawson, a shareholder of Burr Pilger Mayer who advises clients on global tax planning and compliance, said not everyone with a foreign bank account is a criminal. Many of those people have not received good tax advice.
“It could be grandfather was in WWII and had an account in Holland that has grown substantially,” he said. “This legacy of criminality passes through the generations, but it could be innocent.”
Or, he said, someone could have moved from another country and not gotten good tax advice.
Stu Myhill, a senior manager in Moss Adams’ tax practice who focuses on international tax issues, also said there are plenty of legitimate reasons for offshore accounts.
“It could be personal property offshore where there is a foreign account to pay a maid or property manager, a business that has foreign operations overseas. Someone could have a foreign parent and grandparent who gifted or willed it to someone in the U.S.,” he said. That person may not even know necessarily that they have the account, he said.
“There is not necessarily intention of fraud,” he said.
The new Offshore Voluntary Disclosure Initiative is slightly different from the 2009 Offshore Voluntary Disclosure Program. The overall penalty structure for 2011 is higher, so as not to reward people for waiting.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 percent or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.