UNREPORTED OFFSHORE ASSETS? THE IRS OFFERS AMNESTY PROGRAM #3
By: Nancy Ortmeyer Kuhn
The Internal Revenue Service has reactivated the Offshore Voluntary Disclosure Program (“OVDP”) for U.S. taxpayers who would like to voluntarily disclose foreign bank accounts and other offshore assets that have previously been unreported. This will be the third IRS program for this purpose, and is offered to taxpayers as a method for them to avoid prosecution for criminal tax fraud. The IRS is reporting that over $4.4 billion has been collected from over 33,000 taxpayers as a result of the 2009 and 2011 OVDP. Thus, the average payment from each taxpayer is approximately $133,333.
2012 Voluntary Disclosure Program
The voluntary disclosure procedures are similar to those in the past, and involve filing amended tax returns for up to eight prior years. In addition, a comprehensive civil penalty of 27.5% of the highest aggregate value based upon account balances and fair market value of foreign assets will be assessed, rather than the plethora of penalties that are applicable other than the accuracy and/or delinquency penalties. Some taxpayers with foreign assets under $75,000 may qualify instead for a lower penalty of 12.5%. All back taxes plus interest will also be assessed by the IRS. Both amended Forms 1040 and Forms TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) must be filed for all years at issue. While this program does not offer amnesty from the payment of taxes and interest, it does offer amnesty from payment of all applicable penalties and protects the taxpayer from criminal prosecution.
Taxpayers who do not voluntarily disclose their foreign assets run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, in addition to an increased risk of criminal prosecution. For example, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Multiple other civil penalties are also applicable, and can combine to total more than the original tax liability. On the criminal side, failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000, if the taxpayer is prosecuted and convicted.
The IRS is obtaining, or has obtained, ever-increasing amounts of information from foreign bank havens with regard to account holders and the identities of U.S. owners of foreign property. The IRS “remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available as the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D) become effective.” www.irs.gov IR-2012-5.
Any taxpayer with unreported foreign assets should review the options available carefully. It is essential that the assets be reported prior to contact by the IRS. If the IRS contacts the taxpayer, the amnesty program is not available to the taxpayer. Therefore, although the payment of taxes and penalties may be high, the risk of even harsher penalties and criminal prosecution make the certainty of this program attractive. It is better if the taxpayer takes control of his or her own destiny, rather than leaving it up to the IRS. Time is of the essence: while there are no stated deadlines for making the disclosures, the program may be withdrawn or changed at any time.
If you would like additional information regarding the procedures and options for foreign asset disclosure, please contact Nancy Ortmeyer Kuhn at firstname.lastname@example.org. Ms. Kuhn is the chair of the Tax Group at Jackson & Campbell.
If you have any questions or need additional information, please contact:
Jackson & Campbell P.C.
voice: (202) 457-1663