So you missed filing your tax return on time. I know that you meant to do it, but Pesach was just over and you had to put all those dishes away! Plus, you had to prepare for the Meron trip for Lag B’Omer and just forgot. What do you do now?

First, don’t panic. Everyone makes mistakes. Missing a filing date is no reason worry. Many people miss deadlines and there is always a way to fix the situation. The problems begin when people give up and think to themselves that if I file late the IRS will audit me. This leads to them not filing at all for the year. Once that year passes, they don’t file the next because the IRS may realize that I didn’t file last year. This eventually snowballs into something that may lead to a criminal prosecution for tax evasion sometime in the future.

Therefore, it is prudent to file as soon as possible regardless of the fact that the deadline was missed. Your late filing in and of itself will not raise the red audit flag. In addition, the faster you file, the less the penalties for late filing will be.

What if you can’t pay the amount owed? File anyway! There are a number of reasons for this. First, the IRS has various different penalties. They have a late filing and a late payment penalty and each are mutually exclusive. If you file on time, but can’t pay, at least you save on the late filing penalty. Second, if you can’t pay all, you may be able to pay something. If payment is an absolute impossibility, then an installment agreement or payment plan is generally available to you. Late payment and interest will accrue, but at least the IRS won’t be knocking at your door.

What if you can’t find the information that you need to prepare your tax returns? What if you don’t know the difference between a W-2 and WD-40 or a K-1 and a K-9? (Just for your information, a W-2 and a K-1 are the tax forms while WD-40 lubricates your rusted locks or bike chain and a K-9 (spelled canine) is a dog). A good tax preparer can help guide you through the process. The first step in finding a good tax preparer is by finding a person or firm that is open all year around. H&R Block and Jackson Hewitt close many of their offices the moment April 15^th passes. Speak to friends and family, get referrals and interview the tax preparers that you are referred to. Find someone that you are comfortable working with, but not someone that you are too comfortable with. You want the tax preparer to push you in case you forget again next year.

Additionally, if you lost the tax information or have a good reason for late filing or payment, remember the penalties assessed by the IRS are not set in stone. If there was a “reasonable cause” for your late filing or payment, those penalties can be abated. Many of us were affected by Superstorm Sandy, some more than others. Nevertheless, if your late filing or missing information was due to the storm. That may be a very reasonable cause.

As the saying goes, “never say never.” Last year, the IRS said that the 2011 Offshore Voluntary Disclosure Initiative (OVDI) was the “last, best chance” for those with offshore accounts to come forward to report their accounts or face criminal prosecution and penalties of 50% of the value of the foreign account.

However, on January 9, 2012, the IRS announced that from the last two Offshore Voluntary Disclosure Initiatives (2009 and 2011), they collected over $4.4 billion and more money is still expected as the IRS finalizes their review of the 2011 program. As such, they are “reopening” the Offshore Voluntary Disclosure Initiative as the Offshore Voluntary Disclosure Program (OVDP).

This is actually good news for taxpayers, especially those with bank accounts in Israel. As I wrote in my article last year (The Jewish Press, Friday, February 18, 2011) many tax practitioners believed that the IRS was going to target banks in the Middle East and Far East. We were right!

On April 7, 2011, the IRS went after taxpayers banking with HSBC serving a “John Doe” summons on HSBC USA “to obtain information about possible tax fraud by people whose identities are unknown.”

On August 28, 2011, the Supervisor of Banks at the Bank of Israel and signed a Statement of Cooperation with the United States. This statement established “a mechanism for the transfer of information” of cross-border banking activity between the United States and Israel. In fact, Bank Leumi has been requiring U.S. clients to declare their deposits to the Internal Revenue Service since 2010.

As stated in the February 2011 article, as far back as the first Voluntary Disclosure initiative in 2009, the IRS used Holocaust compensation as a prime example for establishing an offshore account. Israel has one of the highest concentrations of Americans in the world, with the US Consulate in Tel Aviv saying it is aware of 137,000 of its citizens living there, although it estimates the actual figure is somewhere between 200,000 and 300,000. It stands to reason that they would be a fitting target for the IRS.

Additionally, starting 2013, all foreign financial institutions will be required to enter into disclosure compliance agreements with the U.S. Treasury under the Foreign Account Tax Compliance Act (FATCA). With the signing of the cooperative agreement, Israel has agreed to comply with FATCA. That being so, US citizens with Israeli accounts in excess of $50,000 have only 12-15 months to come forward before the Israeli government does it for them.

While the terms of the new OVDP could change at any moment, as of this announcement, there are some subtle and not-so subtle differences between the OVDIs of the past and OVDP.

First: The OVDP will be open for an indefinite period, until otherwise announced. Second: As of now, there are no set deadlines for people to apply.

Third: So as not to reward those who did not come forward in 2009 or 2011, the penalties for coming forward will increase to 27.5% of the foreign account’s assets, compared with the 25% penalty of the 2011 OVDI and the 20% penalty of 2009. Once again, the IRS reserved the right to change the penalty structure at any time.

The lower penalties of 12.5% and 5% will remain as they did for the 2011 OVDI. The 12.5% penalty will apply to those people whose offshore accounts or assets did not surpass $75,000 in any calendar year. The 5% penalty will apply to taxpayers who either; did not open the foreign account themselves and have not accessed the account during the 6 year look-back period; were foreign residents who did not know that they were US citizens or were foreign residents who can make a good faith showing that he or she has timely complied with all tax reporting and payment requirements in the country of residency and has $10,000 or less of U.S. source income each year.

Once again, as they did in 2011, the IRS is allowing any taxpayer who came forward during 2011 or 2009 and can demonstrate that they would receive a better deal under the new program to do so.

As in the past, the program requires that participants must file all original and amended tax returns, Foreign Bank Account Reports (FBARs) and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

For a taxpayer to have been required to file an FBAR, that taxpayer must have had a financial interest in any financial account in a foreign country, if the aggregate value of such accounts exceeds $10,000 at any time during the calendar year, even if the accounts were closed during that year.

Regardless of the fact that this program will be open indefinitely, with FATCA looming, those holding foreign accounts should still move quickly. As IRS Commissioner Shulman put it, “If we catch people before they come in voluntarily, it’s going to be a lot worse outcome for the taxpayer.” Worse most likely means the penalties will revert back to their original level of 50% of the value of the foreign account.

As the August 31, 2011 deadline for participating in the Internal Revenue Service’s 2011 Offshore Voluntary Compliance Initiative (OVDI) approaches, the IRS announced on June 2 that they will grant taxpayers a 90-day extension to participate in the program.

Although the IRS February 8, 2011 introduction to the 2011 OVDI emphasized that the August 31 deadline was firm, the IRS now says that it will give a 90-day extension only to those taxpayers who have made a good-faith attempt to comply with the terms of the OVDI, but were unable to submit a complete package. The request for extension must be submitted in writing before August 31, 2011 and must include a statement explaining why the taxpayer is seeking an extension.

In this announcement, significant offshore penalty relief was also added for U.S. citizens who reside in foreign countries that can show that they have timely complied with all tax reporting and payment requirements in the country of residency; and have $10,000 or less of U.S. source income each year.

For a taxpayer to have been required to file an FBAR, that taxpayer must have had a financial interest in any financial account in a foreign country, if the aggregate value of such accounts exceeds $10,000 at any time during the calendar year, even if the accounts were closed during that year.

The IRS is not satisfied with just those hiding money with UBS. They are very serious about attacking offshore tax evaders and they showed that to us on April 7th when they went after taxpayers banking with HSBC as well.

Remember 2010 FBAR (Form TD F 90-22.1) filings are due June 30th, with no extensions available. The IRS states on its website that, “The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. The granting, by the IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR.”

On February 8, 2011, the Internal Revenue Service announced their second voluntary disclosure initiative, giving amnesty for U.S. taxpayers with foreign accounts that will allow them to pay penalties and avoid jail time.

This voluntary disclosure initiative will only be available through August 31, 2011 and will differ from the first program in that it is unlikely to be extended. The new program’s penalties are steeper than those of the 2009 amnesty, so as not to reward those who did not come forward in 2009. Penalties will be as much as 25% of the foreign account’s assets, compared with the 20% penalty of 2009. This program applies to all years included in the 2009 initiative (i.e. 2003-2008) in addition to the 2009 & 2010 tax years, and just as in 2009, those who step forward will owe back taxes and interest on top of the amnesty penalty. After August 31, the penalties will revert back to their original level of 50% of the value of the foreign account.

For the 2009 initiative, the IRS created what some practitioners have called a “phantom” 5% penalty for those taxpayers who did not open the foreign account themselves and have not accessed the account during the 6 year look-back period. For 2011 the IRS kept the 5% penalty and added a new 12.5% penalty for people whose offshore accounts or assets did not surpass $75,000 in any calendar year. The IRS is allowing any taxpayer who came forward during 2009 and can demonstrate that they would receive a better deal under the new program to do so.

The IRS has stressed that they are investigating and working with some foreign banks believed to have helped U.S. taxpayers evade taxes, but declined to name any specific institutions. Many tax practitioners, however, believe that the IRS is targeting banks in the Middle East and Far East. During the 2009 Voluntary Disclosure initiative, the IRS used Holocaust compensation as a prime example for establishing an offshore account. It stands to reason that if they used the Holocaust as an example for Swiss accounts, that Israel would be the next likely target. Especially in light of the recent Earned Income Credit audits specifically targeting U.S. Citizens residing in Israel.

During the first program, taxpayers merely had to announce their intentions to the IRS by the amnesty deadline. However, taxpayers participating in the new initiative must file all the proper paperwork; including original and amended tax returns, payment for taxes, interest and accuracy-related penalties by the August 31 deadline. This may be a problem for some people as the foreign banks took their time sending the needed information for the last initiative. Those taxpayers who want to come forward must move quickly.