IRS Offers Taxpayers Another Chance to Disclose Foreign Bank Accounts
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.