The United States Internal Revenue Service (IRS) has announced another special voluntary disclosure initiative designed, it is said, to help people with undisclosed income from offshore accounts back into the US tax system.
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 October 15, 2009. Since that time, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world. Those taxpayers will also be eligible to take advantage of the special provisions of the new initiative, which will be available until August 31, 2011.
“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.”
“As I’ve said all along, the goal is to get people back into the US tax system,” he added.
“Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system.”
The new initiative, called the 2011 Offshore Voluntary Disclosure Initiative (OVDI), includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting.
In the OVDI, there is a new penalty framework that requires individuals to pay a penalty of 25% of the amount (rather than 20% as in the OVDP) in the foreign bank accounts or assets in the year with the highest aggregate account balance, over the years from 2003 to 2010.
However, some taxpayers will be eligible for 5% or 12.5% penalties. For example, the IRS has created a new 12.5% penalty category for smaller offshore accounts or assets that do not surpass USD75,000 in any calendar year covered by the 2011 initiative.
Participating taxpayers must also pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. They must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the August 31 deadline.
Taxpayers with undecalred assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution, the IRS warned.
“This is a fair offer for people with offshore accounts who want to get right with the nation’s taxpayers,” Shulman concluded. “This initiative offers them the chance to get certainty about how their case will be handled. Just as importantly, those who truly come in voluntarily can avoid criminal prosecution as well.”
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