Brian Wynne, CPA

On Tuesday, February 8, 2011, the IRS announced another voluntary disclosure program giving taxpayers a second chance to report offshore assets.  The first program began in March of 2009 and allowed taxpayers six months to voluntarily disclose all offshore assets going back six years, offering the chance to avoid criminal prosecution and limiting penalties.  The penalties were 20% of the amount of foreign assets in the year with the highest value, plus all taxes, interest and a 20% accuracy or 25% delinquency penalty.

The plan unveiled Tuesday has stiffer penalties, to avoid rewarding taxpayers who did not take advantage of the first round of disclosure, but more flexibility for smaller accounts,.  The baseline penalty is now 25% instead of 20% and the lookback is extended from six years to eight years.  The penalty for accounts less than $75,000 is reduced to 12.5%, though, and a special 5% penalty is in place for taxpayers with little connection to their accounts or who did not know they were US citizens.  Taxpayers must still pay back taxes, interest and the accuracy or delinquency penalty, just as in 2009.  This disclosure program ends August 31, 2011, and unlike the previous round all of the filings must be complete by the deadline.  The first program allowed intent letters to be submitted and the forms filed later.

The IRS is urging taxpayers to take advantage of this program while they can, noting that overseas banks must disclose U.S.-held accounts beginning in 2013, and that the IRS will continue to pursue offshore tax evasion aggressively.  The IRS also is discouraging simply filing amended returns instead of participating in the disclosure program, noting that if you don’t participate in the program the IRS cannot guarantee that you will not be prosecuted.

IRS Press Release