IRS Targets Foreign Accounts; Offers Second Opportunity to Voluntarily Disclose
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Author : Cory L. Johnson
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On February 8, 2011, the IRS announced a second offshore voluntary disclosure initiative. If citizens or residents have signatory authority over, or a financial interest in foreign bank or investment accounts, or have an interest in foreign corporations, partnerships, or trusts, there are complex reporting requirements. Citizens and residents are required to pay income tax on income from these accounts, and there are also information returns that must be filed. The IRS has been increasing its efforts to identify foreign account holders and penalize improper reporting, including bringing criminal charges. "The risk to individuals hiding assets offshore is increasing," said IRS Commissioner Doug Shulman. He further said, "combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review." Although Switzerland banks have had most of the publicity, the IRS announced it is aggressively pursuing the names of US account holders through treaty requests and bank investigations. The IRS is targeting banks in Asia, Europe, Latin America and the Middle East. Although most taxpayers have unknowingly run afoul of the complex requirements surrounding foreign accounts and assets, those taxpayers still face substantial risk and penalties if the IRS discovers their improper reporting.
In 2009, over 15,000 taxpayers responded to the IRS's offer to voluntarily disclose their offshore accounts, but that program ended on October 15, 2009. This new initiative is a second, and according to the IRS, the last, opportunity for American citizens and residents to disclose their foreign bank accounts before the IRS finds them. The penalties the IRS can impose against taxpayers who do not participate in the voluntary disclosure program can be as high as 50% of the account balance for each year the account is undisclosed. The voluntary disclosure program allows taxpayers who come forward voluntarily to avoid criminal prosecution, and pay reduced penalties (between 5% and 25% of the account value for only one year). The program ends on August 31, 2011. Taxpayers must file all delinquent and corrected returns by that date. This is a burdensome timeframe imposed by the IRS because it takes time to obtain the foreign bank records necessary to file accurate returns. Taxpayers should act expeditiously in consulting legal counsel to determine if participation in the voluntary disclosure program is right for them.
By Cory Johnson, Cori Flanders, John Colvin, lawyers at the Seattle tax controversy firm of Chicoine & Hallett,
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