21 Sep Offshore Bank Account Reporting Developments
In an act of charity, or good business (depending how you look at it), the IRS announced an extension, through October 15, 2009, of the deadline to participate in the foreign bank account voluntary disclosure program. The program, unveiled March 26, 2009, provides penalty relief for individuals that have failed to adequately report income tied to undisclosed foreign bank accounts. The program was undoubtedly extended due to the surprisingly large response by errant taxpayers.
Taxpayers participating in the voluntary disclosure program must fully comply with IRS investigation and turn-over significant amounts of information concerning their offshore accounts. In exchange, the IRS will assess taxes and accuracy penalties (20%) for the past 6 years (2003 through 2008), and in lieu of all other penalties (described below), the IRS will agree to assess a penalty equal to 20% of the value in each undisclosed foreign bank account, such value being determined in the year with the highest aggregate account value. Certain facts may warrant an even further reduced penalty structure.
If a taxpayer chooses not to participate in the voluntary disclosure program and the IRS discovers that taxpayer has undisclosed foreign bank accounts with unreported income, such taxpayer will likely face taxation of that income, plus penalties for underreporting (ranging from 20% to 75% of the underreported amount), plus interest. In addition, for failure to file Reports of Foreign Bank and Financial Accounts (Form TD F 90-22.1) disclosing such offshore accounts to the US government, the taxpayer may face an additional penalty of up to $100,000 or 50% of the value of the account at the time of the violation (whichever is greater). The IRS may also recommend certain cases to the Department of Justice for criminal prosecution, where violators could face up to 10 years in prison and a fine of $500,000.
Individuals with undisclosed foreign bank accounts only have until October 15, 2009 to take advantage of the IRS’s voluntary disclosure program. Given the government’s heightened attention to the taxation and reporting of foreign bank accounts, the wide exposure to penalties that taxpayer’s face, and the gradual collapse of bank secrecy laws, this is perhaps a unique opportunity for taxpayers in need of relief.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.