IRS Announces Second Chance for Offshore Account Holders, Deadline of August 31, 2011

IRS Announces Second Chance for Offshore Account Holders, Deadline of August 31, 2011

On February 8th, 2011, the IRS announced the 2011 Offshore Voluntary Disclosure Initiative (the “2011 OVDI”) for taxpayers with undisclosed income in foreign bank accounts to come forward and get current with their taxes.  Approximately 15,000 taxpayers participated in a similar program offered in 2009, where in exchange for a reduced penalty structure and the assurance that criminal prosecution would be eluded, taxpayers disclosed their foreign account and tax information and paid taxes and penalties due.

Under the 2011 OVDI, participating taxpayers will be required to (i) disclose their account information for an 8-year period (2003 – 2010), (ii) amend tax returns and pay back-taxes, interest and accuracy-related penalties for the same 8-year period, and (iii) pay a 25% penalty on the amount in the foreign bank accounts in the year with the highest aggregate account balance (during the 8-year period).  In exchange, the IRS will not assess any other penalties and again assures taxpayers that their participation in the program will preclude their criminal prosecution.  Instead of the 25% penalty, a reduced 12.5% penalty may apply to certain taxpayers with offshore accounts / assets below $75,000 in value for the entire 8-year period, or a reduced 5% penalty may apply in very limited situations.

In general, taxpayers will benefit under this program because it defines the number of tax years covered and sets the civil penalties that will apply.  A taxpayer outside the 2011 OVDI that has not complied with the foreign bank account reporting requirement of filing Forms TD F 90-22.1, could face an examination of all tax years (not just the past 8 years) in the event the IRS alleges fraud, and could pay a per-account, per-year penalty of up to 50% of the balance of the account.  Even for non-willful violations and those not involving fraud, the penalties outside the 2011 OVDI could be as much as $10,000 per-account, per-year.  That is not including penalties that may apply for failing to file other forms often related to the ownership of foreign assets (such as Forms 3520 and 5471), and further not including criminal penalties, which may include imprisonment.

The deadline for participation in the 2011 OVDI is August 31, 2011.  Unlike the 2009 program, participating taxpayers will be required to submit a full package of documents by the August 31 deadline, including – (i) copies of previously filed returns, (ii) amended tax returns including the offshore assets and tax liabilities, (iii) certain IRS account and asset statements, (iv) bank account statements (in some cases), and (v) a check payable to the Department of Treasury in the total amount of tax, interest, and penalties due.  With the entire package due on August 31, taxpayers desiring to participate should engage counsel immediately.

More information can be found at: http://www.irs.gov/newsroom/article/0,,id=234900,00.html

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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City. Read My Full Bio

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