by admin on March 6, 2011 in Uncategorized
I recently heard that there was some IRS program designed to encourage voluntary disclosure of foreign bank and financial accounts. Does such a program exist? If so, how does it work and what are the penalties for failure to disclose such accounts?
Yes, the IRS currently has in place the 2011 Voluntary Disclosure Initiative.
If you have foreign accounts, income or assets that have previously not been reported to the IRS, a new voluntary disclosure program, available through Aug. 31 2011, provides an opportunity for you to come forward and disclose these items while paying fewer penalties and avoiding criminal prosecution.
Taxpayers with undisclosed offshore assets and income, including taxpayers who have already made voluntary disclosure since October 16, 2009 or made “quiet disclosure,” may be eligible to participate the 2011 Voluntary Disclosure Initiative (2011 VDP). Generally, participants in the 2009 Voluntary Disclosure Program (2009 VDP) and taxpayers currently under IRS examination are not eligible for the 2011 VDP.
Taxpayers accepted into the program that don’t qualify for the 12.5% or 5% reduced penalties will be subject to a penalty equal to 25% of the highest aggregate balance of undisclosed offshore accounts or value of assets during the eight year period 2003 through 2010. In addition, participants must file all original and amended tax returns and pay back taxes and interest for up to eight years as well as accuracy related and/or delinquency penalties. A reduced rate of 12.5% is available for taxpayers whose offshore accounts did not exceed $75,000 during 2003-2010. A reduced 5% penalty is available for certain taxpayers who meet specified conditions which indicate the taxpayer is not culpable of tax avoidance. For instance, the 5% rate would apply to a person who inherited a bank account in a foreign country and had minimal involvement with the account, or a foreign person who was unaware that he is a U.S. citizen subject to U.S. taxation. Taxpayers who participated in the 2009 VDP who believe they qualify for the 12.5% or 5% reduced rate, but paid a higher penalty amount under 2009 VDP, may apply for the reduced rate under 2011 VDP.
In addition to providing a penalty structure for previously unreported income and assets, the 2011 VDP provides that taxpayers who failed to file Reports of Foreign Bank and Financial Accounts (“FBARs”) and information returns with regard to controlled foreign corporations or foreign trusts, but had reported and paid tax on all taxable income or had no taxable income to report, may file delinquent information returns or FBARs without being subject to civil or criminal penalties.
If you would like to know more about participating in the 2011 VDP please call Steve Butler at 479-621-0006. Steve is a partner with an emphasis on tax and estate planning. In addition to having his law degree, Steve is also a certified public accountant.