The IRS announced on February 8, 2011, a second Amnesty Program to allow citizens with unreported offshore bank accounts to report the accounts and avoid significant penalties and criminal prosecution.
The new program is the "2011 Offshore Voluntary Disclosure Initiative (OVDI)." The earlier program was the "2009 Offshore Voluntary Disclosure Program (OVDP)." Almost 15,000 taxpayers took advantage of the OVDP before it closed on October 15, 2009. The new amnesty program differs from the original and carries with it higher penalties and the potential for greater taxes. However, it is still an opportunity which should be considered seriously by anyone with an unreported offshore bank account.
Requirements for Reporting Offshore Bank Accounts
All U.S. Citizens and residents are required to report offshore bank accounts with balances in excess of $10,000.00. This includes both U.S. citizens living in Europe or Asia and foreign citizens who have residency in the U.S. and are subject to U.S. tax laws. The reporting of offshore accounts is done by filing a Report of Foreign Bank and Financial Accounts (FBAR) in June to report the accounts for the previous year. In addition, income on foreign accounts must be declared on U.S. income tax returns and offshore accounts must be disclosed on Schedule B of the income tax return.
The failure to file the FBAR is a felony for each year that the FBAR is not timely filed. In addition, the failure to report income of foreign accounts can constitute the crime of tax evasion.
In addition to criminal prosecution, the IRS imposes civil penalties for failure to file the FBAR. The civil penalty is 50% of the value of the account each year that the FBAR is not filed.
Other civil penalties relating to the failure to disclose income on the foreign accounts can be as high as 75% of the unpaid tax plus an additional 50% of interest on the unpaid tax.
Under the 2011 Offshore Voluntary Disclosure Initiative, the taxpayer must pay a penalty of 25% of the highest aggregate account balance from 2003 to 2010. The new amnesty program also requires that the taxpayer file all original or amended tax returns and include payment of taxes, interest and accuracy related penalties by September 9th, 2011, which is the deadline for participation in the program. The IRS also announced that under certain limited situations, a 5% penalty on the highest aggregate value of the account may be assessed and a 12.5% penalty will be applicable to an offshore account that did not surpass $75,000.00 in any of the years covered by the 2011 amnesty program.
Those Who Missed the Initial Amnesty Program Deadline
Almost 15,000 applications for the original amnesty program were sent to the IRS. Many people, however did not take advantage of the initial amnesty program before it closed on October 15, 2009. People simply did not learn of the amnesty program until it was too late.
Others considered the program and were not sure whether to enter it.
The new amnesty program gives all of those who were unable to participate in the first program a second chance. Given the risk of criminal prosecution and the draconian penalties imposed if the IRS learns of foreign accounts, there is a great motivation to participate in this new program.
The opportunity to avoid criminal prosecution and incarceration resulting from an undeclared offshore account, is in and of itself, a major incentive to participate. The financial aspects reducing the civil penalties from 50% of the value of the account each year to a single penalty of 25% of the highest value of the account over the eight years is likewise a significant reason to enter the 2011 offshore amnesty program.
Without participation in the program, the 50% penalty assessed against the highest value of the account each year that the FBAR is not filed, will over an eight year period deplete the account. This can be seen by analyzing an offshore account containing one million dollars in 2003. This assumes that the account had earnings for years 2003-2010. However, without considering the income, the penalties for failure to file the FBAR over the eight year period would be $4,000,000.00. Even if one assumes that no income was earned in the account, the penalties for failure to file the FBAR over the eight year period would amount to $996,093.00 leaving a balance of just under $4,000.00 remaining from the original one million dollars. This of course does not take into consideration any income on the account during the eight years. Such income if not reported will result in additional taxes, interest and penalties as high as 75% of the unpaid taxes.
A person who participates in the 2011 offshore voluntary disclosure initiative would pay a penalty of $250,000.00 for failure to file the FBAR. In relation to the FBAR penalty alone, the 2011 amnesty program saves $746,093.00.
IRS Aggressively Pursues Offshore Accounts
The Internal Revenue Service is using a carrot and stick approach in dealing with offshore accounts. To motivate people to declare the accounts and pay tax on offshore earnings, the IRS has instituted this second amnesty program. At the same time, the IRS has announced that it will continue to AGGRESSIVELY prosecute those who have undeclared offshore accounts. The IRS is continuing its efforts to obtain account information from offshore banks.
Entering the New Amnesty Program
The IRS has announced the general parameters of the 2011 Offshore Voluntary Disclosure Initiative. However, there are many unanswered questions which will be addressed by the IRS in the near future.
This also occurred under the first amnesty program where the IRS published on-line, a series of questions and answers which became guideposts for properly entering and completing the amnesty program.
The purpose of taking advantage of the amnesty program is to successfully avoid criminal prosecution and to substantially reduce penalties. Anyone who enters the program must understand that filing tax returns will be closely examined and therefore care must be exercised in the preparation of original or amended tax returns.
There is always the possibility that the amnesty program will be entered but not successfully completed. For this reason, one should consider dealing with the Internal Revenue Service through an attorney.
Whenever anyone deals with the Internal Revenue Service, extreme care must be taken to ensure that all returns and FBARs are done properly given that failure to complete the amnesty program successfully may result in criminal prosecution together with the significant fines. The best course of action would involve representation by an attorney who has knowledge of criminal tax matters and the amnesty program.
In a criminal IRS investigation there is no accountant/client privilege and therefore an accountant, even a CPA, will be required to disclose everything learned from the client. In order to avoid this possible outcome, a person should retain an attorney. That attorney may retain an accountant to advise as to the proper preparation of the returns and the attorney/client privilege will cover the accountant who is working for the attorney. The preparation of original and/or amended returns must be done with the utmost care to ensure that the amended return does not give rise to a crime such as a false statement on the tax return or tax evasion due to omitted income or false deductions. If the IRS in processing the voluntary disclosure information discovers false deductions, omitted income or false statements on the return, the person will be excluded from the amnesty program and risk prosecution.
The IRS 2011 Offshore Voluntary Disclosure Initiative provides an important opportunity to avoid criminal prosecution and draconian civil penalties. In order to achieve this goal, the individual must carefully comply with all requirements of the IRS 2011 Offshore Voluntary Disclosure Initiative. This firm with the assistance of a forensic CPA advises clients on their statutory and constitutional rights and will work to achieve a successful completion of the 2011 Offshore Voluntary Disclosure Initiative so as to avoid criminal prosecution and take advantage of the lower civil penalties. If you are considering entering into the 2011 Offshore Voluntary
Disclosure Initiative, have questions concerning offshore financial accounts, or wish to speak with this firm about entering and successfully completing the new amnesty program, call or email Mark Horwitz at 407-401-7224 or email@example.com Law Offices of Horwitz & Citro, P.A., 17 East Pine Street, Orlando, Florida 32801.
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