By notice dated March 27, 2009, the Internal Revenue Service (the "Service") announced reduced penalties applicable to taxpayer voluntary disclosures of previously undisclosed offshore bank accounts.
Under the new policy, the Service agrees that it will:
- not pursue criminal charges against taxpayers who voluntarily disclose offshore assets; and
- not pursue annual penalties such as the 75% fraud penalty under Section 6663, or the penalty for willfully failing to file Form TD F 90-22.1, Report of Foreign Bank and Financial Report ("FBAR"), which is the greater of $100,000 or 50% of the foreign account balance.
In exchange for relief from criminal charges and these severe penalties, taxpayers generally will be required to comply with the following:
- pay back taxes on the newly disclosed taxes for a six-year lookback period;
- pay interest due on these back taxes for the six years;
- pay a 20% accuracy-related penalty under Section 6662, or a 25% delinquency penalty under Section 6651; and
- pay a penalty equal to 20% of the total balance of all the taxpayer's foreign bank accounts or assets during the tax year in which the accounts or assets had their highest value. For passive investors, this penalty may be reduced to 5% in connection with certain transactions.
Voluntary disclosure considerations are fact specific.