On February 8, 2011, the Internal Revenue Service unveiled its 2011 Offshore Voluntary Disclosure Initiative, a long-awaited second amnesty program designed to encourage taxpayers with undisclosed foreign bank accounts to come into compliance with U.S. tax laws and avoid possible criminal prosecution. This program follows a highly successful amnesty offered during 2009, and will be available only through August 31, 2011.
In announcing the new amnesty program, IRS Commissioner Doug Shulman stated that “[a]s we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing. This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”
The IRS opened the 2011 Offshore Voluntary Disclosure Initiative as a result of continuing interest from U.S. taxpayers with undisclosed foreign bank accounts and as the IRS and the Justice Department continue their crackdown on international tax evasion. In the first amnesty program, known as the 2009 Offshore Voluntary Disclosure Program, participants faced up to a 20 percent penalty on the highest balance in their foreign accounts over a six-year period from 2003 through 2008 plus back taxes and interest. That program ended on October 15, 2009, with approximately 15,000 taxpayers making voluntary disclosures involving bank accounts in more than 60 countries. Since the 2009 program closed, more than 3,000 additional individuals have made voluntary disclosures to the IRS regarding foreign bank accounts.
As expected, taxpayers who come forward under the new amnesty program face more stringent penalties than those who took advantage of the prior settlement initiative. The framework for the 2011 amnesty includes the following:
- Participants generally must pay a penalty of 25 percent of the highest aggregate balance in their foreign bank accounts during the 2003 to 2010 time period. Under limited circumstances, this penalty may be reduced to either 12.5 or 5 percent.
- Participants must pay back taxes and interest for the period 2003 through 2010, as well as accuracy-related and/or delinquency penalties of 20 percent of the taxes due.
- Participants must also file all original and amended tax returns, and pay all taxes, interest, and penalties by the August 31 deadline.
Taxpayers who continue to hide assets offshore and choose not to participate in the 2011 amnesty program can face substantial civil penalties as well as the possibility of criminal prosecution for tax evasion. To date, the Justice Department has charged more than twenty individuals with evading U.S. taxes by maintaining secret foreign bank accounts. We anticipate that the United States will place significant pressure on other countries to cooperate with the IRS.
“As I’ve said all along, the goal is to get people back into the U.S. tax system,” Commissioner Shulman said in a statement. “Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system.”
Individuals with questions about foreign bank accounts, or who are considering making a voluntary disclosure to the IRS regarding foreign bank accounts, should consult experienced tax counsel to understand the benefits and risks of the voluntary disclosure process. Blank Rome LLP has significant experience with IRS voluntary disclosure practice and can assist individuals in navigating the voluntary disclosure process.