2011 Offshore Voluntary Disclosure Initiative Closes
TWG Newsletter: Issue 5 [Sep. 2011]: Article 1
- Article 1: 2011 Offshore Voluntary Disclosure Initiative Closes
- Article 2: Special U.S. Income Tax Treatment of Foreign Mutual Funds
- Article 3: The Wolf Group Expands to Singapore
The IRS’s second partial amnesty program related to previously unreported foreign financial accounts, the 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”), ended on September 9th. The IRS reports that 12,000 taxpayers came forward under this program, with additional applications still being counted. This brings the total number of voluntary disclosures since 2009 to roughly 30,000. The taxpayers entering the 2011 OVDI have paid $500 million in back taxes to date, bringing the total amount collected under the two amnesty programs to $2.7 billion. This amount reflects about 80% of the cases from the 2009 amnesty program; the remaining 20% of the cases have not been fully resolved. In addition, there are still penalties that will be collected from most participants in the 2011 OVDI.
The 2011 OVDI was announced on February 8, 2011. It was designed to bring hidden offshore financial accounts and assets back into the U.S. tax system and to help those taxpayers with undisclosed foreign accounts and assets comply with their U.S. tax obligations.
All U.S. persons who have a financial interest in or signature authority over foreign financial accounts which in aggregate exceed $10,000 on any day during the year are required to file a Form TD F 90-22.1 (“FBAR”) with the Treasury Department. The penalties for failing to timely file an FBAR are severe: up to the greater of $100,000 or 50% of the account balance for each year the account wasn’t reported on an FBAR. Additional civil and criminal penalties may also apply.
Under the 2011 OVDI, taxpayers generally must pay a one-time penalty of 25% of the highest aggregate account balance during 2003-2010. Some taxpayers may qualify for reduced penalties of 5% or 12.5% under the program. The IRS indicated that the 2011 OVDI will be the last, best chance for individuals to substantially reduce their exposure to significant civil penalties and, in many cases, to eliminate the risk of criminal prosecution.
The IRS has made clear over the past few years that global tax enforcement is a top priority ( Click here to read article
). IRS Commissioner Doug Shulman stated, “By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts. We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.” The two voluntary disclosure programs provided the IRS with a wealth of information on banks and advisors who assisted taxpayers in hiding assets, and the IRS plans to use this information to further its international enforcement efforts. Commissioner Shulman warned again that taxpayers who continue to hide assets overseas face increasing chances of being caught as the IRS gains more information from voluntary disclosures and increases cooperation with foreign governments.
While the 2011 OVDI has ended, taxpayers may still make voluntary disclosures related to unreported foreign financial accounts. The IRS has an ongoing voluntary disclosure program outside of the two temporary and specific programs, the 2009 OVDP and the 2011 OVDI. The “traditional” voluntary disclosure option offers less certainty than the 2009 OVDP or the 2011 OVDI, but it may be appropriate for some taxpayers to make a traditional voluntary disclosure now that the 2011 OVDI has ended.
If you have any questions related to unreported foreign financial accounts, please contact Susan Choi at email@example.com or 703-502.9500.
This newsletter is for informational
purposes only. It should not be construed as tax, legal, or investment
advice. Information has been gathered from sources believed to be reliable, but
individual situations can vary and you should consult with your investment,
accounting and/or tax professional.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE WOLF
GROUP TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY
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