If you have income in undisclosed offshore accounts you are running out of time to take advantage of the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which will expire on August 31, 2011.
Under this version of “offshore amnesty”, US taxpayers can make their offshore tax reporting issues go away by paying a penalty. Taxpayers that fully comply with the 2011 OVDI will avoid criminal prosecution and will be able to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by IRS and the imposition of substantial penalties, including a fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.
Here are specifics of this “amnesty” program:
- All taxes and interest due for 2003 – 2010 are to be assessed. However, for accounts opened or received within this period, all taxes and interest due starting with the year the account opened or was received are to be assessed. The taxpayer also must file or amend all returns, including information returns and Form TOF 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as an FBAR.
- An accuracy-related penalty is to be assessed on all years (no reasonable cause exception may be applied), and failure-to-file and failure-to-pay penalties also must be assessed, where applicable.
- Instead of all other penalties that may apply, including FBAR and information return penalties, an offshore penalty is to be assessed equal to 25% (or 12.5% or 5% if required conditions are met) of the amount in foreign financial accounts/entities and the value of foreign assets acquired with untaxed funds or producing untaxed income in the year with the highest aggregate account/asset value.
- The 25% penalty is reduced to 12.5% if the taxpayer’s highest aggregate account balance (including the fair market value of assets in undisclosed offshore entities and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income) in each of the years covered by the 2011 OVDI is less than $75,000.
- The 25% penalty is reduced to 5% if the taxpayer: (a) did not open or cause the account to be opened (unless a new account had to be opened upon the death of the owner of the account); (b) exercised minimal, infrequent contact with the account (e.g., to request the account balance); (c) didn’t, except for a withdrawal closing the account and transferring the funds to a U.S. account, withdraw more than $1,000 from the account in any year covered by the voluntary disclosure; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. tax). For funds deposited before Jan. 1, ’91, if no information is available to establish whether such funds were appropriately taxed, it will be presumed that they were.
- The penalty is also reduced to 5% for taxpayers who are foreign residents and who were unaware that they were U.S. citizens.
The IRS has previously indicated that it will postpone for up to 90 days the August 31, 2011, deadline for a taxpayer to act on IRS’s 2011 OVDI. However, the postponement will apply only if the taxpayer makes a good faith effort to comply with the original deadline.
IRS advises that taxpayers who come forward voluntarily receive a better deal than those who wait for IRS to find their undisclosed accounts and income.
Also there are new foreign account reporting requirements being phased in over the next few years, making it ever tougher to hide income offshore, and that IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas. Undoubtedly, this is going to be a very hot topic in the years to come.
Time is running out to apply under this program, so please contact us as soon as possible to insure we take advantage of this program.