IRS Announces Voluntary Disclosure Program Affecting U.S. Persons With Offshore Financial Accounts
On March 26, 2009, the Internal Revenue Service
("IRS") made public a program allowing U.S. persons with
foreign financial accounts to greatly reduce their exposure to
significant civil penalties and, in many cases, to eliminate the
prospects of criminal prosecution.
The program comes in the wake of UBS's admission to the
existence of some 50,000 accounts held by U.S. persons and of
increasing pressure on the IRS to deal with tax avoidance schemes
utilizing offshore financial structures.
Many U.S. persons with undisclosed offshore financial
arrangements have been hesitant to disclose them to the government
for fear of the multiple steep penalties that may apply to such
offshore financial accounts and arrangements. In many instances,
particularly where trusts or foreign corporations are involved, the
panoply of penalties may exceed the highest balance in the offshore
account.
The new Penalty Framework for Voluntary Disclosure Requests
applies to all voluntary disclosure requests containing offshore
issues. It will apply to all pending voluntary disclosure requests
and will remain in effect until September 23, 2009. After a
preliminary determination by IRS Criminal Investigation that a
taxpayer is eligible for voluntary disclosure, all voluntary
disclosure requests will be sent to the Philadelphia Offshore
Identification Unit ("POIU") for civil processing.
The POIU is authorized to enter into closing agreements relative
to offshore issues in the following manner:
Assess all tax and interest going back six years unless the
account/entity was formed or acquired within the six-year period,
in which case the lookback period will start with the earliest year
in which the account/entity was formed/acquired;
File or amend all returns, including a Report of Foreign Bank
and Financial Account ("FBAR");
Assess an accuracy-related penalty or delinquency penalty on
all years (the reasonable-cause exception will not apply);
In lieu of all other penalties that may apply, including FBAR
and information return penalties, assess a penalty equal to 20
percent of the amount in the foreign bank accounts/entities in the
year with the highest aggregate account/asset value; and
A 5-percent penalty is substituted for the foregoing 20-percent
penalty where: (a) the taxpayer did not open or cause to be opened
any accounts or formed any entities, (2) there has been no activity
(deposits, withdrawals) in the account or entity during the period
the taxpayer controlled...
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