Tax Law

IRS Offers New Tax Amnesty Program for Offshore Account Holders

There's important news for people who maintain funds in offshore accounts. The IRS announced this week the 2011 Offshore Voluntary Disclosure Initiative ("OVDI") -- a new program designed to encourage people to bring offshore assets into the U.S. tax system. The initiative more or less reprises a 2009 program under which 15,000 taxpayers disclosed offshore accounts.

The OVDI may be attractive to particular taxpayers who have failed to report both the income from, and the existence of, offshore accounts on their federal income tax return and appropriate disclosure form. First, successful disclosure under OVDI avoids potential criminal prosecution for unreported accounts. Second, OVDI civil penalties are substantially lower than civil penalties under the Bank Secrecy Act. Under the OVDI framework, individuals must pay "a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period," according to a recent IRS Notice. And some taxpayers will be eligible for reduced penalties (e.g., five or 12.5 percent penalties) depending on the amount of funds held overseas. The OVDI also requires participants to pay back-taxes and interest for up to eight years as well as accuracy-related and/or delinquency penalties. On the other hand, civil penalties under the Bank Secrecy Act for willful violations of the reporting provisions are equal to the greater of $100,000 or 50% of the balance of funds in an unreported foreign account for each year since 2004. Taxpayers considering the OVDI will therefore need to weigh the prospective OVDI penalties against the risk of detection and criminal or civil prosecution by an emboldened IRS under existing law. The OVDI will be available through August 31, 2011.

If you have any questions about the OVDI or its application to your situation, or other tax, securities, or regulatory matters, please contact Brian Maas at (212) 705-4836 or  bmaas@fkks.com, or Bernard C. Topper, Jr. at (212) 826-5547 or btopper@fkks.com. Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

This article is repblished with permission of Frankfurt Kurnit Klein & Selz, P.C. Further duplication without the permission of Frankfurt Kurnit Klein & Selz, P.C. is prohibited. All rights reserved.

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