Fulbright & Jaworski LLP: IRS Gives Taxpayers Third Bite At The Apple; Announces Third Offshore Voluntary Disclosure Program

Fulbright & Jaworski LLP: IRS Gives Taxpayers Third Bite At The Apple; Announces Third Offshore Voluntary Disclosure Program

By Jasper G. Taylor, III, Robert C. Morris and Zhusong Yang

The IRS, in a news release dated January 9, 2012, IR-2012-5, announced the reopening of its offshore voluntary disclosure program ("2012 Offshore Voluntary Disclosure Program") that allows taxpayers with undisclosed offshore accounts to settle tax liabilities with the IRS to avoid criminal prosecution. This third iteration of the offshore voluntary disclosure program comes as "the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion."

IRS Slightly Alters Penalty Framework From Prior Disclosure Program

The 2012 Offshore Voluntary Disclosure Program is similar to the 2011 program in many ways, but there are a few key differences. See IRS Gives Taxpayers with Undisclosed Offshore Accounts a Second Chance for a detailed discussion of the 2011 program. The 2012 Offshore Voluntary Disclosure Program generally imposes a maximum penalty of 27.5 percent, as opposed to 25 percent under the 2011 program, of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets at any time during the past eight years.

The 2012 Offshore Voluntary Disclosure Program also retains the reduced penalties of 12.5 percent and 5 percent that taxpayers may qualify for in certain circumstances. Similar to the 2011 program, taxpayers participating in the 2012 Offshore Voluntary Disclosure Program must also file original and amended tax returns, and pay back taxes and interest for a maximum of eight years, as well as accuracy related and/or delinquency penalties.

IRS Considers Earlier Offshore Voluntary Disclosure Programs Successful

The IRS has received 33,000 voluntary disclosures under the 2009 and 2011 programs, and its success in offshore enforcement and in the disclosure programs "has raised awareness related to tax filing obligations." Participants in the earlier disclosure programs paid approximately $4.4 billion, and approximately 95 percent of the cases from the 2009 program have been closed.

IRS Encourages Taxpayers To Take Advantage of 2012 Offshore Voluntary Disclosure Program

Although the 2012 Offshore Voluntary Disclosure Program does not have a set expiration date, the IRS cautioned that "the terms of the program could change at any time going forward . . . [and] the IRS may increase penalties in the program for all or some taxpayers or defined class of taxpayers - or decide to end the program entirely at any point." As Commissioner Shulman noted, "As we've said all along, people need to come in and get right with us before we find you . . . We are following more leads and the risk for people who do not come in continues to increase."

The IRS plans to make more details regarding the 2012 Offshore Voluntary Disclosure Program available within the next month on the IRS's website, and the IRS will also be updating key Frequently Asked Questions and providing additional specifics on this program.

This article was prepared by Jasper G. "Jack" Taylor III (jtaylor@fulbright.com or 713 651 5670), Robert C. Morris (rmorris@fulbright.com or 713 651 8404) and Zhusong Yang (zyang@fulbright.com or 713 651 3756) from Fulbright's Tax Controversies Practice Group.

If you have any questions or need any assistance related to these or any other tax controversy matters, please feel free to contact the authors listed above or Nancy T. Bowen (nbowen@fulbright.com or 713 651 7705), Charles W. Hall (chall@fulbright.com or 713 651 5268), Richard L. Hunn (rhunn@fulbright.com or 713 651 5293), Kathryn Keneally (kkeneally@fulbright.com or 212 318 3213), Andrius R. Kontrimas (akontrimas@fulbright.com or 713 651 5482) or William S. Lee (wlee@fulbright.com or 713 651 5633).

IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter[s].

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