By Mark A. Goldsmith
, Bryan B. Lavine
and Robert A. Friedman
Earlier this week, the IRS announced the
reopening of the Offshore Voluntary Disclosure Program. The latest
version of the program contains many of the same features of the two
most recent initiatives, which were offered for a limited time in 2009
However, participants accepted into the
new program will face a higher one-time penalty than the one imposed
under preceding programs. Nevertheless, U.S. citizens, green card
holders, visa holders and residents should consider coming forward under
the new program if they have a financial interest in or signature
authority over a foreign financial account with an aggregate value
greater than $10,000.
Under the new program, taxpayers will be
required to report and pay all back taxes owed with respect to the
undeclared foreign account (including interest charges and applicable
penalty on the overdue taxes) for a period of up to the last eight
years. Taxpayers will also be required to file U.S. Treasury Department
Form TD F 90-22.1 (commonly known as FBAR), as well as any information
returns applicable with respect to the foreign account, for this eight
Under the new program, the penalty for
failure to file the FBAR will equal 27.5% of the highest balance during
the eight-year period of the foreign account plus the value of any other
foreign assets, which generated unreported foreign income or which were
derived from the reinvestment of unreported foreign income. (The 27.5%
penalty is an increase of 2.5% from the penalty applicable under the
program which expired in 2011.) The 27.5% penalty will be reduced,
though, if the foreign account never exceeded $75,000 or the taxpayer
did not establish and had minimal involvement with the foreign account.
Unlike previous programs, currently, there is no deadline for applying to the new program.
During the two prior programs, taxpayers
whose undeclared foreign accounts had substantially depreciated in value
in recent years may have considered making so-called "quiet
disclosures" in order to avoid the FBAR penalty on the highest balance. A
"quiet disclosure" would involve filing unfiled or amended returns, in
addition to FBARs and any other required information return, with
respect to the unreported foreign accounts and income without contacting
the IRS beforehand.
The IRS has stated that it does not
consider quiet disclosures to constitute a compliant disclosure.
Although taxpayers making quiet disclosures in the past have not been
criminally prosecuted, the IRS has announced that this policy has been
changed. If tax returns and FBARs for past years submitted outside of
the Offshore Voluntary Disclosure Program are examined by the IRS, there
is no assurance that the taxpayer will not be criminally prosecuted.
Commencing in 2013, many foreign banks
and financial institutions will be obligated to report to the IRS
certain information about their U.S. account holders. This will reduce
the probability that a foreign account will continue to go undetected.
In addition, new reporting requirements are now in effect with respect
to foreign financial assets with a value greater than $50,000.
These new disclosure requirements apply
not only to income producing assets held in a foreign bank or brokerage
account, but also to stocks, securities, other financial instruments and
interests held in foreign entities that are not in held in a foreign
account and subject to the FBAR reporting rules.
For more information on these disclosure requirements, see our prior client IRS Issues Guidance on Reporting Foreign Financial Assets and Final Version of Form 8938 and Instructions, December 27, 2011. For more information on the 2009 initiative, which expired on October 15, 2009, see our prior client Offshore Account Voluntary Disclosure Opportunity May Ameliorate Potentially Draconian Penalties, April 1, 2009.
The IRS expects to provide more details about the latest program next month.
If you would like more information
about the new IRS voluntary disclosure program, please contact Bryan B.
Lavine of our White Collar and Government Investigations Group or Mark
A. Goldsmith or Robert A. Friedman of our of Tax Group.
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