The IRS announced new voluntary disclosure practices for offshore account holders. Voluntary disclosure can help taxpayers avoid prosecution for possible tax evasion and reduce taxes, penalties, and interest owed. The IRS offers leniency for voluntary disclosure and Americans with IRS tax problems should take advantage of this policy to mitigate legal problems later.
While taxpayers can participate in the voluntary disclosure program before the IRS has initiated a civil or criminal examination or before the taxpayer has received notice of such an investigation, it remains unclear as to whether those charged with offshore tax evasion and concealing back accounts in Switzerland may successfully participate in this initiative.
CCH (http://tax.cchgroup.com/) reports:
The IRS has announced new steps to coax U.S. taxpayers with undisclosed foreign bank accounts to come forward. In return for paying back taxes for the past six years, plus interest and a set of stiff penalties, the IRS will promise not to bring criminal charges or the 75-percent fraud penalty. IRS Commissioner Douglas H. Shulman announced this policy shift and clarification at a press briefing from his Washington, D.C. offices on March 26, at which he also released internal IRS documents that put the plan into motion.
“We believe the guidance represents a firm, but fair, resolution of these cases and will provide consistent treatment for taxpayers,” Shulman explained. “The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can.” He set a deadline of six months for disclosures under the terms of the guidance, at which time the program will be re-evaluated.
The IRS has issued a series of three memoranda, and has revised the Internal Revenue Manual (IRM), to reflect updated policies concerning voluntary disclosure, primarily in connection with offshore transactions. Voluntary disclosure occurs when a taxpayer timely discloses information necessary to determine or correct the taxpayer’s liability. The IRM continues to provide that its voluntary disclosure practices do not create any substantive or procedural rights for taxpayers, but are a matter of internal IRS practice.
Voluntary Disclosure Terms
Shulman emphasized that the terms being offered for the disclosure of offshore accounts are an outgrowth of current policy and carry penalties at a level consistent with voluntary disclosure programs in the past. Within this framework, Shulman enumerated the amounts that would need to be paid by taxpayers with heretofore undisclosed offshore accounts who “come clean” under the program:
- Back taxes due on newly disclosed assets for the last six years;
- Interest due on these back taxes for the last six years;
- A 20-percent accuracy-related under Code Sec. 6662 or a 25-percent delinquency penalty under Code Sec. 6651 for each tax year at issue; and
Looking to the past six years, a 20-percent penalty on the total balance of all the taxpayer’s foreign bank accounts or assets during the year among the past six in which the accounts had their highest aggregate value.
While Shulman observed that the penalties demanded under the program are not insubstantial, he pointed to several advantages to participating taxpayers regarding what the IRS will not do:
- The IRS will not pursue charges of criminal tax evasion against taxpayers who voluntarily disclose their offshore assets under this new policy; and
- The IRS will not pursue other penalties against participating taxpayers, such as the Code Sec. 6663 fraud penalties (75-percent of the unpaid tax) or the statutory penalty for willful failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50-percent of the foreign account balance) that both annually apply to undisclosed accounts and assets during the relevant tax years.
Shulman also touted the advantage to offshore account holders of “getting the matter behind them” and giving them certainty as to their tax liability.
In a follow-up comment, an IRS spokesman emphasized that “it is too late for any taxpayer who is under criminal investigation to make a voluntary disclosure. The IRS cannot discuss specific situations, but the voluntary disclosure process does not apply when the IRS has information related to a specific taxpayer from a criminal enforcement action.”
By Torie Cole and Sherri Morris, CCH News Staff
Follow me onTwitter @taxresolution
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