Tax and Estate Planning Blog : Moodys LLP and SNC Law

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As discussed in our February 9, 2011 blog, the IRS announced, on February 8, 2011, the creation of a second voluntary disclosure program for taxpayers with unreported foreign assets (OVDI). In announcing the 2011 OVDI, IRS Commissioner Douglas H. Shulman stated “The situation will just get worse in the months ahead for those hiding assets and income offshore. The new disclosure program is the last, best chance for people to get back into the system.” In 2009, the IRS offered a similar program which resulted in approximately 15,000 disclosures prior to the October 15, 2009 deadline and approximately 3,000 between then and the start of this new program. 

The following is a general description of the 2011 OVDI Rules:

Years Applicable – In order to participate in the new program, taxpayers are required to resolve any non-compliance within the eight year period from 2003-2010.

Penalties – The 2011 OVDI requires taxpayers to pay the following: (1) income tax deficiencies during the eight year period, (2) interest on the deficiencies, (3) a 25% penalty on the highest aggregate balance held within the foreign accounts during the eight year period, and (4) accuracy related penalties of 20% of the back taxes, and if applicable, 25% of back taxes for failure to timely file a return or pay tax shown on a filed return.   In addition, for smaller offshore holdings of not more than $75,000 at any time from 2003 to 2010 the penalty will be reduced to 12.5%. The rate could also be reduced to 5% if the taxpayer did not know they were U.S. citizens or if the account was inherited. 

Deadline – The 2011 OVDI terminates on August 31, 2011 and taxpayers will have to submit all of the appropriate returns to the IRS by that date. 

Benefits – Participants in the new program will generally avoid the risk of: (1) criminal prosecution, (2) civil and criminal penalties for failure to file a Report of Foreign Bank and Financial Accounts (FBAR), and (4) any taxes, interest, and penalties prior to 2003. 

Clearly, the IRS is giving all noncompliant U.S. citizens a clear warning. IRS Commissioner Shulman further stated “As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing. This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them. The risk of being caught will only increase.” 

Given the Commissioner’s remarks and the constant warnings from the IRS, it is well advised to come into compliance. Whether you have an undeclared foreign account or other international noncompliance, Moodys LLP Tax Advisors and Shea Nerland Calnan LLP is well placed to offer assistance. Please contact us if you have any questions.