On February 8, 2011, the Internal Revenue Service ("IRS") unveiled its second, formal voluntary disclosure program allowing taxpayers to reveal offshore assets to the government at reduced penalty rates and without criminal prosecution.
The 2011 Offshore Voluntary Disclosure Initiative ("OVDI") has some key differences from the 2009 Offshore Voluntary Disclosure Program. As compared to the 2009 program, the 2011 OVDI slightly increases overall penalties and adds an additional two years to the disclosure period.
Under the new program, taxpayers with undisclosed foreign bank accounts and undisclosed foreign assets will face an overall penalty of 25 percent of the highest aggregate account balance and value of foreign non-disclosed assets for the period between 2003 and 2010. Participants in the OVDI must pay back taxes and interest for the eight-year period as well as accuracy-related and/or delinquency penalties.
The program offers two reduced penalty rates for taxpayers who meet certain conditions. There is a 12.5 percent reduced penalty rate for accounts of $75,000 or less. Additionally, there is a 5 percent reduced rate for taxpayers living abroad who did not know they were U.S. citizens. The 5 percent penalty also applies to taxpayers who did not open or cause the account to be opened, had minimal or infrequent contact with the account, did not withdraw more than $1,000 in any year covered under the program, and can prove that taxes were paid on deposits to the account.
In order to participate in the new initiative, taxpayers must file all original and amended tax returns and include payment for taxes, interest, and accuracy-related penalties by August 31, 2011. If a taxpayer does this, the IRS will not pursue criminal penalties against the taxpayer nor will it impose the generally applicable 50% penalty on all account balances for each violation year. In addition, the IRS will waive any penalties associated with a failure to report a foreign trust or foreign controlled corporation and will simplify passive foreign investment company income reporting.
The OVDI offers U.S. taxpayers a second opportunity to become compliant and avoid extreme civil and criminal penalties and prosecution. Although the penalties under the OVDI are steeper than the penalties under the 2009 VD Program, noncompliant taxpayers should utilize this second chance to come clean before they are contacted by the IRS or before the IRS implements a harsher penalty structure, which it is sure to do following the closing of the OVDI.
If you or your client has an undisclosed foreign account or foreign asset, Carlton Fields, P.A. can help. Carlton Fields is a full service law firm, with a practice group specializing in international tax compliance and enforcement matters. Not only are we experienced and able to help you disclose your foreign financial or securities account, but we have experts who can help restructure and plan your corporate or business assets to minimize your U.S. income and corporate taxes and ensure that you are in full compliance going forward.
Additionally, our international tax professionals work closely with our in-house white collar crime practice group to ensure that any remote chance of criminal tax violations are identified and dealt with prior to any communications to or action by the IRS.
To discuss your matter in confidence, please contact William D. Rohrer or Mark E. Williams.