The IRS announced a new amnesty program for holders of undisclosed foreign bank accounts. The deadline for disclosure is Aug. 31, 2011.
The new Amnesty program is called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) – the program is substantially different from 2009 Amnesty program. The biggest change is that the overall penalty structure for 2011 is higher than the 2009 program, The IRS has stated that this is specifically to not reward individuals for waiting. meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting.
Most importantly though the amnesty will allow individuals who take advantage of it to avoid criminal prosecution.
For the new amnesty there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period.
The highest penalty is a 25 percent of account value penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. For individuals with offshore accounts or assets that did not exceed $75,000 the IRS has created a penalty category of 12.5 percent.
Since Congress enacted the Foreign Account Tax Compliance Act (FATCA) last March, the number of banks and other financial institutions that will start reporting US accounts holders will increase dramatically. This act is sure to increase the number of accounts that are reported to the IRS because banks and financial institutions that do not comply will be subject to a 30 percent withholding on payments from US financial institutions.
While 25 percent of the account value seems high it is important to remember that without the penalty individuals could be subject to penalties that are $10,000 and as high as 50 percent of the account value.
It is important to realize that the FATCA applies to numerous types of accounts from pensions to trust.
In order to qualify for the FBAR Penalties amnesty, tax payers must have filed all back taxes and pay the taxes due plus any interest.
NOTE HOWEVER that the voluntary disclosure program is designed to bring people that were intentionally avoiding their US tax obligations back into compliance. The voluntary disclosure program is not meant for individuals who did not file their FBARs but otherwise reported their taxable income. The IRS has clearly indicated that this in the past, See Questions 17 and 18 in the FAQ for the 2009 voluntary disclosure program:
If you have any questions about the new amnesty or the FBAR reporting requirements please contact us – If there is a question of willfulness in your situation, note that you are best served by an experienced attorney – such as the ones Tax Planner CPA works with – contact us so we can put you in the right direction. We offer free of charge initial consultations – call us at 617.639.5550 or through the web at: https://www.taxplannercpa.com/clientarea/public/index.php?path_info=quick_quote&client_type=IRS