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IRS Voluntary Disclosure Program For Unreported Offshore Accounts (FBAR Requirements)

On January 9, 2012, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers — or decide to end the program entirely at any point.

The Third IRS Voluntary Disclosure Program

The third offshore effort came as the IRS also announced it had collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from upfront payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen more than 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed in September 2011, thousands of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed in September 2011 will be able to be treated under the provisions of the new OVDP program.

The Penalties For This New Program

The overall penalty structure for the new program is the same as for 2011, except for taxpayers in the highest penalty category. For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities, including the value of all tainted foreign assets during the eight full years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 to 12.5 percent penalties; these remain the same in the new program as in 2011.

Before deciding to enter the 2012 program, a taxpayer should first consult a tax lawyer experienced in the nuances of the offshore voluntary disclosure rules and requirements.

If you entered into the 2011 or 2012 program and now believe the OVDP penalty is too severe, you will want to consult with a tax attorney experienced in advising taxpayers in the process of opting out of the program and the related consequences.

If you have any questions or would like more information on the IRS voluntary disclosure program for unreported offshore accounts, please contact Levins Tax Law, LLC, for a free confidential consultation at 508-435-0118 or toll free at 888-333-9501.

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For a free confidential consultation, obligation-free, contact Levins Tax Law, LLC, by calling 508-435-0118. We accept Visa, American Express, and MasterCard. Our offices are conveniently located in Boston and Framingham. Besides providing representation to our Massachusetts' clientele, we also provide representation on a national and international level.