All American citizens who have offshore bank accounts totaling more than $10,000 are required to disclose those accounts to the Internal Revenue Service and pay any applicable taxes.
However, many Americans have historically not complied with this rule, either because they did not know they needed to report their foreign bank accounts or because they thought their overseas assets were safely hidden from the watchful eye of the U.S. government.
Even if this was once true, it certainly isn’t anymore. The IRS is cracking down hard on offshore tax evasion, and those who are caught face serious consequences. However, the government is giving potential violators a chance to come clean, pay part of what they owe, and avoid criminal prosecution.
Program Offers Reduced Penalties in Exchange for Information
Participants in the voluntary disclosure program will be asked to pay a penalty of up up to 27.5 percent of their largest offshore account. Those with smaller accounts may be eligible for a reduced penalty of either 5 or 12.5 percent.
Although these penalties may seem high, they’re much lower than the penalties imposed if the IRS catches the tax evasion on its own. In those cases, the penalty is often 50 percent of the account’s value for each year it went unreported. Violators can also face several years in federal prison.
This is the third time the IRS has offered the amnesty program. It comes as part of an effort to wipe out the practice of intentional tax evasion via Swiss-style bank accounts. As such, participants in the voluntary disclosure program will be required to turn over the names of the banks and financial advisers who helped them skirt U.S. tax requirements.
Now that the crackdown is in full swing, taxpayers with unreported offshore bank accounts may not be as safe as they had originally thought. Some account holders’ names have already been turned over to the IRS, and offshore banks will soon be required to disclose the names of all U.S. account holders.
If you have offshore assets that may not comply with American tax laws, contact an experienced tax attorney who can help you decide if the voluntary disclosure program is right for you.
Source: Bloomberg, “IRS Gives Another Chance for Citizens to Come Clean,” Steven Sloan, Jan. 9, 2012.