US Tax Evasion:IRS offers second chance to disclose hidden income

US Tax Evasion:IRS offers second chance to disclose hidden income

"This initiative offers clear benefits to encourage taxpayers to come in now rather than risk IRS detection. US taxpayers hiding assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution."

IRS News Release IR-2011-14,February 8, 2011

In its February 8, 2011 news release, the US IRS announced an Offshore Voluntary Disclosure (OVD) initiative that allows US taxpayers who have any hidden income from undisclosed offshore bank accounts or other assets to come forward voluntarily and report their previously undisclosed foreign accounts and assets, and pay the related delinquent taxes.

This new OVD initiative is a sequel to the 2009 offshore disclosure program and is available only through August 31, 2011.

The OVD initiative levies a 25% penalty on the highest aggregate balance in the taxpayer's previously unreported foreign bank accounts or foreign assets during the period covered by the initiative (tax years 2003 through 2010). This 25% penalty is a 5% increase over that offered under the 2009 offshore disclosure program, so that taxpayers who did not disclose under the 2009 program will not be rewarded for not doing so.

Taxpayers will have to pay up to 8 years of taxes owed (for tax years 2003 through 2010) plus interest, related penalties and, if applicable, the failure to file and failure to pay penalties, and for many taxpayers, the 25% OVD initiative penalty would be a much better outcome than the penalties and criminal prosecution that could other-wise apply.

Taxpayers utilizing the OVD initiative shall file all original/amended tax returns for the years, file complete and accurate Reports of Foreign Bank and Financial Accounts (FBARs) and cooperate in the disclosure initiative, including signing agreements to extend the period of time for assessing taxes and penalties. These filings, along with full payment of all taxes, interest and any related failure to file and failure to pay penalties, must be submitted to the IRS on or before the August 31, 2011 deadline. The 25% penalty will be assessed during the disclosure process.

US taxpayers who have not been trying to purposely hide assets offshore may also utilize the OVD initiative. Some examples include:

US taxpayers who inherited assets in a foreign country but were unaware of the responsibility to file a FBAR and other related forms for those inherited assets are eligible for the 2011 OVD initiative.

US taxpayers who did not utilize the 2009 offshore disclosure program but want to now come forward are eligible for the new 2011 OVD initiative.

US taxpayers who disclosed assets in a foreign country but missed the filing deadline date under the 2009 offshore disclosure program are also eligible for the new 2011 OVD initiative provided all filing requirements are completed by the August 31, 2011 deadline.

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