IRS Commissioner Warns of Additional Offshore-Account Investigations

The Internal Revenue Service (IRS) Commissioner, Doug Shulman, said the IRS is further targeting offshore accounts. At an international tax symposium in December, Shulman also stated that the agency is "seriously considering" another amnesty period for people with undeclared offshore accounts to voluntarily come forward.

Targeting Offshore Accounts

Following the IRS's investigation of Swiss banking giant UBS, Shulman reported that the agency will continue to fight tax evasion by addressing instances of offshore tax evasion and "leveraging the data we receive to mount a greater attack on the abuse."

Global Post reported that the IRS's investigation of UBS caused 15,000 U.S. taxpayers to participate in a voluntary disclosure program. Participants were required to close illegal offshore accounts and pay penalties to avoid criminal prosecution. They also had to provide the names of bankers, accountants and attorneys who helped them create their accounts.

The IRS estimates that undeclared foreign accounts cost the U.S. $100 billion in lost tax revenue because of offshore tax abuses. At the December symposium, Shulman indicated that another amnesty program is a possibility because of its ability to aid the IRS's investigation of other banks.

Voluntary Disclosure Program

In addition to paying back taxes with a 20 percent interest rate, participants in the first amnesty program also paid a penalty of 20 percent of the foreign account at its highest value in the past six years.

In exchange, the IRS promised not to pursue criminal penalties and other assessments such as willful failure to file a foreign bank account reporting form ( FBAR), which carries a $100,000 or 50 percent penalty, whichever is greater, for each year the foreign account was undeclared.

Things to Consider Before Participating in an Amnesty Program

Before participating in a voluntary disclosure program, there are important issues to consider. It is vitally important to first contact an attorney experienced in tax law matters. A tax lawyer can help you determine whether participation is a good decision for you and, if so, assist you in the process. Furthermore, establishing representation by legal counsel will ensure that communication between you and your attorney is protected by the attorney-client privilege.

In addition, there are several factors to evaluate with your attorney before participating in an amnesty program:

  • The amount of additional taxes due
  • Whether relevant forms were properly filed
  • Which penalties the IRS pledges not to enforce
  • The IRS's ability to prove the tax deficiency was "willful"
  • The variance in the foreign account's value over the past six years

In some instances, another option called quiet disclosure may be more beneficial than voluntary disclosure. In other cases, the IRS may not be able to prove the taxpayer illegally avoided taxes. If you have questions about foreign bank accounts, IRS disclosure programs or tax liability, contact a knowledgeable tax lawyer for more information.

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