Is it time to own up to offshore bank accounts?

The penalties for failing to tell the Treasury about offshore bank accounts are ugly: the greater of $10,000 or 50 percent of the account balance for each year the account goes unreported.  The penalties can wipe out your accounts in a hurry.  They can also assert criminal penalties if they are in a bad mood.

The IRS has scored some well-publicized victories in its battle against offshore tax evasion.  Offshore banking secrecy seems to be crumbling.  It might just be a matter of time before the IRS catches up with those Cayman Island bank accounts.

Now the IRS is offering a deal.  It's not exactly "get out of jail free" -- it's more like "get out of jail at a tremendous discount."  The deal: if you self-report under the IRS program, they will not prosecute you, and they will assert a maximum total penalty of 20 percent.  They will also require you to pay tax, with interest and penalties, on any unreported income.  For a hypothetical $1 million account, the taxes and penalties under the amnesty would be $386,000; if they catch you, they would exceed $2.3 million, not counting the legal fees you'll have if they try to send you to prison.

Florida tax attorney Peter Pappas says the IRS offer is a good deal:

If you have owned a foreign bank account in the past five years and have not disclosed it to the IRS, we urge you to take advantage of the IRS’s voluntary disclosure program. If you do not do so and the U.S. discovers your non-compliance on its own, you can expect it to assess the full amount of penalties and seriously consider criminal prosecution.

The Treasury considers accounts on offshore internet gambling sites to be offshore bank accounts; if you are going to gamble, don't gamble that the IRS will miss your account.  Folks wanting to bring their offshore accounts in from the cold should contact a good tax lawyer to get the process started.

Link: IRS offshore amnesty FAQ.