Come out with your hands up
The IRS has just launched a new "amnesty" program for taxpayers with offshore bank accounts. The tax law has strict rules for reporting offshore financial accounts with balances rising over $10,000 and severe financial penalties for non-compliance. Of course, the penalties can be much worse than financial when tax fraud is involved.
Unfortunately, many otherwise innocent taxpayers have offshore accounts that have not been reported on Form TD F 90-22.1, the "FBAR" form. A business may have an account overseas to make it easier to pay vendors or accept export payments, or an individual posted overseas may have inadvertently triggered an FBAR filing requirement just by having a personal bank account. The IRS has been taking a "shoot the jaywalkers" approach to minor technical violations, making it an expensive nightmare for such taxpayers to come into compliance. This program offers such taxpayers an opportunity to get in compliance at a small cost, or in some cases, no cost.
Taxpayers who have been avoiding tax, whether inadvertently or purposefully, can also come in from the cold by paying their back taxes and a penalty of up to 25 percent of the highest offshore account balance. That might seem like a high price to pay, but it may be a good deal, as Janet Novack explains at Forbes.com:
Under the initiative, a taxpayer who put $1 million in a foreign account in 2003 and earned $50,000 of interest income on it each year, none of it reported to the IRS, would owe $518,000 in back taxes and penalties. If that taxpayer doesn’t participate and is found out, he could be assessed a stunning $4.5 million in back taxes and FBAR and tax fraud penalties. And, of course, he could be criminally prosecuted and go to jail.
Foreign bank account secrecy is rapidly becoming a memory. With the IRS securing thousands of names of Swiss account holders, and with other names becoming public via Wikileaks, there is no assurance that a secret offshore account can stay that way. If you have such an account, the time to contact your lawyer about the program is now. The program requires filing amended returns to report all offshore income by its Aug. 31, 2011, deadline. Aug. 29 will be too late to start.