The IRS Offshore Amnesty Program and You

If you have an offshore bank account, you should know that it is subject to tax.  If you are one of the many American taxpayers who have not declared your offshore assets in your tax returns, you might be able to do so in an amnesty program that the IRS is likely to have soon.

The IRS has held amnesty programs for offshore bank account holders before.  The first time was in 2003 which ended on April 15 that year.  During this limited amnesty program, the IRS reported that some $170 million in taxes, penalties and interests were recouped from taxpayers who participated.  The conditions of the amnesty program were that the taxpayer must divulge details of all persons or entities that helped or advised them in hiding their money in offshore accounts to avoid taxes.  Armed with such information, the IRS would pursue redress against such individuals or entities and shut down their operations.  In exchange, the IRS would not press criminal charges against the participating taxpayers.

The second amnesty program was held last year and ended on October 15.  This time, almost 15,000 taxpayers stepped forward to declare their assets in offshore accounts.  In the 2009 amnesty program, the IRS fixed 20% of the highest amount in the offshore bank accounts over the previous 6 year period (2002 to 2008) as a civil penalty.  Unfortunately, it so happened that during the period from 2002 to 2008, the equity values worldwide fell drastically.  For example, a balance of $1 million in an offshore account in 2007 might have been only worth $600,000 by the end of 2008.  But the civil penalty was still assessed on the $1 million balance, not $600,000.  This effectively raised the penalty rate from 20% to 33.3% (or $200,000 of $600,000).

Will there be another amnesty program declared soon?  It is highly likely.  Firstly the IRS Commissioner Doug Shulman gave weight to this possibility in his recent speeches.  Secondly, the IRS would rather give an amnesty in exchange for information on promoters of tax evasion schemes rather than have most taxpayers make a ‘quiet disclosure’.  A ‘quiet disclosure’ means the taxpayer simply submits amended returns, files the necessary forms and pays all back taxes and interests.  The IRS would have up to 6 years to call for an audit of such returns.  It is unlikely that the IRS would have the means to audit all or even most of such ‘quiet disclosures’.

If you are contemplating participating in the next IRS amnesty program, it is best to consult a tax attorney (not an accountant) for advice first.  Call us at (813) 229-7100 for a free consultation.