IRS Collects $5 bil from Offshore Voluntary Disclosure Programs
The IRS initiatives to collect taxes from US citizens with offshore sources of income have resulted in about $5 billion in revenue collected. The Voluntary Offshore Disclosure Programs launched by the IRS over the last 3 years were aimed at allowing taxpayers the chance to divulge their assets hidden in offshore accounts voluntarily without being subject to criminal prosecution. Under the latest program, about 1,500 taxpayers have stepped up to declare their assets, joining another 33,000 people who have done the same from previous programs that started in 2009.
The programs have left IRS Commissioner Doug Shulman with a broad smile on his face. He said, “We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore. People are finding it tougher and tougher to keep their assets hidden in offshore accounts.”
Each program has slightly different rules. For example, the previous programs had specific deadlines by which participants have to declare their assets. But the current program does not have a deadline, the IRS merely saying it could decide to end the program at any time. The IRS recently announced it is relaxing its rules somewhat for some taxpayers with offshore accounts who have not yet reported those assets but are eager to come into compliance with the rules.
According to new guidelines issued by the IRS, taxpayers who have “simple returns” and whose annual US income tax due on their foreign accounts is $1,500 or less for each of the past eight years will not be penalized if they come forward to report those accounts. This requirement could involve any taxpayer but will most likely directly affect taxpayers who retire in foreign countries. This category of taxpayers mostly have fairly straightforward tax cases and may be living on a pension or fixed income, and at the same time are not liable for a lot of taxes. Most of these taxpayers may not be intentional tax evaders; they have just fallen off their compliance with the tax laws for one reason or other.
To be exempted from paying penalties can be a huge saving, seeing that the IRS has upped the penalty rate from 25% to 27.5% of the highest total balance in a taxpayer’s offshore accounts in the last 8 years prior to disclosure. Taxpayers with overseas account balances not exceeding $75,000 in any year are subject to a lower penalty of 12.5%, and some taxpayers are eligible for an even lower penalty rate of 5%. However, all taxpayers will still have to pay back taxes and interest.
Taxpayers who want to enjoy the new rulings have to file their tax returns for the last 3 years and submit their FBARs (Foreign Bank and Financial Accounts Reports) for the last 6 years. And finally, the IRS also said that, “Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.”