The IRS spokesman Frank Kieth recently said that the IRS would soon announced a second Offshore Voluntary Compliance Program for taxpayers who have unreported foreign bank accounts. Details of the new program should be released soon and we will post an update on this program as soon as details are disclosed.
The IRS stopped accepting applications for the original Offshore Voluntary Disclosure Program on October 15, 2009. The IRS is still working through many of those original cases to determine the correct amount of the penalty for non-reporting of the foreign accounts and the additional tax and penalties due on the unreported income. Approximately 15,000 taxpayers took advantage of the original program that originated from the disclosures provided from Brad Birkenfeld, a former UBS employee.
The new program announcement comes as the IRS and the Justice Department are widening their investigation into American taxpayers with offshore accounts and specifically accounts at smaller Swiss banks. Prosecutors are looking into concerns that some smaller Swiss banks, in conjunction with larger Swiss banks, allowed account holders to maintain and disclose a small account to the IRS while keeping the majority of their funds in other, undisclosed accounts.
Under the previous program, taxpayers avoided criminal prosecution and paid a reduced penalty that was usually 20% of the highest balance of an account during the prior 6 year period. A reduced penalty of 5% is available for special circumstances where a taxpayer can demonstrate the non-reporting was not willful. It is expected the new program will offer non-reporting penalties greater than those offer under the original program, but still less than the statutory non-reporting penalties, which are applied for each year of non-reporting and can be up to 50% of the highest account balance.
As with the prior program, a requirement for acceptance into the program will be that the IRS must not already be aware of the taxpayer’s non-reporting. The IRS is also encouraging individuals like former UBS employee Brad Birkenfeld to become whistleblowers and come forward with information on tax evaders. The rewards for such whistleblowers can be substantial. The IRS and the Justice Department are finding that this carrot and stick approach is working very well for them.