Accounting Today - March 2011

new foreign asset and account tax return disclosure requirements starting this year, the new penalties associated with failure to make those disclosures, the new information likely to be available to the IRS as a result of voluntary disclosures made by other taxpayers under the first voluntary disclosure program and negotiations with foreign countries with respect to relaxation of bank secrecy laws, and even information with respect to potential Wikileaks disclosures.

The discussion should also continue to include a review of the FBAR reporting requirements and penalties and a comparison to the maximum penalties and avoidance of criminal prosecution available under the new voluntary disclosure program.

Estimates back in 2009 indicated that there might be as many as 50,000 taxpayers with undisclosed foreign accounts. Having found 15,000 of them through voluntary disclosure and a few more of them through investigatory means, the IRS still has a long way to go to eliminate most of the tax gap associated with undisclosed foreign assets.

The first voluntary disclosure program provided evidence that many undisclosed foreign accounts were not necessarily set up to conceal assets or income from the IRS. Many belong to relatively recent immigrants who may be unfamiliar with U.S. tax law requirements. Many may have been inherited from foreign relatives without realizing that inheriting the account changes the tax obligations of the inheriting U.S. citizen or resident.

The number of voluntary disclosures made after the deadline for the 2009 disclosure program and the uncertain status of those disclosures until the IRS decided to accept them into this new disclosure program indicates that it would be helpful to advise clients of the new voluntary disclosure program as soon as possible, so that there is time for those who wish to disclose to get the information together for eight years worth of original or amended tax returns and the funds available to cover the associated taxes, interest and penalties before the Aug. 31, 2011 deadline.

FROM PAGE 16

The potential penalties associ-
ated with foreign asset and account
disclosure and FBAR reporting
when combined can become con-
fiscatory, adding up to as much or
more than the value of the foreign
assets themselves. Voluntary dis-
closure provides not only a way to
avoid potential criminal prosecu-
tion, but also penalties that could
totally wipe out those foreign as-
sets. AT

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