Not quite an amnesty
taxnews
Taxpayers with undisclosed income from offshore accounts are
under mounting pressure to come forward to the Internal Rev-
enue Service.
The deadline for the second special voluntary disclosure initiative is Aug. 31, 2011,
and affected taxpayers need to begin as soon
as possible. The initiative — like the first program, which expired in 2009 — is designed to
bring offshore money back into the U. S.
But unlike the first program, which merely
required taxpayers to come forward by the
deadline, the new initiative requires taxpayers to file all original and amended tax returns
and include payment for taxes, interest and
accuracy-related penalties. (To differentiate
between the two, the IRS refers to the 2009
effort as a “program,” while the current one
is an “initiative.”)
“I have clients from the 2009 program that
still don’t have their amended returns in,”
said Jean Ryan, a tax partner at the law firm
of Sideman & Bancroft. “The problem is in
getting the offshore banks to comply. They’re
not particularly cooperative, so it’s difficult to
get accurate information that an accountant
is willing to sign. If you start now to get infor-
mation from multiple overseas accounts, it
could take months.”
Moreover, just finding an accountant with
the time to perform the work could prove dif-
ficult, said Kevin Packman, a partner at the
law firm Holland & Knight and chair of its Off-
shore Tax Compliance Team. “Most CPAs say
they’ll find it hard to take on new clients to do
all that work,” he said. “There may be eight
years of past-due returns. Unless a taxpayer
has account statements from a foreign bank,
it can take six months just to get them.”
Bob McKenzie, an attorney and tax partner
at Arnstein & Lehr, agreed: “[Many] banks
are not giving the information promptly. It
took almost a year to get the information for
some persons who came forward under the
2009 program. And some require the client to
go physically to the situs of the bank. Clients
have had to fly around the world to get the
information to comply.”
“In addition to reduced penalties under
the initiative, taxpayers with undisclosed
offshore accounts can avoid criminal pros-
BY ROGER RUSSELL
IRS launches second voluntary disclosure initiative
ecution for their unpaid taxes and may be
eligible for significantly reduced penalties,”
said McKenzie. “Generally, the civil penalty
for willfully failing to file a Form TD F 90-22.1
(Report of Foreign Bank and Financial Accounts) can be the greater of $100,000 or 50
percent of the total balance of the foreign account per violation.”
BUILDING ON ROUND ONE
The first special voluntary disclosure program
closed with 15,000 voluntary disclosures on
Oct. 15, 2009. Since that time, more than 3,000
taxpayers have come for ward to the IRS with
bank accounts from around the world.
The new initiative has an overall penalty
that is higher, so that people who did not
come in through the 2009 program will not be
rewarded for postponing disclosure. For the
new program, the penalty is 25 percent of the
amount in the foreign accounts for the year
with the highest aggregate balance covering
the 2003 to 2010 period. Some taxpayers will
be eligible for 5 or 12. 5 percent penalties. Participants also must pay back taxes and interest for up to eight years, as well as accuracy-related and/or delinquency penalties.
“This includes the value of an entity if
the entity had unreported income associ-
ated with the purchase of whatever is in it,”
said Packman. “For example, if the entity
purchased real estate, and used unreported
funds to purchase it, the value of the real es-
tate is subject to the penalty.”
“Migratory individuals may leave pieces
behind when they get to the U.S.,” noted Jay
Weill, who is also a tax partner at Sideman &
Bancroft. “For example, they may have in-
herited property from an uncle in another
country and left it there, or considered it as a
family investment. It may not be clear to the
individual who should be reporting informa-
tion in certain situations.”
The two lower penalties, 12. 5 percent and 5
percent, are fairly limited, according to Pack-
man. The 12. 5 percent penalty is for those
with offshore accounts or assets that did not
surpass $75,000 in any calendar year covered
by the initiative. The 5 percent penalty applies
to those who are foreign residents and were
unaware they were U.S. citizens, and those
whose ownership in the account is the result
of an inheritance. Under the second category,
the taxpayer must not have opened the ac-
count, must have exercised minimal contact
with the account, must not have withdrawn
more than $1,000 from the account in any
year covered by the voluntary disclosure, and
must be able to establish that all applicable
U.S. taxes have been paid on funds deposited
to the account (only account earnings have
escaped U.S. taxation).
WILL CLIENTS COMPLY?
It’s not certain who will be eligible for any-
thing other than the 25 percent penalty, not-
ed George Clarke, tax partner at Washington,
D. C.-based law firm Miller & Chevalier. “You
don’t know for sure that you’re eligible,” he
said. “For example, people who are currently
under investigation but don’t know it are not
eligible. If they have reason to believe that the
government might have their names, they
have to decide which path to take.”
“If the dollar amounts are low or they think
they have a strong case that their behavior
was not willful, it can cut both ways,” he said.
“One way is to ‘let them come after me and
I’ll defend myself.’ Or they can be proactive,
and go in and say, ‘I have reason to believe
you have my name but there’s no evidence
that I was out to evade tax.’”
Not all voluntary disclosure submissions
are accepted, Packman indicated. “Criminal
prosecution is a potential outcome from a
disclosure which is found not to qualify.”
Moreover, he warned, tax professionals
should be aware that it is a violation of Cir-
cular 230 to represent a taxpayer on a pro-
spective basis if the taxpayer is noncompliant
and elects not to resolve the noncompliance
through a voluntary disclosure: “The IRS has
made it clear that they don’t want taxpayers
to make a ‘quiet’ disclosure. Essentially, that
means filing delinquent items with a service
center and hoping that it will be processed
without penalties. An advisor who helps a
taxpayer make a quiet disclosure may be vio-
lating Circular 230.” AT
IRS OVERHAULS LIEN SYSTEM
WASHINGTON, D.C. — The Internal Revenue Service said that it is making major
changes to its tax lien process in an effort
to help struggling taxpayers get a fresh
start with their tax liabilities.
Changes in the IRS’s lien-filing practices include significantly increasing the
dollar threshold when liens are generally
issued, resulting in fewer tax liens. The
IRS said that the changes would also
make it easier for taxpayers to obtain lien
withdrawals after paying a tax bill. The
IRS said that it would withdraw liens in
most cases where a taxpayer enters into
a direct-debit installment agreement.
Other changes involve offering easier access to installment agreements for more
struggling small businesses, and expanding the streamlined offer-in-compromise
program. (For more, see Tax Strategy,
page 15.)
IRS DELAYS FILING FOR
NONPROFIT HOSPITALS
WASHINGTON, D.C. — The IRS has given
tax-exempt organizations that operate one or more hospital facilities three
months’ extra time to file their 2010 Form
990, and said that they should not actually file the form until July 1, 2011.
In order to implement changes to IRS
forms and systems that are required to
reflect additional requirements for charitable hospitals enacted by Section 9007
of the Patient Protection and Affordable
Care Act of 2010, the IRS said that it is
delaying the start of the 2010 filing season for certain hospital organizations.
Announcement 2011-20 grants hospital organizations with return due dates
prior to Aug. 15, 2011, automatic three-month filing extensions. The IRS said that
no late-filing penalties will apply to the
affected organizations if they file by their
extended due dates. The announcement
grants tax-exempt organizations that
operate one or more hospital facilities
(hospital organizations), and that would
otherwise be required to file Form 990,
“Return of Organization Exempt From
Income Tax, including Schedule H, Hospitals,” for 2010 before Aug. 15, 2011, an
automatic three-month extension of time
to file the Form 990 for 2010.
