Until September 23, 2009, IRS Offers Break on Penalties for Undisclosed Offshore Bank Account Holders
The Internal Revenue Service has issued guidelines for resolving the civil tax penalties related to offshore bank accounts for individuals who make voluntary disclosures before September 23, 2009. Generally it will require:
- Payment of all taxes and interest for the previous six years.
- Assessment of an accuracy penalty under Internal Revenue Code Section 6662 or a delinquency penalty for all years
- An undisclosed Foreign Bank Account (FBAR) penalty of 20% of the highest account balance during the six year period.
In the case of inherited accounts, or other accounts that the taxpayer did not cause to be opened the penalty may be reduced to 5% if other qualifications are met.
Under the settlement initiative taxpayers will not be assessed tax fraud penalties of 75% of the unpaid tax, or the full amount of the FBAR penalties which can equal to 50% of the account balance per year!
This offer is only open to taxpayers who make voluntary disclosures by . Taxpayers must fully cooperate with the IRS in any civil or criminal investigation in order to take advantage of these terms. Taxpayers will be asked detailed questions from the IRS regarding how they came to open their offshore bank accounts, and will be required to give names. We expect that the IRS will use this information to open tax audits of taxpayers who do not come forward.
Normally if the IRS is already aware that a taxpayer has a foreign bank account any subsequent disclosure is not considered a voluntary disclosure, and leaves the taxpayer open to both civil and criminal tax penalties.
Besides the above civil penalties, if you commit tax evasion or tax fraud the IRS can prosecute and send you to jail. Generally most tax crimes carry a maximum five year prison term and a fine of $100,000.
Under the amnesty program, the IRS will not seek criminal prosecution for a good faith disclosure.