Limited Amnesty for Off-Shore Accounts

Introduction

Deluged by panicky Swiss account holders fearing criminal indictment stemming from the UBS prosecution (see my February, 2009 newsletter), IRS announced a limited amnesty program for taxpayers hiding funds in secret accounts: In return for paying back tax liabilities in full, they will avoid felony tax crime charges.

Also, the maximum penalty for failing to file a foreign bank account report (FBAR) will be significantly reduced.

Amnesty

In general, taxpayers have a six-month window to file and pay taxes for the past six years, including interest and applicable penalties (negligence -20%; or failure to file – 25%).

The maximum 50% per year penalty for failure to file FBARs will be reduced to a one-time penalty of 20%, based on the highest value of the account during the past 6 years.

Even without an amnesty program, as a result of the UBS case and other ongoing efforts FBAR filings have doubled in 2009 over the same period in 2008.

Of course, escaping criminal tax fraud prosecution is the grand carrot dangled in front of 52,000 UBS customers and others holding secret accounts.

Inherited Accounts

IRS will lower the 20% FBAR penalty to 5% when the taxpayer:
(i) did not open the account;
(ii) there have been no deposits or withdrawals; and
(iii) taxes have been paid on the funds deposited into the account.

The exception was inserted to protect heirs of Holocaust survivors and others who inherited foriegn accounts, and those who were added merely as a signer by the owner.

Information

As part of amnesty, IRS will ask a series of detailed questions to elicit the bankers, lawyers and accountants who participated in the tax evasion scheme.

The responses cause a snowball effect as each disclosure generates additional leads, thus exponentially increasing the odds that a secret account will be exposed, and thereby increasing pressure on reluctant tax evaders to come forward.

Conclusion

For those terrified of criminal indictment, the amnesty program is a blessing.

For the defiant tax evader, IRS has just challenged them to a game of “bet your life” – begrudgingly accept amnesty, or risk losing your fortune and your liberty.

Print Friendly