by Bill Leary, International Tax Director, Doeren Mayhew
The voluntary disclosure programs launched by the IRS beginning in 2009 have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties, but there are also a number of IRS enforcement success stories about taxpayers who did not voluntarily come forward.
IRS voluntary disclosure programs are designed to encourage taxpayers with undisclosed offshore assets to become current with their tax liabilities and IRS compliance. The applicable reporting rules apply to U.S. citizens, including expatriates, residents with active green cards and most U.S. visa holders. The disclosure programs are a part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA).
In 2009, the IRS Commissioner summarized the Serviceâ€™s posture.
â€śThe IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location. And we will work with other governments where possible to obtain the information we need. Wealthy Americans who have hidden their money offshore will find themselves in a jam â€¦
â€śFor anyone with hidden offshore assets, the IRS wants to send a clear message. There is still timeÂ â€”Â although the clock is tickingÂ â€”Â to come in and get right with the government. People with unreported offshore income should immediately contact their tax professional.â€ť
In 2014, the IRS announced major changes in its offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas as well as those in the United States. As a result, the expanded streamlined procedures are available to a wider population of non-compliant U.S. taxpayers Among the changes, all penalties will be waived for eligible U.S. taxpayers residing outside the United States. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.
The governmentâ€™s focus on undisclosed foreign assets and income will not abate. Non-compliant taxpayers need to evaluate strategies with their tax advisors to ameliorate the risk of prosecution, as well as penalties and interest related to unreported offshore assets. In addition to the penalties related to undisclosed income, the IRS will assess penalties for failure to file information returns. (For additional details on penalties, see, the IRSâ€™s Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, No. 5 for civil penalties and No. 6 for criminal penalties.) In some cases, missing information disclosures can be easily remedied without penalty. In other cases, penalties are almost automatic.
IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:
Doeren Mayhewâ€™s tax advisors work with non-compliant taxpayers and their legal advisors to quantify options and prepare documentation for voluntary disclosures. For questions or to begin exploring your disclosure options, contact our CPAs in Michigan, Houston or Ft. Lauderdale.
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