Canadian Tax Adviser
January 17, 2012

IRS Reopens Voluntary Disclosure Program for Offshore Bank Accounts 

Connie Lee
Toronto, U.S. Corporate Tax

Michael Pereira
Toronto, International Executive Services

The IRS has relaunched a special voluntary disclosure initiative for individuals to disclose offshore entities or accounts. Taxpayers that intend to make a disclosure must file all original and amended tax returns and include payment for taxes, penalties and up to eight years of interest. The IRS indicated that although the program is currently open for an indefinite period, it could change the terms of the program in the future.

This initiative is the third program offered by the IRS to taxpayers with foreign accounts, with previous programs ending in 2009 and 2011. The IRS notes that it has collected more than $4.4 billion from these programs.

Penalties
The overall penalty structure under the new program is the same as was in place under the 2011 program, except for taxpayers in the highest penalty category. Under the new program, the penalty framework requires taxpayers to pay a penalty of 27.5% of the highest aggregate balance in their foreign bank accounts and entities or value of foreign assets during the eight full tax years before the disclosure. This is an increase from the 25% penalty that applied under the 2011 program.

Some taxpayers will be eligible for 5% or 12.5% penalties (i.e., for smaller offshore accounts or assets whose value did not exceed $75,000 in any calendar year subject to the program); these reduced penalties remain the same in the new program as in 2011.

More details on the program will be made available within the next month, and the IRS indicated that it will update key “frequently asked questions” (FAQs) and provide additional specifics on the offshore program in the future.

More relief coming for accidental Americans?
The IRS also stated it is currently developing procedures for dual citizens and others who may be delinquent in filing, but owe no U.S. tax (e.g., dual citizens residing outside the United States who have not filed a required U.S tax return or Report of Foreign Bank and Financial Accounts (FBAR)) to comply with U.S. tax law.

For more information, contact your KPMG adviser.

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