The IRS relaunched a special voluntary disclosure initiative for individuals to disclose offshore entities or accounts in January 2012. 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.
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.
The IRS has provided specific details on the current program in an extensive list of FAQs similar to the FAQs issued when the program was offered in 2011.
For taxpayers that reported and paid tax on all their taxable income related to their foreign accounts and assets, the current program retains the automatic penalty relief provided in 2011 for failure to file certain international-related information returns, including:
- Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)
- Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
- Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
- Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations
- Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign
- Corporation Engaged in a U.S. Trade or Business
- Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities
- Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.
Under the terms of the current program, taxpayers who properly reported and paid tax on all their taxable income from offshore financial accounts and assets but failed to comply with certain international-related reporting requirements are not to use this disclosure initiative. Instead, the program directs these taxpayers to file all delinquent information returns with the appropriate IRS service center in accordance with the applicable form instructions.
For more information, contact your KPMG adviser.