US: IRS Launches New Voluntary Disclosure Program
The U.S. Internal Revenue Service (IRS) has launched a special voluntary disclosure initiative — the 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI) — designed to allow taxpayers to bring funds located offshore back into the U.S. tax system and to help those with undisclosed income from offshore accounts to resolve their federal income tax liabilities.
This article is excerpted, with permission, from “IRS Launches Voluntary Disclosure Initiative for Taxpayers to Report Offshore Funds” in KPMG LLP’s TaxNewsFlash-United States 2011-061 (February 8, 2011).
The new voluntary disclosure initiative will be available through August 31, 2011, according to the IRS release (IR-2011-14, February 8, 2011)1.
This voluntary disclosure initiative is the second program offered by the IRS to taxpayers with foreign accounts2. The first special voluntary disclosure program closed in October 2009, with approximately 15,000 voluntary disclosures. The IRS reports that since that time, more than 3,000 taxpayers have come forward with foreign bank accounts.
The IRS has launched a new section3 on www.IRS.gov that includes the full terms and conditions on the 2011 OVDI as well as an extensive set of questions and answers to help taxpayers and tax professionals. The information is available in eight languages in addition to English. Details on how people can make a voluntary disclosure are also part of this Web page.
The new 2011 OVDI includes several changes from the 2009 program. For instance:
• The overall penalty structure for 2011 OVDI is higher.
• There is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance for the 2003-to-2010 time period. In limited situations, the taxpayer can qualify for a 5-percent penalty.
• Certain taxpayers with offshore accounts or assets not exceeding $75,000 in any calendar year may qualify for a reduced penalty of 12.5 percent.
• Participants must pay back-taxes and interest for up to 8 years as well as paying accuracy-related and/or delinquency penalties.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest, and penalties by the August 31, 2011 deadline.