The IRS announced today that it is making headway against offshore tax evasion, taking in more than $5 billion in back taxes, interest and penalties from 33,000 taxpayers who participated in the first two voluntary disclosure programs.
The agency launched a third such program in January, prompting 1,500 additional disclosures. It will be open indefinitely. The IRS received a lot of interest from taxpayers and preparers after the 2009 and 2011 programs were closed. The offshore penalty has been increased from 25 percent in 2011 to 27.5 percent. There are still reduced penalty categories of 5 percent and 12.5 percent.
The programs are part of the IRS’ wider effort to put an end to offshore tax evasion, which includes stepped-up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act.
“We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore,” IRS Commissioner Doug Shulman said in a statement. ”People are finding it tougher and tougher to keep their assets hidden in offshore accounts.”
The IRS closed a loophole used by some taxpayers with offshore accounts. Taxpayers who challenge in court the disclosure of tax information by a foreign government are required to notify the U.S. Justice Department of the appeal. Taxpayers who don’t comply with that law no longer will be eligible for the Offshore Voluntary Disclosure Program. That could also happen once the U.S. government has taken action in connection with the taxpayer’s financial insitution.
The IRS also announced a plan today to help U.S. citizens who live overseas, including dual citizens, and others living abroad to catch up with their tax-filing obligations if back taxes owed are minimal. The agency also will assist people who have issues with foreign retirement plans. The new procedures take effect Sept. 1.
Taxpayers who are low compliance risks can get current on their taxes without facing penalties or additional enforcement action if they owe $1,500 or less in tax for any of the covered years. They have to file returns and related information for the past three years and delinquent Reports of Foreign Bank and Financial Accounts for the past six years.
1 Comment
It’s nice to see the IRS is getting more involved with offshore accounts. I think the offshore voluntary disclosure policy is a creative way to show mercy to honest taxpayers, while also putting the squeeze on tax evaders. The term “ignorance is bliss” often puts the IRS in a tough position, and I think they’ve done a good job of trying to separate the grey. Tax payers with offshore accounts are responsible for understanding domestic & international laws. Incentives for offshore banking are increasing, but it’s also getting harder to understand international law. Investors wishing to establish an offshore incorporation in Panama have opportunity to save on costs, but ought to consider the legal advice.