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IRS Announces Terms of New Offshore Account Amnesty

Holders of offshore bank accounts that the Internal Revenue Service would look on as tax evasion have a new incentive to declare the accounts to the IRS. The penalties have not been relaxed as much as they were with the last amnesty offer, but the latest offer still includes non-prosecution.

U.S. taxpayers with hidden offshore bank accounts have until August 31st to report them voluntarily to the IRS.

The new amnesty offer allows those who come forward to pay a penalty of 25%of the amount in their foreign bank accounts in the year with the highest aggregate account balance between 2003 and 2010.

The normal penalty would be 50% on the highest amount in each account for each year over a six year period. That penalty is high enough to leave offshore account holders owing more than was ever in the accounts. In addition, the account holders still owe the back taxes and interest, and face possible criminal penalties.

With the new offer, some offshore account holders may be eligible for reduced penalties of 5% or 12.5%. Anyone entering the program must also pay back taxes and interest for up to eight years, as well as delinquency and accuracy-related penalties. Account holders with accounts that never had more than $75,000 are eligible for the 12.5% penalty. The assumption is that these accounts were probably inherited.

The additional incentive in the new amnesty offer is a continued promise by the IRS not to prosecute people who come forward for tax evasion.

One more important point about the new offer: offshore account holders must file all their documents and tax returns before the August 31 deadline. It is not enough just to indicate a desire to participate in the program.

Source: New York Times "I.R.S. Offers a Tougher Amnesty Deal for Offshore Accounts" 2/9/2011

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