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In a recent advisory, the Internal Revenue Service announced changes to its Offshore Voluntary Disclosure Initiative. For those who hold accounts at 10 international banks currently under investigation, the message was: come forward before August 4 or face much greater penalties.

The OVDI as we have discussed before allows taxpayers who have failed to disclose their offshore accounts an avenue to avoid criminal prosecution.

While the current program, now in its third iteration, does not have an end date, the agency can close the program or modify the penalty at any time. The current fine for failing to disclose an account that contained more than $10,000 during the fiscal year is 27.5 percent of the highest balance. That is going to change. The top fine will increase to 50 percent when a bank is subject to a publicly known IRS or U.S. Justice Department investigation.

The agency published a list of ten banks currently under investigation. Some of the banks are not a surprise and have already agreed to pay hefty fines, such as UBS, Wegelin & Co and Credit Suisse AG. Others on the list include:

  • HSBC India
  • CIBC FirstCaribbean International Bank Ltd
  • Liechtensteinische Landesbank
  • Zuercher Kantonalbank,
  • Swisspartners Investment Network AG
  • Stanford International Bank Ltd
  • The Bank of N.T. Butterfield & Son Ltd.

For now, the agency has said this is a complete list, but with the implementation of the Foreign Account Tax Compliance Act (FATCA) on July 1, that number could easily increase.  At the beginning of June, Reuters reported that 77,000 banks had signed up as part of the information-sharing effort. 

The fines for past non-compliance are steep and can quickly reduce the value of an account. However, they still beat the potential of criminal prosecution and a 50 percent fine levied for each year a taxpayer failed to report the account.

Source: The Wall Street Journal, A New IRS Warning for Offshore Tax Cheats, Laura Saunders, June 20, 2014