Voluntary Disclosure Program
The IRS introduced a new Offshore Voluntary Disclosure Program in January 2012. It is based on the 2011 program and currently is open ended.
In 2009, the IRS announced they intended to unlock the secret work of off-shore bank and securities accounts. The IRS takes the view that if these types of overseas or offshore accounts are unreported by US taxpayers, the primary reason is to avoid legitimate US tax liabilities. Not surprisingly the IRS doesn’t like this and wanted to fix this potential “loop hole” in paying your US taxes.
In March 2009, the IRS announced a Global Voluntary Disclosure Program Initiative (called the “VDP”) specifically for foreign bank account holders. The terms of the program permitted holders to come forward and disclose foreign bank accounts to the IRS in exchange for avoiding criminal tax prosecution – if accepted into the program.
The Program is not just for individuals. Corporations, partnerships, trusts, and other entities are eligible to participate in the IRS Voluntary Disclosure Program. Generally, the IRS’s Voluntary Disclosure policy applies to a taxpayer who:
- Completely and voluntarily informs the IRS of his tax violations;
- Had income from only legal sources;
- Makes the disclosure prior to being informed that he is under criminal investigation;
- Files a correct tax return or cooperates with the IRS in ascertaining his correct tax liability; and
- Makes full payment of the amount due, or if unable to do so, makes arrangements to pay.
In most cases, as part of being accepted into the VDP program, the taxpayer must agreed to pay a 20 percent penalty on the greatest aggregate amount of all foreign bank accounts held over the past six years. The taxpayer also promised to fully cooperate with the IRS in determining the correct amount of tax, interest, and penalties owed for the prior six years.
Technically, the Global Voluntary Disclosure Program Initiative (VDP) was extended to, and then expired on October 15, 2009. However, the IRS appears to be still accepting voluntary disclosures which will allow taxpayers to escape criminal tax fraud charges and criminal prosecution.
To date the IRS reports that 18,000 taxpayers have voluntarily joined the program. They also report they have targeted 4,000 UBS account holders with US tax liability (i.e. US citizens or legal resident aliens), and expect another 3,500 account holders to be revealed. These tax payers will be subject to full audits, and potential criminal prosecution and sanctions, because they were identified by the government, and did not voluntarily come forward they are not eligable for the VDP program, and the safe harbor it offers from criminal prosecution for tax fraud.
If you own an unreported foreign bank account or securities account or mutual fund please consider entering the IRS’s Voluntary Disclosure Program BEFORE they find you first.
“To conclude, we are sending a clear message to taxpayers that we are serious about tax compliance. We will tirelessly pursue anyone who tries to use international borders to their advantage and cheat honest taxpayers. As I’ve said throughout my tenure as Commissioner, combating international tax evasion will continue to be a top priority. We have additional cases and banks in our sights right now. This issue is not going away, and those who try to skirt U.S. tax laws by hiding assets and income offshore, and the banks and advisors who help them do it, will find themselves increasingly at risk due to our efforts in this area.”
– Extract from IRS Commissioner Doug Shulman’s Statement on UBS / Voluntary Disclosure Program, Nov. 16, 2010
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