Anyone that has undisclosed offshore income and assets wishing to come forward and make things right will probably find that 2011 will be a very good year. The 2011 OVDI (Offshore Voluntary Disclosure Initiative) announced by IRS Commissioner Shulman on February 8, 2011 provides what may be the last opportunity for non-compliant US taxpayers to come forward and voluntarily disclose previously unreported offshore assets and accounts at reasonable cost with greatly reduced risk of the full application of all applicable filing penalties, additional civil penalties or risk of criminal prosecution.
To qualify a noncompliant taxpayer must voluntarily come forward and fully disclose all unreported foreign-held assets and financial accounts before the IRS commences an investigation into your account, issues a notice of examination, or your name otherwise appears on the IRS radar screen, all no later than August 31, 2011. The 2011 Initiative provides the opportunity for non-compliant taxpayers to predetermine the cost of a voluntary disclosure and step forward with full the knowledge of how they will be treated by the IRS. The Initiative covers the tax years 2003 to 2009 but does not include tax year 2010 in the initiative. 2010 tax returns were due by June 30, 2010 but may only be subject to late filing and interest penalties if amended returns are filed by August 31, 2011.
Non-compliant taxpayers must file all missing information reports and amended tax returns for all relevant years on or before August 31, 2011 and pay the assessed taxes and penalties within 30 days of filing. Applicants will be required to reveal the names of known participants in the tax avoidance scheme, facilitators, fellow conspirators, any bank or financial institute involved including participating officers and employees, financial advisors, consultants, and tax preparers. Basically, any person or entity that participated in, advised or assisted in any way will be open to investigation and possible prosecution by the IRS. Failure to fully disclose all information will result in the taxpayer being disqualified from participating in the Initiative and exposes him or her to additional civil penalties and possible criminal prosecution. Additional penalties for perjury could also apply.
The good news is that you will no longer have to be concerned about the taxman. Any foreign transactions prior to 2003 will not be further investigated unless there is overwhelming evidence of criminal activity. Additionally, in the absence of conclusive evidence to the contrary, the IRS will assume that offshore assets acquired prior to 2003 were purchased with funds on which US taxes had been paid or with funds exempt from US taxation. When the Initiative process is completed a non-compliant taxpayer will be considered to be in full compliance with US tax and filing requirements with expectation by the IRS that he or she will continue to be compliant in future years. The 2011 Initiative restricts the penalties that can be applied to:
- Income tax owing
- 20% accuracy related penalty on the unpaid income tax
- 25% Offshore Penalty on the maximum offshore assets and accounts held in any year between 2003 and 2009. The Initiative provides for a reduced the Offshore Penalty to 12.5% or 5% for qualifying applicants.
No further Civil Fraud penalty, FBAR Penalty, or Section 6038a or Section6677 penalties will be assessed.
The Initiative also provides that funds and assets held by a taxpayer in different accounts or by entities owned and controlled by the taxpayer will not be subjected to double taxation. The Initiative further provides that the IRS civil examiner assigned the file will calculate the penalties applicable under alternate scenarios.
Consult a cross border tax specialist
Non-compliant taxpayers with undisclosed offshore holdings are urged to consult a qualified cross border tax specialist immediately while there is still time to participate in the 2011 Initiative. The international tax specialist at Aylett Grant can fully advise you on the advantages of participating and fully assist you to prepare and file all required tax returns and information reports.
Consult a qualified attorney
Non-compliant taxpayers who ignore the opportunity to come forward and disclose unreported overseas assets and continue to hide these assets may find that 2011 will be a very, very bad year. Before making a decision to disclose or not to disclose, non-compliant taxpayers are strongly advised to consult an experienced attorney specializing in US tax law. If you need assistance in finding an experienced attorney you should contact the local bar association.
It may be a bad year for US tax payers that continue to hide assets offshore
The IRS is actively mining information provided by participants in the 2009 Initiative will have even more information to mine after the 2011 Initiative. The IRS has announced its intention to aggressively pursue anyone caught in its ever-widening web. The IRS has developed more sophisticated analysis programs and the information revealed by previous voluntary disclosures has given IRS investigators a more comprehensive understanding as to how offshore schemes are set up and how money is transferred. The IRS is increasingly serving John Doe warrants that force participants and facilitators to reveal information under penalty of perjury. Non-compliant taxpayers must ask themselves if their partners, advisors, and facilitators can be relied upon to risk criminal prosecution rather than reveal their clients names. The answer is a resounding of course not – there is always a weak link in any chain and the probability that someone will seek a plea bargain and reveal everything approaches almost certainty.
The news gets even worse. If you think 2011 might be a bad year for tax payers hiding foreign assets, 2012 will be even worse and 2013 will be exponentially worse than 2012. The writing is on the wall – the civilized world, lead by the United States, will no longer ignore secret bank accounts and schemes whose sole purpose is to hide funds or to avoid the payment of taxes.
The US State Department has completed negotiations with the European Union under which the 27 member states have agreed subject to certain conditions, to provide banking information requested by the United States.
The Swiss Parliament has now approved revisions to its traditional bank secrecy laws and has agreed to provide information requested by the United States regarding accounts held by US citizens in Swiss banks. The Swiss have already agreed to turn over information on 4,450 previously secret accounts held by Americans. The United States has requested information on an additional 52,000 accounts.
In late 2010 Switzerland signed a treaty with Germany that effectively ends banking secrecy in Europe since Swiss banks can no longer guarantee client confidentiality. The treaty allows German investigators to request Swiss assistance in tracking down undeclared money deposited by German nationals. Switzerland has since signed similar agreements with 10 other countries and is presently negotiating information exchange agreements with an additional 18 countries.
Obama Administration committed to reducing offshore tax evasion.
President Obama has made the eradication of tax evasion through offshore accounts one of his Administration’s priorities. With the present emphasis in the US Congress regarding ways to reduce the deficit it would be a safe guess that neither side would champion protecting tax evaders. President Obama’s budget proposals to Congress include increasing the resources for the Internal Revenue Service to fight tax evasion. The new Congressional Super Committee set up to propose deficit reductions may result in additional regulations strengthening the Internal Revenue Service’s hand.
The names of Swiss account holders will soon be in the hands of the IRS. It will probably be late in 2012 before all the voluntary disclosure files are processed and the IRS can turn their full attention to the literally tens of thousands of Swiss account holders that will be in the pipeline. There is no reason to expect that the IRS will announce a third voluntary disclosure initiative or that if they do it will be as lenient as the current Initiative. If the IRS decides to pursue criminal prosecutions non-compliant taxpayers may expect to be in court as early as 2013.
More information:
How the IRS Voluntary Disclosure Program Works
AG TAX LLP Can Help
If you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
