New Opportunity to Come Clean On Offshore Accounts
The income earned by U.S. citizens and residents from worldwide sources are subject to U.S. income taxes. However, until recently, hidden offshore accounts have been hard to detect, and the income from these hidden accounts have not been reported by their owners on their U.S. tax returns. Of late, the Treasury Department has become very aggressive in seeking out and uncovering hidden offshore accounts, and the owners of these accounts have been subject to some extremely severe penalties.
Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship to the U.S. government on or before June 30 of the succeeding year with the Department of the Treasury. Penalties for failing to comply can be draconian. For non-willful violations, civil penalties up to $10,000 may be imposed; the penalty for willful violations is the greater of $100,000 or 50% of the account’s balance at the time of the violation.
IRS is offering a voluntary disclosure plan through August 31, 2011. For this initiative, the IRS is offering to reduce the penalties to 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties for small offshore accounts. Participants also must pay back-taxes and interest for up to eight years, as well as paying accuracy-related and/or delinquency penalties.
Many U.S. taxpayers may not even realize that they are subject to the foreign bank account reporting rules. These include individuals who have foreign inheritances, whose parents or other family members reside in the “old” country, and those relatives may have included them on an account in the foreign country and an officer or board member may have signature authority over a business account held in a foreign country.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.
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