Thursday, May 7, 2009

Get in Line Brother #6 - New IRS FAQs on Details of Voluntary Disclosure re Offshore (5/7/09)

The IRS has fleshed out many of the details of its voluntary disclosure initiative for foreign accounts in a new Frequently Asked Questions document dated 5/6/09. The FAQx document may be reviewed or downloaded here; other IRS documents related to the initiative may be viewed here. Upon the original posting, I will give a few initial comments on the FAQ, but will update this blog posting from time to time with more details. I note particularly that this weekend is the ABA Tax Section's May Meeting in Washington and this will be a significant topic of discussion at the meeting, so I will likely have more details early next week.

Subject to further refinement, these are my comments:

1. The FAQs are addressed to tax problems with offshore accounts and offshore entities.

2. Voluntary Disclosure requires a "noisy" disclosure. Simply sending in amended or delinquent returns or forms ("quiet disclosures") does not qualify for the program. For those who have made quiet disclosures prior to the issuance of the FAQs may get in the program by sending previously filed documents to the local CI office.

3. A taxpayer does not qualify if the taxpayer is already under civil examination (regardless of whether that exam relates to offshore accounts or entities).

4. Taxpayers who properly reported all their income from foreign accounts must file delinquent FBARs. The IRS will not impose the delinquent FBAR penalty.

5. Taxpayers under the program must file 6 years amended or delinquent returns.

6. Penalties asserted under the program are: (1) income tax for six years; (2) an accuracy related penatly of 20% of the tax due; (3) an additional penalty in lieu of the FBAR and all other penalties of 20% of the highest amount in the account; and (4) interest on the tax and accuracy related penalty.

7. The FAQs notes the truly draconian civil and criminal penalties that could apply if the taxpayer does not join the program.

8. The program lasts only 6 months fromf 3/23/09, the date a memorandum was issued outlining the penalty framework for resolution of the cases.

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