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Foreign Income and Foreign Accounts - IRS Voluntary Disclosure Program
August 11, 2009
The IRS has recently announced that U.S. taxpayers who have undisclosed foreign financial accounts or entities or have income generated in foreign countries but who have not reported that income on their income tax returns have until September 23, 2009 to make a voluntary disclosure to the IRS of all unreported income, pay the tax on this income and related interest, and pay certain penalties. In return the IRS will not recommend criminal prosecution to the Department of Justice, or assess other penalties, if the disclosure is truthful, timely, and completely complies with all provisions of the voluntary disclosure practice (VDP).
The offer the IRS is making requires taxpayers to make a voluntary disclosure of previously unreported foreign income for tax years 2003 through 2008, inclusive, by no later than September 23, 2009. If accepted into the VDP program the taxpayer must pay: (1) the tax on the unreported income during 2003 through 2008; (2) interest on the tax due; (3) an accuracy related penalty of 20% on the tax due; and (4) an additional 20% penalty on the highest aggregate foreign account balance in the six years (2003 through 2008).
This could be a very attractive offer when the potential penalties are considered:
Civil: penalty of $10,000 for non-willful non-compliance or $100,000 or 50% of the account balance for willfulnon-compliance.
Criminal: $250,000 fine and 5 years imprisonment or $500,000 fine and 10 year imprisonment if in tandem with the violation of another federal law.
Note that this is a package — a rejection of any one of the above conditions by the taxpayer will prevent the taxpayer from being permitted to take advantage of the limited penalty assessment and avoid the risk of criminal sanctions.
Taxpayers who have previously reported the foreign income timely and have paid the tax on that income but who have not filed the required disclosure forms for foreign financial accounts or ownership of foreign entities also have until September 23, 2009 to file the delinquent disclosure forms without penalty. There are special rules for tax year 2008 depending on whether you have already filed your return reporting all foreign income or it is still on extension. We will be happy to explain them to you.
If you have questions about this or other tax law matters, please contact Steven A. Meyer.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2009 Posternak Blankstein & Lund LLP. All rights reserved.