The number of U.S. citizens and residents with unreported foreign bank accounts is estimated to be in the hundreds of thousands, if not in the millions.  The first Offshore Voluntary Disclosure Program, in 2009, provided a path to compliance in exchange for 20% of the highest bank balance in the prior 8 years. Fifteen thousand taxpayers participated and the IRS collected $3.4 billion in back taxes.  The penalty increased to 25% in the 2011 program, which drew another 15,000 participants and raised another $1.6 billion.  The penalty increased to 27.5% in the 2012 program.  It saw 12,000 disclosures and another $1.5 billion of revenue.

          With still hundreds of thousands (or more) of non-compliant taxpayers out there, the IRS has announced a major modification of the 2012 program effective July 1, 2014.  The penalty is now 50% of the highest bank balance if a foreign financial institution at which the taxpayer has or had an account has been publicly identified by the IRS or if an investigation has been opened as to the taxpayer. The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States. The changes include:

• Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
• Eliminating the required risk questionnaire;
• Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible U.S. taxpayers residing outside the U.S., all penalties will be waived. For eligible U.S. taxpayers residing in the U.S., the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.

          If you or someone you know needs to get in compliance, please contact us immediately.  Once the foreign financial institution is in communication with the IRS, it is too late: the 50% penalty will apply and criminal sanctions are more likely.