IRS Offshore Account Voluntary Disclosure Program Closing in One Week: U.S. Aggressively Pursuing Information from Other Countries

Posted in Articles & Publications on September 16, 2009 | Share

With the September 23rd IRS offshore account voluntary disclosure initiative deadline less than one week away, U.S. authorities have been very busy negotiating agreements with other counties that will make it easier for the U.S. to identify and prosecute U.S. taxpayers hiding money and assets overseas.

While negotiations with the Swiss government over release of information from Swiss banking giant UBS AG has received a lot of press,  U.S. authorities have also been aggressively negotiating information-sharing agreements with other countries that have historically provided tax havens to U.S. taxpayers.  On September 8, 2009, the U.S. Treasury Department announced that the Principality of Monaco is the latest country, in a long list, to sign a bilateral information-sharing agreement with the U.S.  Under the agreement, beginning January 1, 2010, Monaco will provide information related to bank accounts held by U.S. taxpayers to U.S. authorities investigating civil and criminal violations of U.S. tax law. 

With the global economic recession and diminishing tax revenues, U.S. authorities have negotiated information-sharing agreements with former tax havens such as Monaco with even greater vigor.  The U.S. government reached similar information-sharing agreements with Gibraltar (March 31, 2009) and Lichtenstein (December 8, 2008).  The U.S. government also has similar agreements with Jersey, Isle of Man, Guernsey, Aruba, and the Bahamas.  The bilateral agreements are modeled after the Organization for Economic Cooperation and Development (OECD) Agreement on Exchange of Information on Tax Matters.   These agreements will significantly assist U.S. authorities with asset collection efforts and criminal prosecution on otherwise untouchable offshore accountholders.  

Indeed, the international tide is turning against offshore tax evasion.  Singapore and Hong Kong have recently expressed willingness to abide by information-sharing agreements modeled after the OECD, amending their tax laws.  Even the Swiss Federal Counsel, expressed an intent to adopt Article 26 of the OECD’s Model Tax Convention.  If adopted, the OECD agreement would require Swiss banks to disclose banking records for suspected tax evasion by foreign accountholders, which would include many more U.S. UBS accountholders.  Currently, the Swiss government precludes disclosure for tax evasion. 

The IRS offshore account settlement program has been receiving a lot of attention because of the recent agreement between the U.S. and Swiss governments to provide the IRS with the identities of 4,450 U.S. taxpayers with undisclosed accounts at Swiss banking giant UBS AG.  However, U.S. taxpayers with undisclosed accounts in other foreign banks—Hong Kong, Singapore, the Caribbean, and elsewhere—are also eligible and encouraged to participate in the offshore account settlement program.  U.S. taxpayers with undisclosed foreign bank accounts in countries other than Switzerland should voluntarily come forward now, particularly in light of expanding information-sharing agreements between U.S. authorities and numerous former offshore tax havens. 

The IRS offshore account settlement initiative provides taxpayers with offshore accounts a way out—reduced penalties in exchange for voluntary disclosure and cooperation.  The benefits of the IRS offshore account settlement initiative are only available to taxpayers who come forward and make a voluntary disclosure of their offshore or foreign accounts by September 23, 2009.  Taxpayers who come forward after the September 23rd deadline may still make a voluntary disclosure under the traditional IRS voluntary disclosure program, but will likely be subject to higher penalties. 

Care must be taken in determining whether to file a voluntary disclosure.  Factors to consider include whether the taxpayer is required to file a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), whether the foreign account is one which must be reported, who owns or has signatory authority over the foreign account, and other factors surrounding the establishment and maintenance of the offshore account.  The voluntary disclosure process is complex and sensitive, thus, taxpayers are best served by contacting a tax attorney who is skilled at resolving disputes with the IRS as soon as possible.

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