Daily Tax Update - February 8, 2011: IRS Announces Second Offshore Voluntary Disclosure Program with August 31 Deadline

IRS ANNOUNCES SECOND OFFSHORE VOLUNTARY DISCLOSURE PROGRAM WITH AUGUST 31 DEADLINE:  Today, the IRS announced a second offshore voluntary disclosure initiative, the 2011 Offshore Voluntary Disclosure Initiative ("2011 OVDI"), for taxpayers with unreported offshore accounts and assets.  The initiative covers the 2003-2010 time period.  The previous offshore voluntary disclosure initiative, which covered the 2003-2008 time period, closed on October 15, 2009, after receiving approximately 15,000 voluntary disclosures.  While the two initiatives are similar, there are several important changes and additions to the previous initiative.  Most notably, the overall penalty structure has been increased under the 2011 initiative to ensure that those not disclosing under the previous initiative will not be rewarded for waiting.  In addition, the new initiative covers an 8 year period while the earlier initiative covered 6 years.  IRS Commissioner Shulman stated that the 2011 OVDI "is the last, best chance for people to get back into the system."
  • Under the 2011 OVDI, taxpayers face a 25% penalty on the highest aggregate amount in the foreign bank accounts during the 2003 to 2010 time period.  Under the previous initiative, taxpayers faced a 20% penalty on the amount in the foreign bank accounts in the year with the highest aggregate account balance.   
  • In addition to paying the 25% offshore penalty, taxpayers interested in participating must file original and amended returns, file complete and accurate original or amended offshore-related information returns and Form TD F 90-22.1 ("Report of Foreign Bank and Financial Accounts," or "FBAR"), pay taxes and interest for up to the eight years covered by the disclosure, and pay accuracy-related and delinquency penalties. 
  • The 2011 initiative includes a new offshore penalty category of 12.5% for smaller offshore accounts.  In order to qualify for this reduced penalty, the taxpayer’s offshore accounts and assets must not have surpassed $75,000 during any calendar year covered by the initiative. 
  • In limited situations, taxpayers can qualify for a 5% penalty, rather than the 25% penalty. 
  • Taxpayers previously filing amended returns (i.e., making a "quiet disclosure") are eligible for the penalty framework under the new initiative.  In order to qualify, these taxpayers must submit an application, along with copies of their previously filed original and amended returns by the August 31 deadline. 
  • Additionally, those taxpayers making a voluntary disclosure following the closing of the previous initiative are eligible for the terms of the 2011 OVDI.
  • The IRS has launched a new section on its website detailing the terms and conditions of the 2011 OVDI, which includes a set of frequently asked questions and answers.  
  • For additional information, contact: Matthew D. Lerner at mlerner@steptoe.com, Philip R. West at pwest@steptoe.com or Catherine W. Wilkinson at cwilkinson@steptoe.com.
  • The IRS Voluntary Disclosure web page can be accessed here and here.
  • The IRS press release can be accessed here.
  •  The FAQs can be accessed here.

WAYS AND MEANS SCHEDULES HEARING ON PRESIDENT’S FY 2012 BUDGET PROPOSALS:  On February 15, the House Ways and Means Committee will hold a hearing on President Obama's budget proposals for fiscal year 2012.  The President’s budget will be submitted to Congress on February 14 and will detail his tax proposals for the coming year as well as provide an overview of the budget for the Treasury Department and other activities of the Federal government.

  • In announcing the hearing, Committee Chairman Dave Camp said, "With the unemployment rate stuck at or above 9 percent for the last 21 months and anemic economic growth, tax policies ought to help, rather than hinder, our country’s economic recovery.  The President has called for corporate tax reform to make our employers more competitive.  However, 75 percent of America’s job creators are structured as pass through entities, and that means we need to craft policies that address the needs of all job creators – large and small.  This hearing will provide the Committee an opportunity to review the President’s proposals and explore ways in which we can work on a bipartisan basis to reduce complexity and develop the pro-growth tax policies our families and job creators need."

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read more information on Steptoe's tax practice.