Voluntary Disclosure Program: IRS Doors Still Open

The deadline to apply to the IRS's Voluntary Disclosure Program has long gone, however U.S. taxpayers can still file a voluntary disclosure under the IRS's regular procedures.

The IRS and U.S. Department of Justice ramped up its highly publicized investigation into Swiss bank UBS AG and U.S. in 2009 for those accountholders who failed to disclose these assets to the U.S. Government. However, the investigation did not end with UBS. It is evident that offshore tax evasion remains a top IRS enforcement priority. The DOJ has gone after taxpayers regardless of their assets even taxpayers with assets of $20,000 or less in offshore accounts.

U.S. taxpayers with offshore assets and accounts are required to make known these interests to the U.S. government on their Form 1040, U.S. Individual Tax Returns, and file a corresponding Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). If IRS agents learn that a taxpayer has failed to report an interest in an offshore account or income accruing on such accounts during the course of an audit, the IRS may impose severe penalties including the greater of $100,000 or 50% of the offshore account balance for willful failure to file an FBAR for each account. These penalties, compounded with interest and fraud penalties, can essentially wipe out the taxpayers foreign assets. Besides that, taxpayers could be the target of criminal prosecution and jail time for tax evasion.

In an effort to encourage taxpayers to come forward and disclose previously undisclosed offshore accounts in trade for reduced fines and the promise not to refer the case for criminal prosecution, the IRS announced the creation of the IRS Voluntary Disclosure Program in March 2009. Consequently, as a result of pressure on UBS and other offshore banks, thousands of U.S. taxpayers with previously undisclosed offshore accounts flocked to the Voluntary Disclosure Program and applied prior the deadline on October 15, 2009.

However, just because it may be too late to file for the IRS Voluntary Disclosure Program, it is still possible to file a voluntary disclosure under the IRS's normal rules. There are a number of benefits to filing a voluntary disclosure as it is far better to disclose to the IRS than to have the IRS come after you. And just like the Voluntary Disclosure Program, a traditional voluntary disclosure provides taxpayers with previously hidden foreign accounts with a way out potentially avoiding the harshest of civil penalties and criminal prosecution.

However, much care must be taken in determining whether to file a voluntary disclosure with the IRS. The voluntary disclosure process is complicated and time sensitive. It is in the best interested of Taxpayers to be contacting an tax attorney who is skilled at resolving disputes with the IRS as soon as possible.

For example, if a taxpayer has already been investigated and contacted by the IRS, it may be too late to file a disclosure.Therefore time is a significant factor as the IRS stays on course in its pursuit of undisclosed offshore account holders. The window of opportunity is closing on those who do not come forward and file. It is strongly advised that U.S. Taxpayers with undisclosed offshore accounts seek the advice and direction of an experienced tax attorney on the matter to take advantage of possible reduced fines and to potentially avoid incarceration.

To get more information on the Voluntary Disclosure Program or for assistance in participating in the program, please contact Kevin E. Thorn at the Thorn Law Group in Washington, D.C.

Kevin E. Thorn is the Managing Partner and experienced advocate in all stages of civil and criminal tax controversies including, civil examinations, criminal investigations, IRS administrative appeals, collection alternatives, ethics investigations, and other types of complex civil litigation.