‘Coming forward now may save you a lot
of money, stress and even jail time’
IRS opens the offshore voluntary disclosure program for a third time,
with some changes. George Joseph reports
Though the Internal Revenue Service has reopened the offshore voluntary disclosure program for a third time, it has also come out with another rule requiring
the reporting of foreign assets along with this year’s tax
return. The provisions may have an adverse effect on many
in the community.
KEVIN LAMARQUE/REU TERS
A sign advertising tax return services in Virginia. The new program imposes a 27.5 percent penalty, up from 25 percent, of the highest aggregate balance in their foreign bank accounts over the eight year required filing period. Some may be ligible for a reduced penalty rate
Assets, starting this filing season, Jain Jacob, a certified
public accountant in Rockland County, New York, said.
Enacted in 2010 as part of the Hiring Incentives to
Restore Employment Act, the Foreign Account Tax
Compliance Act is an attempt to minimize tax evasion by
taxpayers holding investments in offshore accounts. For
most taxpayers, the first use of Form 8938 will be as part of
the 2011 tax return filed during the 2012 tax filing season.
“First, IRS opened up the amnesty again indefinitely with
a new stricter penalty scheme. Another thing is the IRS is
trying to sign agreements with all the financial institutions
in the world to report US citizens’ and residents’ account
information directly to the IRS every year just like what the
US banks do now,” Jacob said. “If you still have unreported
assets or accounts in foreign countries, coming forward
now may save you a lot of money, stress and even jail time
in the future. Once the IRS contacts you regarding any of
these accounts or assets you are no longer eligible for the
amnesty and will have to pay the maximum penalties under
the law.”
The first Offshore Voluntary Disclosure Initiative closed
October 15, 2009, without a majority of the Indian-
American community even aware of it. The second OVDI
program ended September 9, 2011. The latest OVDI was
reopened January 9.
The penalties associated in the new program have
increased and the penalty framework requires individuals
to now pay 27.5 percent, up from 25 percent, of the highest
aggregate balance in their foreign bank accounts over the
eight year required filing period.
Some taxpayers may be eligible for a reduced penalty rate
of 5 percent or 12.5 percent, depending on circumstances.
Understanding the Offshore Voluntary Disclosure Initiative
Anyone who is a US citizen, or Green Card holder or Resident Alien has to disclose his worldwide income
to the IRS. If one is paying income tax in
other countries he may be entitled to a
foreign tax credit here. But all worldwide
income must be reported, including
rental income from land or property.
Worldwide income should be reported
on a taxpayer’s Form 1040. Schedule B of
Form 1040 specifically requests to know
if a taxpayer has a financial interest in or
signatory authority over an account in a
foreign country. The taxpayer is also
required to list name of the country
wherein the account is held.
Taxpayers are out of compliance in four
primary ways:
total
d. Failing to report their interest in cer-
tain a foreign corporation.
